Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090416a.jpg" align="left" border="0">
The breather in the housing market downturn proved short-lived
as housing starts fell to the second lowest level on record. The
Commerce Department indicated that total housing starts in March
reversed nearly all of their February gain and fell 10.8%
to 510,000. The February level was revised down slightly and the latest
figure compares to Consensus expectations for 550,000 starts.
The reversal occurred as starts of multi-family homes fell
29.0% to 152,000 after a downwardly revised 62.1% February increase.
The latest levels are the lowest since the early 1990s.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090416b.jpg" align="right" border="0">
Despite these latest declines, a bottom in the housing market
seems to be forming. Starts of single-family homes were unchanged last
month at 358,000 after a slight uptick in February. Nevertheless, they
remained near the record low for the series which dates back to 1959.
The latest level is down eighty percent since the peak in early 2006.
During the last ten years, there has been an 84% correlation between
the q/q change in single-family starts and their contribution to
quarterly GDP growth.
By region, starts of single-family units in the Northeast
roughly repeated their February gain and rose 30.6% (-29.9% y/y).
Starts in the Midwest ticked up a lesser 3.6% (-47.2% y/y) after their
sharp 17.0% February recovery but in the South, single-family starts
were quite weak. They fell to a new record low (-49.7% y/y). In the
West, starts also were depressed as their 3.3% uptick (-59.6% y/y)
followed a 25.6% February decline. Starts here have fallen 87.3% from
their 2005 peak.
The latest figures covering permits
to build single-family homes, a leading indicator of
starts, also suggest that a bottom in housing activity may be forming.
Though they fell 7.4% last month, that followed a 16.1% rise in
February and permits roughly equal the December level.
The housing starts figures can be found in Haver's USECON
database.
The Fed's latest Beige Book covering regional economic
conditions can be found <a href="http://www.federalreserve.gov/fomc/beigebook/2009/20090415/fullreport20090415.pdf">here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Housing
Starts (000s, SAAR)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>510</td>
<td>572</td>
<td>488</td>
<td>-48.4%</td>
<td>903</td>
<td>1,341</td>
<td>1,812</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>358</td>
<td>358</td>
<td>356</td>
<td>-49.6</td>
<td>617</td>
<td>1,034</td>
<td>1,474</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>152</td>
<td>214</td>
<td>132</td>
<td>-45.1</td>
<td>286</td>
<td>307</td>
<td>338</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>513</td>
<td>564</td>
<td>531</td>
<td>-45.0</td>
<td>880</td>
<td>1,389</td>
<td>1,844</td>
</tr>
</tbody>
</table>
E-Area IP Plunges 
by <a href="/comment/Brusca.html">Robert
Brusca&nbsp;</a> April 16, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090416c.jpg" align="left" border="0">
The chart above makes it clear that it is not the consumer
sector that is leading IP lower in Europe. Capital goods and
intermediate goods output are falling by 23% Year/Year compared to
consumer goods output that is down by just 7.7%. Over three months
capital goods output is declining at a 41% pace and intermediates goods
output is off at a 23% pace compared to minus 10% for consumer goods.
In the quarter to date the same sorts of caution hold sway as Q1 is
shaping up to be a terrible quarter for the industrial sector. Moreover
the rates of declines have sped up from 12-months to 6-months to three
months. Across countries German shows the a clear persisting pattern of
deceleration in industrial output. France and Spain see their growth
rates slowing the rate of decline over three months compared to six
months while Italy and the UK show flat growth rates in three months
compared to six months. 
 

Still there is scant goods in the Area&#8217;s industrial sector
this month. The preference is in step with ongoing declines in
industrial output in the US extraordinary weakness in Japan and in
China; China has posted another drop in exports (fifth monthly drop in
a row) and registered its slowest growth rate in about a decade. The
pull back is global and it is still pulling back. It may be slowing but
not even that is clear. 
 
 
 


<table border="0" cellspacing="0" width="100%"> <colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col"> E-Area
MFG IP
</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"> Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td>Feb 
09</td>
<td>Jan 
09</td>
<td>Feb 
09</td>
<td>Jan 
09</td>
<td>Feb 
09</td>
<td>Jan 
09</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol"> E-Area Detail</td>
<td>Feb 
09</td>
<td>Jan 
09</td>
<td>Dec 
08</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td> Q-1</td>
</tr>
<tr class="even">
<td class="firstcol">MFG</td>
<td>-2.4%</td>
<td>-3.2%</td>
<td>-3.3%</td>
<td>-30.3%</td>
<td>-31.7%</td>
<td>-28.4%</td>
<td>-24.7%</td>
<td>-19.6%</td>
<td>-17.5%</td>
<td> -30.9%</td>
</tr>
<tr class="even">
<td class="firstcol">Consumer</td>
<td>-1.6%</td>
<td>-0.8%</td>
<td>-0.3%</td>
<td>-10.4%</td>
<td>-7.4%</td>
<td>-9.2%</td>
<td>-6.9%</td>
<td>-7.7%</td>
<td>-6.2%</td>
<td> -9.6%</td>
</tr>
<tr class="even">
<td class="firstcol">C-Durables</td>
<td>-4.3%</td>
<td>-1.8%</td>
<td>-2.5%</td>
<td>-29.4%</td>
<td>-28.8%</td>
<td>-28.5%</td>
<td>-21.3%</td>
<td>-21.2%</td>
<td>-16.9%</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">C-Non-durables</td>
<td>-1.4%</td>
<td>-0.7%</td>
<td>-0.1%</td>
<td>-8.3%</td>
<td>-4.8%</td>
<td>-6.3%</td>
<td>-4.5%</td>
<td>-5.9%</td>
<td>-4.5%</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">Intermediate</td>
<td>-2.4%</td>
<td>-1.0%</td>
<td>-6.4%</td>
<td>-32.9%</td>
<td>-37.3%</td>
<td>-34.0%</td>
<td>-30.6%</td>
<td>-23.4%</td>
<td>-21.3%</td>
<td> -32.0%</td>
</tr>
<tr class="even">
<td class="firstcol">Capital</td>
<td>-3.0%</td>
<td>-7.0%</td>
<td>-2.9%</td>
<td>-41.0%</td>
<td>-41.5%</td>
<td>-35.8%</td>
<td>-30.4%</td>
<td>-23.9%</td>
<td>-21.5%</td>
<td> -43.3%</td>
</tr>
<tr>
<td colspan="11" class="firstcol">Main E-Area
Countries and
UK IP in MFG</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo</td>
<td>Feb 
09</td>
<td>Jan 
09</td>
<td>Feb 
09</td>
<td>Jan 
09</td>
<td>Feb 
09</td>
<td>Jan 
09</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG Only</td>
<td>Feb 
09</td>
<td>Jan 
09</td>
<td>Dec 
08</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q-2- 
Date</td>
</tr>
<tr class="even">
<td class="firstcol">Germany:</td>
<td>-3.4%</td>
<td>-7.3%</td>
<td>-4.8%</td>
<td>-47.3%</td>
<td>-48.9%</td>
<td>-39.3%</td>
<td>-32.0%</td>
<td>-22.5%</td>
<td>-19.6%</td>
<td> -49.1%</td>
</tr>
<tr class="even">
<td class="firstcol">France: IPxConstruct'n</td>
<td>-0.5%</td>
<td>-3.9%</td>
<td>-1.6%</td>
<td>-21.5%</td>
<td>-28.7%</td>
<td>-24.7%</td>
<td>-22.9%</td>
<td>-15.5%</td>
<td>-14.5%</td>
<td> -25.9%</td>
</tr>
<tr class="even">
<td class="firstcol">Italy</td>
<td>-4.0%</td>
<td>-1.1%</td>
<td>-4.2%</td>
<td>-31.6%</td>
<td>-28.6%</td>
<td>-31.1%</td>
<td>-24.8%</td>
<td>-20.3%</td>
<td>-16.8%</td>
<td> -28.6%</td>
</tr>
<tr class="even">
<td class="firstcol">Spain</td>
<td>1.5%</td>
<td>-7.9%</td>
<td>1.4%</td>
<td>-19.5%</td>
<td>-46.6%</td>
<td>-24.6%</td>
<td>-40.3%</td>
<td>-24.0%</td>
<td>-24.6%</td>
<td> -37.0%</td>
</tr>
<tr class="even">
<td class="firstcol">UK: EU member</td>
<td>-0.9%</td>
<td>-3.0%</td>
<td>-1.9%</td>
<td>-20.7%</td>
<td>-27.4%</td>
<td>-20.4%</td>
<td>-20.2%</td>
<td>-13.8%</td>
<td>-13.0%</td>
<td> -24.2%</td>
</tr>
</tbody>
</table>
U.S. Initial Claims for
Unemployment Insurance Fall Back 
by <a href="/comment/Moeller.html">Tom
Moeller</a> April 16, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090416d.jpg" align="left" border="0" height="265" width="353">
Initial claims for unemployment insurance gave another
indication that the worst of the labor market's deterioration is
moderating. The level of 610,000 claims last week was down from an
upwardly revised 663,000 and it was the second consecutive weekly fall.
Consensus expectations for 660,000 claims.
The Labor Department indicated that the largest increases in
initial claims for the week ending April 4 were in Michigan (+5,408),
Missouri (+4,986), Texas (+3,734), New Jersey (+2,368), and
Pennsylvania (+2,194), while the largest decreases were in California
(-4,708), Ohio (-2,716), Alabama (-2,421), Florida (-1,539), and
Wisconsin (-1,078).
Continuing claims for unemployment insurance reached yet
another record high of 6,022,000 and now they have more than
doubled the year ago level. The series dates back to 1966.
The four-week average of continuing claims also rose to another record
of 5,796,000. Continuing claims provide some indication of workers'
ability to find employment and they lag the initial claims figures by
one week.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090416e.jpg" align="right" border="0" height="265" width="353">
Though the latest level of continuing claims was a record, the
labor force has grown as well, by nearly 30% over the last twenty
years. Therefore, the insured rate of unemployment is not at a record
high. It rose slightly to 4.5% which was the highest since 1983. During
the last ten years there has been a 93% correlation between the level
of the insured unemployment rate and the overall rate of unemployment
published by the Bureau of Labor Statistics.
The 4.4% insured unemployment rate by far understates labor
market distress in some states. The highest insured unemployment rates
in the week ending March 28 were in Michigan (8.0 percent), Oregon
(7.9), Rhode Island (7.1), Idaho (7.0), Wisconsin (7.0), Pennsylvania
(6.7), Nevada (6.2), Alaska (6.0), Montana (6.0), and Vermont (5.9).
Employment covered under the unemployment insurance program
has risen sharply. The Labor Department indicated that 133.9 million
workers were covered and that total amounts to 87% of the civilian
labor force. The percentage has been roughly stable for the last ten
years but it is up sharply from 60% to 65% in the mid-1970s.
The unemployment insurance claim data is available in Haver's WEEKLY
database.
Recession or Depression? Part II from the
Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/es/09/ES0919.pdf">here.</a>
What's Under The Tarp?, also from the St.
Louis Fed, is available <a href="http://research.stlouisfed.org/publications/es/09/ES0920.pdf">here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a>&nbsp;</th>
<th scope="col">04/11/09</th>
<th scope="col">04/04/09</th>
<th scope="col">03/28/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>610</td>
<td>663</td>
<td>674</td>
<td>65.3%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>6,022</td>
<td>5,850</td>
<td>102.4%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Indicates
Further Economic Contraction; Rate of Decline Diminishing While
Expectations Up Sharply 
by <a href="/comment/Moeller.html">Tom
Moeller</a> April 16, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090416f.jpg" align="left" border="0" height="265" width="353">
The Philadelphia Federal Reserve Bank indicated that economic
activity in the region continued to contract during April. The Index of
General Business conditions in the manufacturing sector came in at
-24.4 versus a reading of -35.0 last month and a low of -41.3 in
February. The latest beat expectations for a reading of -32
Though the latest figure remained negative it may indicate
that the decline in economic activity is moderating. During the last
ten years there has been a 70% correlation between the level of the
Philadelphia Fed Business Conditions Index and the three-month growth
in factory sector industrial production. There has been a 64%
correlation with q/q growth in real GDP.
The Philadelphia Fed constructs a diffusion index for total
business activity and each of the sub-indexes. The business conditions
index reflects a separate survey question.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090416g.jpg" align="right" border="0" height="265" width="353">
Amongst the sub-indexes the new orders component improved to
the highest level since January as 19.8% of respondents reported higher
orders. That was double the March low. The index of unfilled orders
also rose to its highest since last September. Still under pressure,
however, was the employment index which improved just slightly from the
March record low. Forty-five percent of respondents expected to reduce
employment levels, while only 0.2% expected to raise them. During the
last ten years there has been a 79% correlation between the index level
and the m/m change in manufacturing sector payrolls.
The prices paid index at -31.5 was near the record low. Five
percent of respondents planned to raise prices while thirty six percent
expected to lower them. During the last ten years there has been a 73%
correlation between the prices paid index and the three-month growth in
the intermediate goods PPI. There has been an 82% correlation with the
change in core intermediate goods prices.
The separate index of expected business conditions in six
months improved its highest level since late 2007. The expectations
index for new orders and shipments surged but expectations index for
employment improved just moderately.
The figures from the Philadelphia Federal Reserve can be found
in Haver's SURVEYS database.
The latest Business Outlook Survey from the Federal
Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2009/bos0409.cfm">here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Philadelphia
Fed (%)</th>
<th scope="col">April</th>
<th scope="col">March</th>
<th scope="col">April&nbsp; '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>-24.4</td>
<td>-35.0</td>
<td>-21.1</td>
<td>-21.3</td>
<td>5.0</td>
<td>8.0</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>-31.5</td>
<td>&nbsp;-31.3</td>
<td>&nbsp;53.8</td>
<td>36.4</td>
<td>26.3</td>
<td>36.7</td>
</tr>
</tbody>
</table>
</body></html>

The breather in the housing market downturn proved short-lived as housing starts fell to the second lowest level on record. The Commerce Department indicated that total housing starts in March reversed nearly all of their February [...]

U.S. Housing Starts Fall to Second Lowest Level on Record But Bottom May Be Forming

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090415e.jpg">
In March, the year-to-year decline in U.S. industrial output of 12.7% was the result of reduced U.S. demand, inventory cutbacks and recessions abroad. To emphasize the size of that decline, it was the largest since the factory sector&#39;s wind-down following World War II.
It&#39;s the same story as earlier for the U.S. industrial sector. Output fell 1.5% last month, the same as an unrevised 1.5% drop during February. For 2008 and 2007, however, production was revised weaker. Consensus expectations had been for a 0.9% decline in March output.
And the rate of decline has picked up steam. During the last three months, the rate of decline of 18.5% (AR) about matches the quickest of the last few months. Factory sector output alone is off at an 18.7% annual rate during the last three months versus a full-year drop of 3.2% during 2008.<img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090415f.jpg">
The downturn in the housing market continued to lower output of construction supplies which fell 2.7% last month and at a 30.0% annual rate during the last three. Output of consumer goods overall fell 0.4% last month and at a 12.5% rate since so far this year. Production of autos fell at a 37.3% rate while furniture output fell at a 21.9% rate so far this year after the 10.5% drop during all of 2008. Apparel output actually posted a modest March increase but it&#39;s off at a 16.5% rate so far in 2009. Production of business equipment continued lower last month by 2.4% and at a 27.6% rate for the year.
Pain has come to an area which previously was immune. Industrial production in the high-tech sector fell another 3.1% last month and at a 23.8% rate during the last three. That follows a downwardly revised 11.4% increase during all of last year. Less high tech, overall industrial production fell 1.5% during March and the annual rate of change of -18.5% was near the weakest since 1975.
Outside of the both the auto and the high tech sectors, total factory production fell 1.5% last month and the three-month annual rate of decline remained more than firm at -16.8%.
Excess capacity grew even further last month. Capacity utilization fell to 69.3%, a record low for the series which dates to 1966. Utilization in the factory sector dropped even harder to 65.8% from a peak near 80% back in 2007. The latest rate was a record low since WW II. Growth in the total productive capacity of the factory sector has slowed to 0.5% (y/y) and the growth during the last two years was revised down.
The industrial production data are available in Haver&#39;s USECON database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">INDUSTRIAL PRODUCTION (SA, %)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Output </td>
<td>-1.5</td>
<td>-1.5</td>
<td>-12.7</td>
<td>-2.2</td>
<td>1.5</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>-1.7</td>
<td>-0.6</td>
<td>-15.0</td>
<td>-3.2</td>
<td>1.4</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Consumer Goods</td>
<td>-0.4</td>
<td>-0.7</td>
<td>-7.8</td>
<td>-2.6</td>
<td>0.9</td>
<td>0.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Business Equipment</td>
<td>-2.4</td>
<td>-1.5</td>
<td>-14.4</td>
<td>-1.1</td>
<td>2.7</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Construction Supplies</td>
<td>-2.7</td>
<td>-2.0</td>
<td>-21.0</td>
<td>-6.3</td>
<td>-2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>1.9</td>
<td>-7.8</td>
<td>-2.8</td>
<td>0.3</td>
<td>3.4</td>
<td>-0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>69.3</td>
<td>70.3</td>
<td>79.8 (March &#39;08)</td>
<td>77.6</td>
<td>80.6</td>
<td>80.9</td>
</tr>
</tbody>
</table>
</body>
</html>

In March, the year-to-year decline in U.S. industrial output of 12.7% was the result of reduced U.S. demand, inventory cutbacks and recessions abroad. To emphasize the size of that decline, it was the largest since the factory [...]

U.S. Factory Output Decline Is The Sharpest Since The Deindustrialization After WWII

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090415d.jpg" align="left" border="0">
Japans economy continues to show the strains it is under as
retail spending fell again in February. The 0.2% drop is a step-up from
the 0.1% drop in January which comes on the heels of December&#8217;s 1.7%
sales collapse. As a result of this sequence of sales results, Japan&#8217;s
retail sales in 2009-Q1 are falling at a 6.6% nominal rate. Nominal
sales are off by only about 2.5% Yr/Yr (seasonally adjusted) since
retail sales in Japan only began falling consistently starting in
October of last year. Over three months sales are off at a 7.8% annual
rate; over six months the decline is at a 5.5% annual rate. 
 

In addition industrial output in Japan fell by 9.4% in
February after a sharper drop of 10.1% in January. These ARE
month-to-month drops in overall industrial output. Japan&#8217;s industrial
sector is being gutted by the sharp contraction in global trade. Japan
remains an economy under a great deal of pressure. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col">Japan Retail Sales Trends</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Feb-09</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>Q-to-Date</td>
</tr>
<tr class="odd">
<td class="firstcol">Total SA</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td>-1.7%</td>
<td>-7.8%</td>
<td>-5.5%</td>
<td>-2.5%</td>
<td>0.0%</td>
<td>-6.6%</td>
</tr>
<tr>
<td colspan="9" class="firstcol">Not seasonally adjusted</td>
</tr>
<tr class="odd">
<td class="firstcol">Total: Nominal</td>
<td>-1.2%</td>
<td>0.9%</td>
<td>-2.5%</td>
<td>-10.9%</td>
<td>-7.3%</td>
<td>-5.7%</td>
<td>13.0%</td>
<td>-6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Motor Vehicles</td>
<td>-6.1%</td>
<td>3.7%</td>
<td>4.3%</td>
<td>6.1%</td>
<td>-7.7%</td>
<td>-5.4%</td>
<td>13.1%</td>
<td>6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food&amp;
Beverage</td>
<td>-1.5%</td>
<td>-0.5%</td>
<td>-1.4%</td>
<td>-12.9%</td>
<td>-3.1%</td>
<td>-0.6%</td>
<td>8.9%</td>
<td>-9.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Fabric apparel
&amp; access</td>
<td>0.0%</td>
<td>1.7%</td>
<td>-6.3%</td>
<td>-17.6%</td>
<td>-6.9%</td>
<td>-7.2%</td>
<td>8.3%</td>
<td>-5.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Rest of Retail</td>
<td>-0.1%</td>
<td>1.0%</td>
<td>-4.0%</td>
<td>-11.8%</td>
<td>-9.8%</td>
<td>-8.5%</td>
<td>16.2%</td>
<td>-7.5%</td>
</tr>
</tbody>
</table>
</body></html>

Japans economy continues to show the strains it is under as retail spending fell again in February. The 0.2% drop is a step-up from the 0.1% drop in January which comes on the heels of December’s 1.7% sales collapse. As a result of [...]

Japan's Retail Sales Drop

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090415a.jpg" align="right" border="0" height="265" width="353">
Last month,
the consumer price index published by the Bureau of Labor Statistics
slipped 0.1%. The big news, however, was not the rare negative sign in
front of the monthly figure but the negative sign in front of the
twelve month change. It was the first time since August 1955 that the
figure was negative. (Negative prints a few months ago reflected the
effects of seasonal adjustment factors.) The latest slip in the CPI
contrasts with Consensus expectations for a 0.2% March rise. Leading that decline in prices was a reversal of earlier strength in
energy &amp; food costs. In contrast, "core" pricing recently
picked up a bit. The CPI less food &amp; energy rose 0.2% in each
of the last three months and these increases actually were stronger
than the -0.0% and 0.1% changes during the last four months of 2008.
That pickup was enough to stabilize the twelve month change near 1.8%
after its deceleration from a high of 2.9% back in September of
2006. Lower energy prices in March were
led by a 4.0% decline gasoline prices (-39.3% y/y) which reversed just
half of the February increase. Even weaker last month were fuel oil
prices which fell 7.7%. That was the eighth consecutive monthly drop
and it lowered prices by nearly one-third during the last twelve.
Similarly, prices for natural gas &amp; electricity have fallen in
all but one of the last eight months though they still were 2.6% higher
than last March. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090415b.jpg" align="right" border="0" height="265" width="353">
Moderation of earlier gains in food &amp;
beverage prices also has played a role in the overall CPI deceleration.
Prices slipped another 0.1% last month and the annual gain of 4.3% is
down from a peak of 6.1% last fall. Recent weakness has been led by
lower dairy product prices (-3.1% y/y) as prices of other foods
continued higher. Core goods prices have been up
notably in recent months. The second consecutive 0.4% increase in March
reversed all of the weakness since 2006. Higher tobacco prices account
for much of that acceleration as they rose 18.1% year to year. But
there has been some modest firming of prices elsewhere. Prices for
household furnishings &amp; operations show a 1.8% y/y gain
following price deflation early last year. Prices of new &amp; used
motor vehicles also stopped declining during the last three months
though they still are down 0.8% y/y. Apparel prices are up 1.4% y/y
after modest deflation due to the weak Christmas. Gains in core
services prices continue to moderate. The 0.1% upticks
during five of the last six months pulled year-to-year change to 2.3%
which was its lowest since 1983. That moderation continues to owe
mostly to weakness in the housing market which caused March shelter
prices to be unchanged and up just 1.5% y/y. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090415c.jpg" align="right" border="0" height="265" width="353">
Owners equivalent rent of
primary residence, a measure not equivalent to other house price
measures, rose 0.2% (2.1% y/y) The cost of travel fell and prices of
lodging away from home have also dropped, by 7.8% during the last year.
Other service prices rose. The increase in medical care services prices
fell back to 0.2% (3.1% y/y) while education costs rose 0.5% (5.6%
y/y).&nbsp; Public transportation prices fell hard as they did
during the prior month. The 1.0% decline was the seventh drop in a row
(-5.0% y/y). The chained CPI, which adjusts for shifts in consumption
patterns, eased to a gain of just 0.2%. The increase in chained prices
less food and energy continued firm at 0.4%. · The consumer price data
is available in Haver's USECON database while
detailed figures can be found in the CPIDATA
database.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer
Price Index</a> (%)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Total&nbsp;</td>
<td>-0.1</td>
<td>0.4</td>
<td>-0.4</td>
<td>3.8</td>
<td>2.9</td>
<td>3.2</td>
</tr>
<tr class="even">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.2</td>
<td>0.2</td>
<td>1.8</td>
<td>2.3</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>0.4</td>
<td>0.4</td>
<td>0.4</td>
<td>0.1</td>
<td>-0.4</td>
<td>0.2</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>0.1</td>
<td>0.1</td>
<td>2.3</td>
<td>3.1</td>
<td>3.4</td>
<td>3.4</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Energy</td>
<td>-3.0</td>
<td>3.3</td>
<td>-23.1</td>
<td>13.5</td>
<td>5.7</td>
<td>11.0</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>-0.1</td>
<td>-0.1</td>
<td>4.3</td>
<td>5.4</td>
<td>3.9</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained
CPI: Total (NSA)</a>&nbsp;</td>
<td>0.2</td>
<td>0.6</td>
<td>-0.8 </td>
<td>3.3</td>
<td>2.5</td>
<td>2.9 </td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>0.4</td>
<td>0.4</td>
<td>1.3</td>
<td>2.0</td>
<td>2.0</td>
<td>2.2</td>
</tr>
</tbody>
</table>
</body></html>

Last month, the consumer price index published by the Bureau of Labor Statistics slipped 0.1%. The big news, however, was not the rare negative sign in front of the monthly figure but the negative sign in front of the twelve month [...]

Year-to-Year Drop In U.S. CPI Is First Since '55 Thanks To Energy & Food Prices

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090415a.jpg" align="right" border="0" height="265" width="353">Last month,
the consumer price index published by the Bureau of Labor Statistics
slipped 0.1%. The big news, however, was not the rare negative sign in
front of the monthly figure but the negative sign in front of the
twelve month change. It was the first time since August 1955 that the
figure was negative. (Negative prints a few months ago reflected the
effects of seasonal adjustment factors.) The latest slip in the CPI
contrasts with Consensus expectations for a 0.2% March rise.
 Leading that decline in prices was a reversal of earlier
strength in
energy &amp; food costs. In contrast, "core" pricing recently
picked up a bit. The CPI less food &amp; energy rose 0.2% in each
of the last three months and these increases actually were stronger
than the -0.0% and 0.1% changes during the last four months of 2008.
That pickup was enough to stabilize the twelve month change near 1.8%
after its deceleration from a high of 2.9% back in September of
2006.
 Lower energy prices in March were
led by a 4.0% decline gasoline prices (-39.3% y/y) which reversed just
half of the February increase. Even weaker last month were fuel oil
prices which fell 7.7%. That was the eighth consecutive monthly drop
and it lowered prices by nearly one-third during the last twelve.
Similarly, prices for natural gas &amp; electricity have fallen in
all but one of the last eight months though they still were 2.6% higher
than last March.
 <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090415b.jpg" align="right" border="0" height="265" width="353">Moderation
of earlier gains in food &amp;
beverage prices also has played a role in the overall CPI deceleration.
Prices slipped another 0.1% last month and the annual gain of 4.3% is
down from a peak of 6.1% last fall. Recent weakness has been led by
lower dairy product prices (-3.1% y/y) as prices of other foods
continued higher.
 Core goods prices have been up
notably in recent months. The second consecutive 0.4% increase in March
reversed all of the weakness since 2006. Higher tobacco prices account
for much of that acceleration as they rose 18.1% year to year. But
there has been some modest firming of prices elsewhere. Prices for
household furnishings &amp; operations show a 1.8% y/y gain
following price deflation early last year. Prices of new &amp; used
motor vehicles also stopped declining during the last three months
though they still are down 0.8% y/y. Apparel prices are up 1.4% y/y
after modest deflation due to the weak Christmas. 
 Gains in core
services prices continue to moderate. The 0.1% upticks
during five of the last six months pulled year-to-year change to 2.3%
which was its lowest since 1983. That moderation continues to owe
mostly to weakness in the housing market which caused March shelter
prices to be unchanged and up just 1.5% y/y. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090415c.jpg" align="right" border="0" height="265" width="353">
Owners equivalent rent of
primary residence, a measure not equivalent to other house price
measures, rose 0.2% (2.1% y/y) The cost of travel fell and prices of
lodging away from home have also dropped, by 7.8% during the last year.
Other service prices rose. The increase in medical care services prices
fell back to 0.2% (3.1% y/y) while education costs rose 0.5% (5.6%
y/y).&nbsp; Public transportation prices fell hard as they did
during the prior month. The 1.0% decline was the seventh drop in a row
(-5.0% y/y). 
 The chained CPI, which adjusts for shifts in consumption
patterns, eased to a gain of just 0.2%. The increase in chained prices
less food and energy continued firm at 0.4%. · The consumer price data
is available in Haver's USECON database while
detailed figures can be found in the CPIDATA
database.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer
Price Index</a> (%)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Total&nbsp;</td>
<td>-0.1</td>
<td>0.4</td>
<td>-0.4</td>
<td>3.8</td>
<td>2.9</td>
<td>3.2</td>
</tr>
<tr class="even">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.2</td>
<td>0.2</td>
<td>1.8</td>
<td>2.3</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>0.4</td>
<td>0.4</td>
<td>0.4</td>
<td>0.1</td>
<td>-0.4</td>
<td>0.2</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>0.1</td>
<td>0.1</td>
<td>2.3</td>
<td>3.1</td>
<td>3.4</td>
<td>3.4</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Energy</td>
<td>-3.0</td>
<td>3.3</td>
<td>-23.1</td>
<td>13.5</td>
<td>5.7</td>
<td>11.0</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>-0.1</td>
<td>-0.1</td>
<td>4.3</td>
<td>5.4</td>
<td>3.9</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained
CPI: Total (NSA)</a>&nbsp;</td>
<td>0.2</td>
<td>0.6</td>
<td>-0.8 </td>
<td>3.3</td>
<td>2.5</td>
<td>2.9 </td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>0.4</td>
<td>0.4</td>
<td>1.3</td>
<td>2.0</td>
<td>2.0</td>
<td>2.2</td>
</tr>
</tbody>
</table>

Japan's Retail Sales Drop 
by <a href="/comment/Brusca.html">Robert
Brusca&nbsp;</a> April 15, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090415d.jpg" align="left" border="0">
Japans economy continues to show the strains it is under as
retail spending fell again in February. The 0.2% drop is a step-up from
the 0.1% drop in January which comes on the heels of December&#8217;s 1.7%
sales collapse. As a result of this sequence of sales results, Japan&#8217;s
retail sales in 2009-Q1 are falling at a 6.6% nominal rate. Nominal
sales are off by only about 2.5% Yr/Yr (seasonally adjusted) since
retail sales in Japan only began falling consistently starting in
October of last year. Over three months sales are off at a 7.8% annual
rate; over six months the decline is at a 5.5% annual rate. 
 

In addition industrial output in Japan fell by 9.4% in
February after a sharper drop of 10.1% in January. These ARE
month-to-month drops in overall industrial output. Japan&#8217;s industrial
sector is being gutted by the sharp contraction in global trade. Japan
remains an economy under a great deal of pressure. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col">Japan
Retail Sales Trends</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Feb-09</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>Q-to-Date</td>
</tr>
<tr class="odd">
<td class="firstcol">Total SA</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td>-1.7%</td>
<td>-7.8%</td>
<td>-5.5%</td>
<td>-2.5%</td>
<td>0.0%</td>
<td>-6.6%</td>
</tr>
<tr>
<td colspan="9" class="firstcol">Not
seasonally adjusted</td>
</tr>
<tr class="odd">
<td class="firstcol">Total: Nominal</td>
<td>-1.2%</td>
<td>0.9%</td>
<td>-2.5%</td>
<td>-10.9%</td>
<td>-7.3%</td>
<td>-5.7%</td>
<td>13.0%</td>
<td>-6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Motor Vehicles</td>
<td>-6.1%</td>
<td>3.7%</td>
<td>4.3%</td>
<td>6.1%</td>
<td>-7.7%</td>
<td>-5.4%</td>
<td>13.1%</td>
<td>6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food&amp;
Beverage</td>
<td>-1.5%</td>
<td>-0.5%</td>
<td>-1.4%</td>
<td>-12.9%</td>
<td>-3.1%</td>
<td>-0.6%</td>
<td>8.9%</td>
<td>-9.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Fabric apparel
&amp; access</td>
<td>0.0%</td>
<td>1.7%</td>
<td>-6.3%</td>
<td>-17.6%</td>
<td>-6.9%</td>
<td>-7.2%</td>
<td>8.3%</td>
<td>-5.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Rest of Retail</td>
<td>-0.1%</td>
<td>1.0%</td>
<td>-4.0%</td>
<td>-11.8%</td>
<td>-9.8%</td>
<td>-8.5%</td>
<td>16.2%</td>
<td>-7.5%</td>
</tr>
</tbody>
</table>
U.S. Factory Output Decline Is The
Sharpest Since The Deindustrialization After WWII 
by <a href="/comment/Moeller.html">Tom
Moeller</a> April 15, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090415e.jpg" align="left" border="0">
In March, the year-to-year decline in U.S. industrial
output of 12.7% was the result of reduced U.S. demand, inventory
cutbacks and recessions abroad. To emphasize the size of that decline,
it was the largest since the factory sector's wind-down following World
War II.
It's the same story as earlier for the U.S. industrial sector.
Output fell 1.5% last month, the same as an unrevised 1.5% drop during
February. For 2008 and 2007, however, production was revised weaker.
Consensus expectations had been for a 0.9% decline in March output.
And the rate of decline has picked up steam. During the last
three months, the rate of decline of 18.5% (AR) about matches the
quickest of the last few months. Factory sector output alone is off at
an 18.7% annual rate during the last three months versus a full-year
drop of 3.2% during 2008.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090415f.jpg" align="right" border="0">
The downturn in the housing market continued to lower output
of construction supplies which fell 2.7% last month and at a 30.0%
annual rate during the last three. Output of consumer goods overall
fell 0.4% last month and at a 12.5% rate since so far this year.
Production of autos fell at a 37.3% rate while furniture output fell at
a 21.9% rate so far this year after the 10.5% drop during all of 2008.
Apparel output actually posted a modest March increase but it's off at
a 16.5% rate so far in 2009. Production of business equipment continued
lower last month by 2.4% and at a 27.6% rate for the year.
Pain has come to an area which previously was immune.
Industrial production in the high-tech sector fell another 3.1% last
month and at a 23.8% rate during the last three. That follows a
downwardly revised 11.4% increase during all of last year. Less high
tech, overall industrial production fell 1.5% during March and the
annual rate of change of -18.5% was near the weakest since 1975.
Outside of the both the auto and the high tech sectors, total
factory production fell 1.5% last month and the three-month annual rate
of decline remained more than firm at -16.8%.
Excess capacity grew even further last month. Capacity
utilization fell to 69.3%, a record low for the series which dates to
1966. Utilization in the factory sector dropped even harder
to 65.8% from a peak near 80% back in 2007. The latest rate was a
record low since WW II. Growth in the total productive
capacity of the factory sector has slowed to 0.5% (y/y) and the growth
during the last two years was revised down.
The industrial production data are available in Haver's USECON
database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">INDUSTRIAL
PRODUCTION (SA, %)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Output </td>
<td>-1.5</td>
<td>-1.5</td>
<td>-12.7</td>
<td>-2.2</td>
<td>1.5</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>-1.7</td>
<td>-0.6</td>
<td>-15.0</td>
<td>-3.2</td>
<td>1.4</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Consumer Goods</td>
<td>-0.4</td>
<td>-0.7</td>
<td>-7.8</td>
<td>-2.6</td>
<td>0.9</td>
<td>0.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Business Equipment</td>
<td>-2.4</td>
<td>-1.5</td>
<td>-14.4</td>
<td>-1.1</td>
<td>2.7</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Construction Supplies</td>
<td>-2.7</td>
<td>-2.0</td>
<td>-21.0</td>
<td>-6.3</td>
<td>-2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>1.9</td>
<td>-7.8</td>
<td>-2.8</td>
<td>0.3</td>
<td>3.4</td>
<td>-0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>69.3</td>
<td>70.3</td>
<td>79.8 (March '08)</td>
<td>77.6</td>
<td>80.6</td>
<td>80.9</td>
</tr>
</tbody>
</table>
</body></html>

Year-to-Year Drop In U.S. CPI IsFirst Since '55 Thanks To Energy & Food Prices

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090414k.jpg" align="left" border="0" height="265" width="353">
The effect of the recession in the western industrial
countries on the export oriented countries in Asia becomes more
apparent every day. Today it is Singapore's turn. Advance estimates of
Singapore's first quarter Gross Domestic Product show a seasonally
adjusted annualrate of decline of 19.7% following a 16.4% rate of
decline in the fourth quarter of 2008. (The Advance estimates of GDP
for the first quarter of 2009 are computed largely from data for
January and February. They are intended to be an early indication of
changes in GDP and are subject to revision when more comprehensive data
become available.)
On a year over year basis, GDP declined 11.5% in the first
quarter, compared with a decline of 4.2% in the fourth quarter. The
manufacturing sector, depending heavily on foreign demand, is the worst
performing sector. It began to report year over year declines in the
second quarter of 2008, and is now reporting a year over year decline
of 29% for the first quarter of 2009. The Service industries have been
affected by the decline in tourism and in the first quarter of 2009
were 5.9% below the first quarter of 2008. Construction has been the
bright spot, showing large year over year increases as a result of a
substantial backlog of committed projects in housing and
infrastructure. The year to year changes in GDP, Manufacturing,
Construction and Services are shown in the attached chart.
The Economic Development Board of Singapore publishes data for
what they call "Production Clusters" that is, the output of firms
producing some of Singapore's more important exports. There are
clusters of Electronics, Chemicals, Biomedicals, Precision Engineering
and Transport firms. These data are produced monthly and are an
important part of the data on which the advance estimates of GDP are
based. The declines in the clusters shown below help explain the sharp
drop in manufacturing in the first quarter.
Given the sharp deterioration in Singapore's first quarter GDP
and the prospect for continued weak global demand, the Ministry of
Trade and Industry has reduced its estimate of GDP for the year 2009 to
a range of -6% to -9% from its January 21 estimate of -2% to -5%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">SINGAPORE</th>
<th scope="col">Q1 09</th>
<th scope="col">Q4 08</th>
<th scope="col">Q3 08</th>
<th scope="col">Q2 08</th>
<th scope="col">Q1 08</th>
<th scope="col">2008&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">GDP&nbsp;&nbsp;
(y/y % Chg)</td>
<td>-11.5</td>
<td>-4.2</td>
<td>0.0</td>
<td>2.5</td>
<td>6.7</td>
<td>1.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-29.0</td>
<td>-10.7</td>
<td>-16.0</td>
<td>-5.6</td>
<td>12.6</td>
<td>-4.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Construction</td>
<td>25.6</td>
<td>18.5</td>
<td>26.0</td>
<td>23.7</td>
<td>13.1</td>
<td>20.3</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Services</td>
<td>-5.9</td>
<td>-1.3</td>
<td>5.5</td>
<td>7.5</td>
<td>7.5</td>
<td>4.7</td>
</tr>
<tr>
<td class="firstcol">Production
Clusters&nbsp; (y/y % Chg)</td>
<td>Feb 09</td>
<td>Jan 09</td>
<td>Dec 08</td>
<td>Nov 08</td>
<td>Oct 08</td>
<td>Sep 08</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Electronics</td>
<td>-37.26</td>
<td>-43.43</td>
<td>-35.37</td>
<td>-19.92</td>
<td>-13.40</td>
<td>-14.49</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Chemicals</td>
<td>-22.13</td>
<td>-24.35</td>
<td>-23.19</td>
<td>-20.42</td>
<td>-7.09</td>
<td>3.01</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Biomedicals</td>
<td>-27.89</td>
<td>-30.22</td>
<td>21.49</td>
<td>18.43</td>
<td>-29.72</td>
<td>43.33</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Precision Engineering</td>
<td>-21.41</td>
<td>-36.83</td>
<td>-21.69</td>
<td>-18.53</td>
<td>-12.50</td>
<td>-3.46</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Transport</td>
<td>18.34</td>
<td>6.31</td>
<td>6.42</td>
<td>7.51</td>
<td>10.62</td>
<td>10.26</td>
</tr>
</tbody>
</table>
</body></html>

The effect of the recession in the western industrial countries on the export oriented countries in Asia becomes more apparent every day. Today it is Singapore's turn. Advance estimates of Singapore's first quarter Gross Domestic [...]

Singapore's GDP To Decline 6% To 9% In 2009 Says Ministry Of Trade And Industry

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090414i.jpg">
Inventory decumulation remains a dominant trend behind the current economic downturn. Decumulation subtracted 0.3 percentage points from GDP growth last year after a 0.4 percentage point subtraction in 2007, even before the recession started. That degree of subtraction probably intensified early this year. Business inventories dropped 1.3% m/m during February. The decline followed a similar January shortfall and it was the sixth consecutive monthly dip. Over just the last three months, inventories have fallen at a 15.2% annual rate, a record for the series which dates back to 1980.<img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090414j.jpg">
Lower business sales (not to mention the weakness in pricing) continues to propel the inventory correction. Though sales rose 0.2% in February they are down at a 16.2% annual rate over the last three months. The only good news is that the recent rate of decline in sales eased to -16.2% from the peak -40.7% rate this past fall.
Retailers&#39; inventories fell another sharp 1.2% during February. The three-month rate of decline remained quite strong at 16.3% which was just off the record. The motor vehicle sector has led that decline, shedding inventories at a 32.1% rate over the last three months. Accentuating the downward trend, non-auto retail inventories fell at an 8.6% rate since the fall. Furniture inventories have been dropped at a 15.7% annual rate during the last three months while there&#39;s been a 13.5% rate of inventory reduction amongst general merchandise retailers. Rounding out the picture is a 6.2% rate of decline amongst apparel sellers. These cutbacks have been enough to drop the inventory-to-sales ratio amongst retailers to its lowest level since last September.
The inventory cutbacks overall, however, have done little to reduce the I/S ratio for total business. It remained in February near its highest level since 2001 due the wholesale and the factory sectors.
The Peopling of Macroeconomics: Microeconomics of Aggregate Consumer Expenditures from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2009/q1/brq109_peopling-of-macroeconomics.pdf">here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Business Inventories (%)</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-1.3</td>
<td>-1.3</td>
<td>-3.5</td>
<td>0.6</td>
<td>4.1</td>
<td>6.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>-1.2</td>
<td>-1.8</td>
<td>-6.6</td>
<td>-3.2</td>
<td>2.9</td>
<td>3.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Auto</td>
<td>-0.4</td>
<td>-0.7</td>
<td>-3.2</td>
<td>-1.8</td>
<td>2.9</td>
<td>4.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>-1.5</td>
<td>-0.9</td>
<td>-1.7</td>
<td>3.1</td>
<td>6.2</td>
<td>8.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-1.2</td>
<td>-1.1</td>
<td>-2.0</td>
<td>2.1</td>
<td>3.7</td>
<td>8.2</td>
</tr>
</tbody>
</table>


</html>

Inventory decumulation remains a dominant trend behind the current economic downturn. Decumulation subtracted 0.3 percentage points from GDP growth last year after a 0.4 percentage point subtraction in 2007, even before the recession [...]

U.S. Businesses Inventories Fall Further

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090414f.jpg">
U.S. producer prices for finished goods fell last month for the first time this year. The 1.2% decrease followed the 0.1% February uptick and it contrasted with Consensus expectations for no change in last month&#39;s index level. The decline was led by finished energy prices which fell for the first time in three months. They posted a 12.1% (-25.5% y/y) drop. Finished gasoline prices fell 13.1% which was the first since December (-50.7% y/y) while home heating oil prices fell another 13.2% (-57.0% y/y). Natural gas prices dropped 2.4% (-8.2% y/y).<img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090414g.jpg">
Prices of core finished consumer goods rose just 0.1% (4.1% y/y) after the strong 0.4% February rise. Durable consumer goods prices were unchanged for the weakest reading since November (+3.0% y/y) while core nondurable goods prices increased another 0.3% (5.1% y/y). Finally, capital equipment prices fell for the first time since the end of 2007. A drop of 0.2% shaved its year-to-year gain to 3.4%, down from its high of 4.3% last October.
Prices for finished foods continued lower with a 0.7% decline (-1.0% y/y). The drop was led by lower meat (-11.1% y/y) and dairy product costs (-15.1% y/y).
Falling again were prices for intermediate goods which should foreshadow even lower finished goods prices. Intermediate goods prices nearly doubled their February decline with a 1.5% drop and the 9.0% y/y shortfall was a record. Excluding food &amp; energy, prices also remained weak as they posted a 0.3% drop, their sixth monthly decline. The 1.6% y/y decline remained the weakest change in prices since early 2002.<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090414h.jpg">
The crude materials PPI dipped again as economic growth continued negative. Down 0.3%, the overall drop reflected a 1.6% decline in core pricing which pulled prices down by one-third from the year ago level. Copper prices are down by more than half from last year as are steel scrap and aluminum prices.
The Producer Price Index data is available in Haver&#39;s USECON database. More detailed data is in the PPI and in the PPIR databases.
Rethinking the Implications of Monetary Policy: How a Transactions Role for Money Transforms the Predictions of Our Leading Models from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2009/q1/brq109_implications-of-monetary-policy.pdf">here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a> (%)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>-1.2</td>
<td>0.1</td>
<td>-3.6</td>
<td>6.4</td>
<td>3.9</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.0</td>
<td>0.2</td>
<td>3.8</td>
<td>3.4</td>
<td>2.0</td>
<td>1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-1.5</td>
<td>-0.9</td>
<td>-9.0</td>
<td>10.5</td>
<td>4.0</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.3</td>
<td>-0.6</td>
<td>-1.6</td>
<td>7.6</td>
<td>2.8</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-0.3</td>
<td>-4.5</td>
<td>-38.9</td>
<td>21.2</td>
<td>11.9</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-1.6</td>
<td>1.5</td>
<td>&nbsp;-33.1</td>
<td>15.0</td>
<td>15.6</td>
<td>20.8</td>
</tr>
</tbody>
</table>
</body>
</html>

U.S. producer prices for finished goods fell last month for the first time this year. The 1.2% decrease followed the 0.1% February uptick and it contrasted with Consensus expectations for no change in last month's index level. The [...]

U.S. Finished Goods PPI Falls Unexpectedly While Core Prices Remain Stable

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

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260120E.jpg

The ZEW survey for January showed improvement all around with both economic expectations and macroeconomic conditions showing improvements in the United States, Germany, and the euro area.

The economic situation in January in the euro area improved to a reading of -18.1 from -28.5 in December. In Germany, the reading improved to -72.7 from -81 in December, while in the United States the reading improved to +17.7 from -0.6 in December. The message here clearly is the month-to-month improvement. Still, the January readings leave the assessments of conditions in these three areas as quite different. The percentile-queue standings place each one of these topical readings in their queue of data back to December 1992, expressing the standing in percentile terms. Viewed in this way, the euro area has a 57.2 percentile standing, the U.S. has nearly a 45-percentile standing, while Germany has a 22.6 percentile standing, leaving each of these areas in their own distinctive positions relative to their historic norms. The euro area has a firm and above-median ranking since the reading is above the 50th percentile (where the median is located). The U.S. is slightly weaker than that, with a reading that's marginally below its median. Germany has a reading between the lower quartile and the one-fifth mark of its historic data, branding it as weak.

Macroeconomic expectations find that Germany in January moved up to a positive reading of 59.6 from 45.8 in December. The U.S. also improved, moving up to -3 from -12 in December. The macro-expectations find Germany and the U.S. in very different places with German expectations in an 80.4 percentile of their queue, placing them in the top 20% while the U.S. has a 45-percentile standing, below its historic median and essentially the same relative position as its current situation ranking. In contrast, Germany has a weak current economic assessment versus a stronger expectations assessment.

Inflation expectations weaken across the board in January, with the euro area falling to -7.6 from -4.6 in December, Germany falling to -6.0 from -1.7 and the U.S. falling to 44.2 from 54.9. The ZEW experts see a disinflationary environment, and they see that despite the pickup in current conditions and improved macroeconomic expectations. Expectations in the U.S. have a 61.1 percentile standing; the German and the euro area readings are much weaker and closer together, with the German standing at its 31.2 percentile and the euro area at its 25.8 percentile.

On the back of these expectations, short-term interest rates in the euro area are less weak, with the January reading at -7.7, up from -10.8 in December. The U.S. has a -65.6 reading, stronger than Decembers -73.9. On a ranking basis, the euro area’s short-term rates have a 37.4 percentile standing The U.S. has a 9.3 percentile standing. The interest rate assessment is that short-term rates are going to be modest to lower over the outlook.

Long-term interest rates in Germany and the U.S. weaken slightly in January from December to 44.5 in January for Germany, compared to 49.2 in December, and in the U.S., there is a very modest ‘decimal point’ change to 44.1 in January from 44.9 in December. German long-term rates have a 58.8 percentile standing while the U.S. has rates at about a 50-percentile standing, placing them just about on top of their historic median. Neither one of these expectations has long-term expectations different from historic norms.

Stock market expectations from December to January, however, are little changed and mostly weaker, with the euro area gauge falling to 35.2 from 41.3 in December. The German gauge slips to 35.9 from 36.3 in December. The January gauge for the U.S. is ticking slightly higher to 31.5 January from 30.2 in December. The rankings for the January gauges show the U.S. above its median at a 59.3 percentile mark, the euro area slightly below its median with a 44.9 percentile reading; the German stock market still scores as the weakest at a 39.7 percentile standing.

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On balance, there are improvements expected in the macroeconomic realm as well as improvements detected in the current economic situation. Inflation is expected to remain tame; short-term interest rates are expected to continue declining, while long-term interest rates are going to be showing some pressure or in the case of the U.S. will continue to oscillate around current levels or firm slightly. Stock market conditions in the U.S. are modestly higher than their historic norms; however, the euro area stocks are in for modest weakness; German stocks weakened and are historically weak. Looking ahead, the thing to do is to watch the market metrics in particular to see how the recent U.S.-European rift over Greenland is going to play out in markets and how much it's going to affect expectations. That's the newest trend in play. How quickly they forget drug running boat sinkings, Maduro’s capture, threats on Iran, and cage rattling the Fed Chair. It’s all about Greenland now- at least for now, don’t blink!

ZEW Survey Shows Advancement All Around

Tian Yong Woon

This week, we dive into several key developments across Asia. China’s Q4 GDP marked a further extension of its recent growth slowdown, yet full-year growth still came in exactly at the government’s 5% target for 2025 (chart 1). That said, the road ahead remains challenging, as December’s data delivered a mixed set of outcomes. Encouragingly, new external inroads, starting with Canada’s opening up of EV trade with China, could pave the way for additional opportunities (chart 2). In semiconductors, the latest US tariff measures proved far more limited in scope than initially feared, helping to explain the muted market reaction to the announcement (chart 3). Relatedly, commitments by major Taiwanese chipmakers to expand investment in the US have brought Washington and its largest chip supplier closer together, culminating in a US–Taiwan trade deal (chart 4).

In Japan, attention has turned to the possibility of a snap Lower House election in February. The interim political uncertainty, alongside expectations around future policy, has weighed on the yen and pushed Japanese yields higher (chart 5), with some observers increasingly concerned about the narrowing window to pass the FY2026 budget by April, given the likely dissolution of the Lower House. In South Korea, President Lee’s recent visits to China and Japan point to improving bilateral ties, although he continues to navigate a delicate balancing act amid still-elevated China–Japan tensions. Domestically, elevated house prices and high household debt continue to limit the scope for further monetary policy easing (chart 6).

**China**
Alongside its regular slate of monthly economic releases, China unveiled its Q4 GDP figures earlier today, with the economy expanding by 4.5% y/y during the quarter. While Q4 growth continues the recent trend of deceleration seen over the past few quarters, the outcome brings China’s full-year growth for 2025 right in line with the government’s 5% target (chart 1). This defied expectations among some investors that the economy would fall short. This outcome aligns with earlier discussions that China remained within reach of its growth target despite slowing momentum. That said, the outlook ahead remains challenging. December’s monthly data painted a mixed picture, with declines in fixed asset investment accelerating and retail sales growth cooling further, even as industrial production growth remained relatively resilient.

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On China’s external developments, another high-profile outcome followed Canadian Prime Minister Carney’s visit to Beijing. Canada and China unveiled a trade deal lowering tariffs on Canada’s imports of 49,000 Chinese EVs to 6.1% from 100%, in exchange for China easing tariffs on Canadian agricultural products. Carney remarked that China is now a “more predictable” trading partner than the US and that “a new world order” is taking hold. These comments likely reflect longstanding trade frictions between the US and Canada, as US President Trump has sought to renegotiate what he views as unfair trade arrangements. The new Canada–China agreement is also expected to catalyse significant Chinese joint-venture investment in Canada over the coming years. The move marks a notable shift for Canada, which has traditionally been an exceptionally close partner of the US, not only economically (chart 2). That Ottawa has inked a trade deal with Beijing while US–China tensions remain elevated represents a clear break from its previous stance and has, unsurprisingly, drawn criticism from Washington.

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**US semiconductor tariffs**
Turning to US-originated developments, President Trump signed a proclamation last week imposing a 25% tariff on certain advanced computing chips, including Nvidia’s H200 and AMD’s MI325X. The tariff will not apply to chips imported to support the buildout of the US tech supply chain or to strengthen domestic manufacturing capacity for semiconductor derivatives. The move stops short of a blanket tariff on all AI chips and semiconductor imports, easing—at least for now—initial investor concerns and likely explaining the market’s relatively muted reaction to the announcement (chart 3). A broader tariff would have had far more severe implications, given the  US economy’s substantial imports of semiconductor goods. In the case of Nvidia’s H200—designed to comply with US export restrictions and primarily targeted at the Chinese market—the tariff appears intended to capture a 25% levy before the chips are shipped onward to China. That said, China’s demand response remains uncertain, particularly as the H200 is reportedly banned in China.

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Not long after the tariff announcement, the US and Taiwan — the largest source of US semiconductor imports, as shown in chart 4 — were reported to have reached a trade deal. Under the agreement, Taiwanese chipmakers such as TSMC that expand production in the US will face lower tariffs on semiconductors and related manufacturing equipment, with duty-free treatment applying to some imports. In addition, tariffs on most other Taiwanese exports to the US will be reduced to 15% from 20%. In return, Taiwanese companies will invest $250 billion in the US, including an expanded manufacturing footprint by TSMC in Arizona, aimed at boosting domestic production of semiconductors, energy, and AI. As illustrated in chart 4, Taiwan already dominates US semiconductor imports, with its share having risen sharply in recent years and far outstripping contributions from other major suppliers such as Southeast Asian economies and South Korea.

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**Japan snap elections**
Turning to Japan, the country is drumming up for an anticipated February Lower House snap election as Prime Minister Takaichi looks poised to capitalize on her strong approval ratings to secure a firmer parliamentary footing. In reaction, opposition parties have already started galvanizing for the expected upcoming electoral fight, with the opposition Constitutional Democratic Party (CDP) and the ruling party’s former coalition partner, Komeito, having announced a plan to form a new Centrist Reform Alliance (CRA) to fight the current ruling bloc. Given this interim bout of uncertainty, there is now some doubt cast on whether Japan’s budget this year can be debated robustly and passed in time by April 2026 (when the new fiscal year starts), especially if the Lower House gets dissolved soon, meaning less parliamentary time will be available for the purpose. Tracking such developments, the yen had extended its recent slide, whilst Japanese yields have firmed further (chart 5).

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**South Korea**
Lastly, we turn to South Korea, where President Lee has embarked on visits to China and Japan that point to a warming of regional ties. In China, Lee’s meeting with President Xi yielded agreements to restore strategic dialogue channels and deepen cooperation in areas such as critical minerals, with Lee calling for a “full restoration” of bilateral relations. In Japan, his visit similarly signalled a thaw in ties following previous periods of tension. Overall, South Korea appears to be seeking closer relations with its two major Asian neighbours even as China–Japan tensions remain elevated. Domestically, however, while the semiconductor sector has benefited from the AI-driven upswing, South Korea continues to face challenges such as elevated house prices and high household debt. These factors have constrained the scope for further monetary policy easing (chart 6).

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Asia

Economic Letter from Asia: Shifting Gears

Winnie Tapasanun

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Industrial production (IP) rose a more-than-expected 0.4% m/m in December following a 0.4% rise in November (+0.2% initially) and a 0.3% decline in October (-0.1% previously), data from the Federal Reserve Board showed. December marked the third m/m gain in four months. A 0.1% m/m December increase had been expected in the Action Economics Forecast Survey. The year-on-year growth rate slowed to 2.0% in December, the lowest since September, from 2.5% in November; this compared with a 0.3% y/y decline in December 2024. The December IP index at 102.3 was 3.1% above a low of 99.2 in January 2024. IP rose 0.2% q/q in Q4 2025 after a 0.6% q/q gain in Q3 2025, increasing at a 0.7% annualized rate following a 2.3% Q3 annualized pace. In 2025, IP rose 1.3% after declines of 0.7% in 2024 and 0.2% in 2023.

By **industry groups**, manufacturing production grew 0.2% (2.0% y/y) in December, up for the third time in four months, following a 0.3% increase in November (0.0% initially) and a 0.6% drop in October (-0.4% previously). Durable goods production edged up 0.1% (3.1% y/y) in December, the first m/m increase since September, after a 0.1% downtick in November. Within durables, the following categories rose m/m in December, including output rises of 2.4% (3.5% y/y) in primary metals, 1.7% (1.3% y/y) in electrical equipment, appliances & components, 1.5% (17.2% y/y) in aerospace & miscellaneous transportation equipment, 0.8% (-2.2% y/y) in furniture & related products, 0.2% (4.8% y/y) in machinery, and 0.1% (7.4% y/y) in computer & electronic products. Notably, aircraft & parts production climbed 2.1% (30.0% y/y), the third m/m increase in four months, reversing a 2.1% November drop. To the downside, the following durable goods categories fell m/m in December, including drops of 2.3% (-5.5% y/y) in wood products, 1.1% (-2.8% y/y) in motor vehicles & parts, 1.1% (-1.0% y/y) in nonmetallic mineral products, 0.1% (+2.6% y/y) in fabricated metal products, and 0.1% (-3.7% y/y) in miscellaneous durables goods.

Nondurable goods production increased 0.3% (1.0% y/y) in December, the third m/m gain in four months, after a 0.8% rebound in November. The December increase reflected m/m output rises of 1.8% (2.1% y/y) in petroleum & coal products, 0.5% (1.9% y/y) in food, beverages & tobacco, and 0.3% (-0.2% y/y) in plastics & rubber products. In contrast, the following nondurable goods categories declined m/m in December, including output drops of 1.3% (-0.8% y/y) in textiles & product mills, 1.1% (-0.5% y/y) in apparel & leather goods, 0.3% (-3.1% y/y) in paper, 0.3% (-3.4% y/y) in printing & related support activities, and 0.1% (+1.6% y/y) in chemicals.

Utilities output recovered 2.6% (2.3% y/y) in December, the third m/m rise in four months, following a 0.3% decline in November (-0.4% initially), reflecting a 1.2% rebound (1.3% y/y) in electric utilities output and a 12.0% jump (8.7% y/y) in natural gas utilities output. Mining activity, however, fell 0.7% (+1.7% y/y), the third m/m slide in four months, after an unrevised 1.7% November gain.

By **market groups**, business equipment output advanced 0.8% (10.1% y/y) in December, up for the third time in four months, after a 0.3% increase in November. Consumer goods output rose 0.7% (0.7% y/y) after a 0.7% November rebound, reflecting a 0.7% decline (-3.5% y/y) in durable consumer goods and a 1.1% gain (1.8% y/y) in nondurable consumer goods. Materials production grew 0.2% (1.7% y/y), the third m/m increase in four months, after a 0.5% November rise. In contrast, construction supplies production fell 0.3% (+1.3% y/y) in December, the second m/m fall in three months, reversing a 0.3% increase in November.

In **special classifications**, factory output of selected high-tech industries increased 0.7% (10.9% y/y) in December, the third successive m/m gain, following a downwardly revised 0.5% rise in November (+1.1% initially). Manufacturing production excluding selected high-tech industries rose 0.2% (1.7% y/y) in December after a 0.3% gain in November, and manufacturing production excluding selected high-tech and motor vehicles & parts rose 0.3% (2.1% y/y) after a 0.4% increase; both measures posted their third m/m gain in four months.

Capacity utilization rose to 76.3% in December, the highest since July, from 76.1% in November (76.0% initially). The Action Economics Forecast Survey forecasted 76.0%. The December reading was 3.2 percentage points below its long-run (1972–2024) average. Manufacturing capacity utilization held at 75.6% in December and November (75.4% previously); the December rate was 2.6 percentage points below its long-run average.

Industrial production and capacity data are in Haver’s **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.

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- December IP +0.4% (+2.0% y/y), third m/m rise in four months, led by a 2.6% gain in utilities.
- Manufacturing +0.2% (+2.0% y/y), w/ durables +0.1% and nondurables +0.3%.
- Selected high-tech +0.7%, third consecutive m/m rise; motor vehicles -1.1%, fourth straight m/m fall.
- Mining -0.7%, third m/m decline in four months.
- Key categories in market groups mostly increase.
- Capacity utilization at a five-month-high 76.3%; mfg. capacity utilization steady at 75.6%.

U.S. Industrial Production Increases in December on Utilities Rebound

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The European Monetary Union has concluded a year of weak-to-moderate growth with inflation largely toeing the line. As always, the inflation picture is more complicated than a simple statement. When we look at inflation, we look at the headline, we look at the core, to make sure that the volatile food & energy elements aren't dominating the index, and then we look across some of the main participants to see if the trend for inflation is shared broadly across the largest countries in the Monetary Union. When we apply those kinds of standards, the grading for the year is reduced. However, based on the headline alone, it was an excellent year for the ECB.

**Headline Inflation in 2025**
Headline inflation in 2025 rose by 2%, exactly on the target of the European Central Bank. It rose over six months at a 2% annual rate and then concluded the year over the last three months, rising at a 1.6% annual rate with some margin below the target set by the central bank itself.

**Country Headline Inflation Trends**
On a country basis, the performance is not nearly as good. While year-on-year results look pretty good, with Germany at 2%, France at 0.7% and Italy at 1.3%, Spain comes in at 3.1%. So the three largest monetary union economies come in at or below 2% with Spain as a rogue observation. When we look further at the sequence of inflation within the year, we see Germany at 2% over 12 months, rising to 3.1% over 6 months, rising further to 4% over 3 months. Inflation is accelerating at the end of the year even as Germany hits the target! This is something to keep an eye on. For France, the inflation rate also accelerates slightly but stays below the bar of 2% over three months, six months, and 12 months. For Italy, inflation is decelerating from 1.3% over 12 months to -0.3% over six months, and then inflation in Italy is contracting at a 1.9% annual rate over three months. Spanish inflation shows clear trouble with a 3.1% 12-month pace, rising to 4.6% at an annual rate over six months, and rising further to 5.9% at an annual rate over three months.

**Core Inflation**
For core inflation, the Monetary Union’s consolidated numbers are not yet compiled. However, for the four largest economies, we do have core or ex-energy inflation. For Germany, it's inflation excluding energy. On that basis, German inflation is 2.2% over 12 months, it rises to 2.7% over six months, then falls back to a 2% annual pace over three months All-in-all not a bad performance. For France, core inflation is below 2% over 12 months, six months, and three months. In Italy, once again, we see inflation decelerating: Italian inflation is 2% over 12 months - right on the ECB target. It falls to a 1.3% annual rate over six months and then falls further to a 0.3% annual rate over three months. For Spain, the core has another very difficult story for the Monetary Union. Inflation is 2.7% over 12 months, it rises to 3.1% over six months and stays at an annual rate of about 3% over three months. This is too high and it looks stubborn, particularly because it is the core.

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**Across the Big Four**
On balance, what we see is that the ECB grades-out well, based on headline inflation and based on its sequential performance for the European economic union as a whole. But large countries, show headline inflation building some steam particularly in the largest economy, Germany, and in Spain, the smallest of the BIG-4 economies. Inflation is once again mixed in the Monetary Union with German and Spanish inflation too high and with French and Italian inflation running either at or below the 2% mark and with Italy showing a tendency towards weaker prices for both the headline and the core. The change in prices over these various periods shows inflation gets the most help from oil prices over 12 months where Brent, measured in euros, falls by 22.6%; over six months Brent prices fall by 37% at an annual rate; and over three months Brent oil prices are unchanged, so that the headline isn't getting help at all from oil prices except through lagged effects.

**Summing Up**
Meanwhile, there are some signs of stronger growth taking root in Europe, especially in Germany with better industrial production being logged and with German industrial production looking significantly stronger than the PMI data, suggesting that perhaps PMI data are missing something about the rebound that is developing. Nonetheless, it was a good year for inflation and the ECB; however, it doesn't exactly end the year in the catbird’s seat. On the other hand, it does not end the year behind the curve. There are scattered pressures and needs among member countries which always makes monetary policy difficult. When some countries need higher interest rates and others need lower interest rates, the ECB is in a difficult spot. Clearly, Spain and Germany are experiencing different phenomenon than France and Italy. That could be the policy challenge for the year ahead.

Europe

Big Four Inflation in EMU 2025-Final

Andrew Cates

**The growth consensus for 2026** 
Consensus growth forecasts for 2026 have continued to firm over the past six months, with upward revisions most pronounced in economies that are more directly exposed to the global AI investment cycle. Taiwan stands out, reflecting its central role in advanced semiconductor manufacturing and the spillovers from sustained AI-related capex across the global tech supply chain. The US has also seen a sizeable upgrade, consistent with strong domestic investment in AI infrastructure and data-centre capacity, alongside resilient demand for high-value tech services. Elsewhere in Asia, upgrades to South Korea and, to a lesser extent, China and India point to a broader regional benefit from the AI-driven electronics and capital-goods cycle, even as underlying macro conditions remain mixed. Canada has also seen modest upward revisions, likely reflecting its close integration with US investment trends. By contrast, revisions across much of Europe and Japan have been more muted, while forecasts for Russia remain under downward pressure.

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**The next steps for central bank policy** 
Based on responses to the special questions in the latest Blue Chip survey, the chart highlights how uncertain panelists remain about the precise timing of the next policy move, even where there is broad agreement on direction. Expectations for both the Fed and the Bank of England are now loosely centred on March 2026 as the most likely window for the next easing step, but the spread of responses points to limited conviction and a high sensitivity to incoming data. By contrast, panelists continue to see the ECB as largely through its easing cycle, with a clear majority expecting any further move only later, if at all. The Bank of Japan remains the clear outlier: while further tightening is still the central expectation, views are split on timing, with panelists divided between a March move and a hike pushed beyond April 2026—highlighting ongoing uncertainty over the durability of domestic inflation and wage dynamics.

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**The UK economy and BoE policy** 
While Blue Chip panelists remain divided on the precise timing of the Bank of England’s next policy cut, the latest run of UK data is tilting market expectations toward an earlier move. Economic releases have increasingly fallen short of expectations, a pattern that has coincided with a steady decline in short-dated gilt yields. The negative surprise profile reflects a combination of weak household demand and softer labour-market indicators. This has generated downside momentum in the data, reinforcing the case—at least from a market perspective—for earlier or deeper policy easing.

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**The impact of Artificial Intelligence**
Responses to the special questions in the latest Blue Chip survey also suggest that panelists are divided over the timing of AI’s macroeconomic impact in the US. A sizeable share already reports seeing noticeable effects, consistent with the rapid pace of AI-related investment and adoption over the past year. At the same time, a similarly large group expects AI’s impact to become more evident only over the next one to three years, implying a belief that productivity and growth effects will materialise with a lag. These views are notable given that a majority of panelists continue to judge anticipated AI-related gains as being overstated in financial markets, underscoring the risk of disappointment—and potential equity market volatility—if realised outcomes fail to match elevated expectations.

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**US business formation and productivity growth**
The chart points to a renewed pick-up in US productivity growth alongside a marked step-up in business applications, a combination that has naturally fuelled interest in the role of AI. The acceleration in output per hour over the past year coincides with a surge in corporate formations, potentially reflecting both heightened investment in new technologies and the emergence of new, AI-enabled business models. That said, productivity growth has historically been highly cyclical, often strengthening late in the cycle or during periods of labour hoarding and cost discipline, before fading again. As such, while AI may be contributing at the margin, it remains too early to conclude that the recent improvement marks a durable, technology-driven shift rather than another cyclical upswing.

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**China’s export growth**
This week’s China trade data revealed that its export growth has continued to rotate away from the US and toward Europe and ASEAN, a pattern that has become more pronounced over the past year. While exports to the US have fallen sharply on a year-on-year basis, shipments to both Europe and ASEAN have held up markedly better, and in recent months have returned to positive growth. This divergence is consistent with the tightening of US trade policy toward China, including higher tariffs, expanded export controls and broader efforts to “de-risk” supply chains. By contrast, trade with Europe and ASEAN appears to be benefiting from trade diversion and re-routing, as Chinese firms redirect exports toward markets where barriers remain lower and supply-chain integration is deeper.

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The global backdrop remains unsettled, reflected in rising gold prices amid geopolitical tensions—most recently around Venezuela—and renewed political noise, including questions over Federal Reserve independence. At the same time, however, many major equity indices remain at or close to all-time highs, buoyed by optimism around AI and reinforced by a run of relatively benign US inflation readings. Against this mixed backdrop, the charts this week point to a global outlook that is becoming more differentiated rather than uniformly weaker. Blue Chip forecasts for 2026 growth have edged higher over the past six months, with upgrades concentrated in economies most exposed to the AI investment cycle, notably the US and parts of Asia (chart 1). Central bank expectations remain fluid: while panelists broadly anticipate easing by the Fed and Bank of England, conviction around timing is limited, and the Bank of Japan remains an outlier with further tightening still expected (chart 2). In the UK, that uncertainty sits alongside a deteriorating data flow, with negative economic surprises increasingly tilting market expectations toward an earlier BoE rate cut (chart 3). Turning to the US, special questions highlight a divide over whether AI is already having a noticeable macro impact or whether its effects will emerge more gradually, a tension that mirrors concerns about over-optimism in financial markets (chart4). That debate is echoed in the recent pick-up in US productivity growth and the step-change in business formation—developments that may reflect AI-related dynamics but which also warrant caution given the historically cyclical nature of productivity (chart 5). Finally, China’s trade data point to a continued re-orientation of export growth away from the US and toward Europe and ASEAN, consistent with evolving US trade policy and broader supply-chain realignment (chart 6).

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