Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402c.jpg" align="left" border="0" height="265" width="353">
There has been no letup in the U.S. labor market's distress.
Initial claims for unemployment insurance rose last week to the highest
level since the sharp recession of 1982. The figure of 669,000 was up
from an unrevised 657,000 during the prior week and it surpassed
Consensus expectations for 650,000 claims.
The Labor Department indicated that the largest increases in
initial claims for the week ending March 21 were in California
(+6,720), Missouri (+2,942), Kansas (+2,018), Oklahoma (+1,406), and
Iowa (+1,134), while the largest decreases were in Texas (-4,822), New
York (-3,172), Tennessee (-2,707), Illinois (-1,485), and Virginia
(-1,407).
Continuing claims for unemployment insurance reached yet
another record high of 5,728,000 and remained nearly double
that of last March. The series dates back to 1966. The
four-week average of continuing claims also rose to another record of
5,496,500. 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/090402d.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 to 4.3% 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 4.3% insured unemployment rate by far understates labor
market distress in some states. The highest insured unemployment rates
in the week ending March 14 were in Michigan (8.1 percent), Oregon
(7.7), Rhode Island (7.3), Idaho (7.2), Pennsylvania (7.0), Wisconsin
(6.8), Nevada (6.3), Montana (6.1), Alaska (6.0), and Vermont (6.0).
The unemployment insurance claim data is available in Haver's WEEKLY
database.
Fed Confronts
Financial Crisis by Expanding Its Role as Lender of Last Resort
from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/eclett/2009/el0902.html">
here</a>.
A Framework for Analyzing Bank Lending is
Tuesday's speech by Fed Governor Elizabeth A. Duke and it is available <a href="http://www.federalreserve.gov/newsevents/speech/duke20090330a.htm">
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">03/28/09</th>
<th scope="col">03/21/09</th>
<th scope="col">03/13/09</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>669</td>
<td>657</td>
<td>644</td>
<td>72.0%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>5,728</td>
<td>5,567</td>
<td>95.8%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
</tbody>
</table>
</body></html>

There has been no letup in the U.S. labor market's distress. Initial claims for unemployment insurance rose last week to the highest level since the sharp recession of 1982. The figure of 669,000 was up from an unrevised 657,000 [...]

U.S. Initial Claims for Jobless Insurance Rise To The Highest Level Since 1982; Continuing Claims Reach A Record

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402a.jpg" width="353">
Perhaps replacement demand was a factor when it came to light vehicle sales last month. Possibly, it was deep price discounts. Or was this the beginning of a bona fide uptrend? For whatever reason, U.S. unit sales of light vehicles increased 7.8% from February to 9.83M units (SAAR). The result was an upside surprise versus expectations for a 9.2M sales rate. Though sales were up slightly from February as well as from January, the latest figure still was near the lowest since 1982 according to the Autodata Corporation and Ward&#39;s Automotive News. (Seasonal adjustment of the figures is provided by the U.S. Bureau of Economic Analysis).
Sales of domestically-made light vehicles registered an impressive 10.1% month-to-month increase from February to 6.92M units. That was enough to fully recover the 6.8% February drop. Sales of domestically made light trucks recovered more than half of their February decline with an 8.7% increase to 3.70M units. While impressive, that rise was outpaced by an 11.7% increase in auto sales to 3.23M units, their highest level since December.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402b.jpg" width="353">
Imported light vehicle sales rose a more modest 2.8% m/m last month but that followed a slight February increase. Still outpacing domestics, the year-to-year decline in sales of imported vehicles amounted to just 27.6%. That was far less than the decline for U.S. made vehicles. Sales of imported autos rose an impressive 5.1% during March to their highest level since last October. Light truck sales fell a modest 0.8% after four months of increase.
Overall, import&#39;s share of the U.S. light vehicle market totaled 29.6% following the record 31.1% during February. That latest figures were up nearly five percentage points from the 2008 average. (Imported vehicles are those produced outside the United States.) Imports&#39; share of the U.S. car market totaled 36.2% while the share of the light truck market was 22.7%.
The U.S. vehicle sales figures can be found in Haver&#39;s USECON database.
Steps toward a New Financial Regulatory Architecture is yesterday&#39;s speech by Cleveland Fed President &amp; CEO Sandra Pianalto and it can be found <a href="http://www.clevelandfed.org/For_the_Public/News_and_Media/Speeches/2009/Pianalto_20090401.cfm"> 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/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">March 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>9.83</td>
<td>9.12</td>
<td>9.57</td>
<td>-34.9%</td>
<td>13.17</td>
<td>16.16</td>
<td>16.54</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>5.05</td>
<td>4.63</td>
<td>4.60</td>
<td>-32.6</td>
<td>6.71</td>
<td>7.58</td>
<td>7.77</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>3.23</td>
<td>2.89</td>
<td>2.84</td>
<td>-33.9</td>
<td>4.42</td>
<td>5.07</td>
<td>5.31</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>1.83</td>
<td>1.74</td>
<td>1.76</td>
<td>-30.1</td>
<td>2.29</td>
<td>2.52</td>
<td>2.45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>4.78</td>
<td>4.50</td>
<td>4.97</td>
<td>-37.1</td>
<td>6.47</td>
<td>8.60</td>
<td>8.78</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>3.70</td>
<td>3.40</td>
<td>3.91</td>
<td>-40.3</td>
<td>5.29</td>
<td>7.10</td>
<td>7.42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>1.09</td>
<td>1.10</td>
<td>1.06</td>
<td>-23.0</td>
<td>1.18</td>
<td>1.47</td>
<td>1.37</td>
</tr>
</tbody>
</table>


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Perhaps replacement demand was a factor when it came to light vehicle sales last month. Possibly, it was deep price discounts. Or was this the beginning of a bona fide uptrend? For whatever reason, U.S. unit sales of light vehicles [...]

March U.S. Light Vehicle Sales Increase From 27-Year low

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402a.jpg" align="left" border="0" height="265" width="353">
Perhaps replacement demand was a factor when it came to light
vehicle sales last month. Possibly, it was deep price discounts. Or was
this the beginning of a bona fide uptrend? For whatever reason, U.S.
unit sales of light vehicles increased 7.8% from February to 9.83M
units (SAAR). The result was an upside surprise versus expectations for
a 9.2M sales rate. Though sales were up slightly from February as well
as from January, the latest figure still was near the lowest since 1982
according to the Autodata Corporation and Ward's Automotive News.
(Seasonal adjustment of the figures is provided by the U.S. Bureau of
Economic Analysis).
Sales of domestically-made light vehicles
registered an impressive 10.1% month-to-month increase from February to
6.92M units. That was enough to fully recover the 6.8% February drop.
Sales of domestically made light trucks recovered more than half of
their February decline with an 8.7% increase to 3.70M units. While
impressive, that rise was outpaced by an 11.7% increase in auto sales
to 3.23M units, their highest level since December.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402b.jpg" align="right" border="0" height="265" width="353">
Imported light vehicle sales rose a more
modest 2.8% m/m last month but that followed a slight February
increase. Still outpacing domestics, the year-to-year decline in sales
of imported vehicles amounted to just 27.6%. That was far less than the
decline for U.S. made vehicles. Sales of imported autos rose an
impressive 5.1% during March to their highest level since last October.
Light truck sales fell a modest 0.8% after four months of increase.
Overall, import's share of the U.S. light
vehicle market totaled 29.6% following the record 31.1% during
February. That latest figures were up nearly five percentage points
from the 2008 average. (Imported vehicles are those produced outside
the United States.) Imports' share of the U.S. car market totaled 36.2%
while the share of the light truck market was 22.7%.
The U.S. vehicle sales figures can be found in Haver's
USECON database.
Steps toward a New Financial Regulatory Architecture
is yesterday's speech by Cleveland Fed President &amp; CEO Sandra
Pianalto and it can be found <a href="http://www.clevelandfed.org/For_the_Public/News_and_Media/Speeches/2009/Pianalto_20090401.cfm">
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/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light
Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">March 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>9.83</td>
<td>9.12</td>
<td>9.57</td>
<td>-34.9%</td>
<td>13.17</td>
<td>16.16</td>
<td>16.54</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>5.05</td>
<td>4.63</td>
<td>4.60</td>
<td>-32.6</td>
<td>6.71</td>
<td>7.58</td>
<td>7.77</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Domestic</td>
<td>3.23</td>
<td>2.89</td>
<td>2.84</td>
<td>-33.9</td>
<td>4.42</td>
<td>5.07</td>
<td>5.31</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Imported</td>
<td>1.83</td>
<td>1.74</td>
<td>1.76</td>
<td>-30.1</td>
<td>2.29</td>
<td>2.52</td>
<td>2.45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>4.78</td>
<td>4.50</td>
<td>4.97</td>
<td>-37.1</td>
<td>6.47</td>
<td>8.60</td>
<td>8.78</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Domestic</td>
<td>3.70</td>
<td>3.40</td>
<td>3.91</td>
<td>-40.3</td>
<td>5.29</td>
<td>7.10</td>
<td>7.42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Imported</td>
<td>1.09</td>
<td>1.10</td>
<td>1.06</td>
<td>-23.0</td>
<td>1.18</td>
<td>1.47</td>
<td>1.37</td>
</tr>
</tbody>
</table>
U.S. Initial Claims for Jobless
Insurance Rise To The Highest Level Since 1982; Continuing Claims Reach
A Record 
by <a href="/comment/Moeller.html">Tom
Moeller</a> April 2, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402c.jpg" align="left" border="0" height="265" width="353">
There has been no letup in the U.S. labor market's distress.
Initial claims for unemployment insurance rose last week to the highest
level since the sharp recession of 1982. The figure of 669,000 was up
from an unrevised 657,000 during the prior week and it surpassed
Consensus expectations for 650,000 claims.
The Labor Department indicated that the largest increases in
initial claims for the week ending March 21 were in California
(+6,720), Missouri (+2,942), Kansas (+2,018), Oklahoma (+1,406), and
Iowa (+1,134), while the largest decreases were in Texas (-4,822), New
York (-3,172), Tennessee (-2,707), Illinois (-1,485), and Virginia
(-1,407).
Continuing claims for unemployment insurance reached yet
another record high of 5,728,000 and remained nearly double
that of last March. The series dates back to 1966. The
four-week average of continuing claims also rose to another record of
5,496,500. 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/090402d.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 to 4.3% 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 4.3% insured unemployment rate by far understates labor
market distress in some states. The highest insured unemployment rates
in the week ending March 14 were in Michigan (8.1 percent), Oregon
(7.7), Rhode Island (7.3), Idaho (7.2), Pennsylvania (7.0), Wisconsin
(6.8), Nevada (6.3), Montana (6.1), Alaska (6.0), and Vermont (6.0).
The unemployment insurance claim data is available in Haver's WEEKLY
database.
Fed Confronts
Financial Crisis by Expanding Its Role as Lender of Last Resort
from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/eclett/2009/el0902.html">
here</a>.
A Framework for Analyzing Bank Lending is
Tuesday's speech by Fed Governor Elizabeth A. Duke and it is available <a href="http://www.federalreserve.gov/newsevents/speech/duke20090330a.htm">
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">03/28/09</th>
<th scope="col">03/21/09</th>
<th scope="col">03/13/09</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>669</td>
<td>657</td>
<td>644</td>
<td>72.0%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>5,728</td>
<td>5,567</td>
<td>95.8%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
</tbody>
</table>
U.S. Factory Inventory
Decumulation At A Record Pace 
by <a href="/comment/Moeller.html">Tom
Moeller</a> April 2, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402e.jpg" align="left" border="0" height="265" width="353">
The manufacturing sector continued to shed inventories during
February at a record rate. A 1.2% cutback followed declines of 1.1% and
1.9% during the prior two months. Moreover, that amounted to a 15.4%
annualized rate of stockpile decumulation which was a record for a
three-month period. The series dates back to 1958. Of course, that
accelerated rate stems somewhat from the 72.0% rate of decline in
petroleum inventories, due mostly to lower prices. Nevertheless,
excluding oil factory inventories fell roughly 1.0% during the last two
months. The 10.6% three-month rate of decumulation was only slightly
exceeded in 2001.
The three-month rates of inventory destocking in several
industries have been more than notable. Inventories of electrical
equipment &amp; appliances have fallen at a 27.6% rate while
textile product inventories were down at a 36.6% clip. Steep production
cutbacks pulled furniture inventories down at a 21.7% rate since
November while inventories of primary metals fell at a 32.9% pace.
Lesser rates of decline were registered in the machinery industry
(-4.7%) and by computers &amp; electronic products (2.3%).<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402f.jpg" align="right" border="0" height="265" width="353">
Factory shipments continued lower during February prompting
the continued lowering of inventory levels. Shipments fell a modest
0.1% but even excluding oil and its lower prices shipments fell at
17.8% rate over the last three months. That was led by a 67.1% rate of
decline in automobile shipments. Electrical equipment shipments also
fell hard at a 22.8% rate and computers were off at a 20.8% rate. In
the nondurable goods area, apparel shipments fell at a 16.4% rate,
about the same as for paper products.
Total factory orders recovered during February roughly half of
the sharp January drop but over three months the decline was at a 24%
annual rate. That was led by a 26% rate of decline in computer orders
while motor vehicle orders fell at a 25.1% rate and electrical
equipment orders fell at a 13.2% rate.As for order backlogs, they are
easing substantially. Sharp declines during the last three months have
been at a record 18.1% annual rate.
The Manufacturers' Shipments, Inventories and Orders (MSIO)
data is available in Haver's USECON database.
What do we know and not know about potential output?
from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/papers/2009/wp09-05bk.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/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory
Survey</a> (NAICS, %)</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">Inventories</td>
<td>-1.2</td>
<td>-1.1</td>
<td>-2.0</td>
<td>2.1</td>
<td>3.7</td>
<td>8.2&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding
Transportation</td>
<td>-1.4</td>
<td>-1.2</td>
<td>-4.8</td>
<td>-0.6</td>
<td>2.7</td>
<td>7.9</td>
</tr>
<tr class="odd">
<td class="firstcol">New Orders</td>
<td>1.8</td>
<td>-3.5</td>
<td>-18.8</td>
<td>0.1</td>
<td>1.9</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding
Transportation</td>
<td>1.6</td>
<td>-2.4</td>
<td>-15.1</td>
<td>3.1</td>
<td>1.2</td>
<td>7.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-0.1</td>
<td>-2.6</td>
<td>-14.8</td>
<td>1.7</td>
<td>1.2</td>
<td>5.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Excluding
Transportation</td>
<td>-0.1</td>
<td>-2.4</td>
<td>-14.0</td>
<td>3.7</td>
<td>1.5</td>
<td>6.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Unfilled Orders</td>
<td>-1.4</td>
<td>-2.0</td>
<td>-1.7</td>
<td>3.5</td>
<td>17.1</td>
<td>15.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding
Transportation</td>
<td>-1.5</td>
<td>-2.8</td>
<td>-6.0</td>
<td>-1.0</td>
<td>8.2</td>
<td>16.0</td>
</tr>
</tbody>
</table>
French PPI Shows Year/YearWeakness 
by <a href="/comment/Brusca.html">Robert
Brusca</a> April 2, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090402g.jpg" align="left" border="0" height="265" width="353">
Headline and sector inflation rates for France are showing
consistent declines. The core is also on a decelerating trend.
Excluding construction the PPI is falling over rapidly. Anyway you cut
the inflation signals at the PPI level France is showing weakness in
prices. 
 

Still, at the Summit in London, French and German leaders are
focused on patching up the global regulatory system. The persisting
downward pressure on prices suggests that weak growth is still public
enemy number one. The ECB got on board today with a rate cut, but once
again it was about half the magnitude of the cut that the market
expected. Markets retreated after early day strong advances when they
saw the meager cut. Markets regained some ground on the Trichet remark
that there could be more cuts. Markets are playing attention to
everything. 
 

European nations are better protected from bad times compared
to the US as evidenced by their higher continuing rates of unemployment
and more generous social welfare programs. 
 

But the recent backtracking in the Baltic Dry index and
continuing sharp downward pressure on inflation of all sorts in France
are harsh reminders that the recession is still with us and is still
virulent. France was one of the few EMU countries in which the Markit
Manufacturing PMI rose in March. Even so in the EU-Commission scheme of
things France&#8217;s industrial sector slipped in March, consumer confidence
stayed at a cycle low, the services sector was on a cycle low and
overall sentiment continued to slip. Weakening price trend are just
another way to underscore this sort of very broad weakness. It is hard
to look at the current needs of the global economy and to square it
with some of the policy work being done in international forums and by
central banks. Being mindful of fiscal discipline is good and wary of
setting of inflation too, but there is a time and place for those
worries and this time and place seem inappropriate for them. 
 

Still European stock markets are hopeful of some sort of turn
in the economy and they are improving. That fits the policy tack of the
European policymakers which is to not worry about growth because enough
has been done. The ECB wants to turn attention to being mindful of
launching irascible inflation trends by not overdoing it. The mixed
signals of the times offer justification for just about anything. Only
time will tell if an opportunity was missed or a hand overplayed. 
 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">France PPI
</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/m</td>
<td colspan="4">Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>Feb-09</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>Yr/Yr</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>-0.6%</td>
<td>-2.6%</td>
<td>-1.1%</td>
<td>-15.6%</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td>#N/A</td>
<td>-0.6%</td>
<td>0.0%</td>
<td>-2.4%</td>
<td>-1.6%</td>
<td>-1.0%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">Intermediate</td>
<td>#N/A</td>
<td>-2.7%</td>
<td>-0.7%</td>
<td>-16.6%</td>
<td>-8.7%</td>
<td>-0.8%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Investment</td>
<td>#N/A</td>
<td>-0.6%</td>
<td>-0.1%</td>
<td>-1.8%</td>
<td>0.4%</td>
<td>2.1%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">PPI excl Food and
Energy</td>
<td>#N/A</td>
<td>-1.5%</td>
<td>-0.3%</td>
<td>-8.6%</td>
<td>-4.4%</td>
<td>0.1%</td>
<td>1.7%</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">HIPP excl Constructions</td>
<td>#N/A</td>
<td>-2.2%</td>
<td>-1.2%</td>
<td>-18.9%</td>
<td>-13.0%</td>
<td>-2.9%</td>
<td>5.4%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Shaded
growth rates lag by one -month</td>
</tr>
</tbody>
</table>
</body></html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090401g.jpg" width="353">
The National Association of Realtors indicated that pending sales of existing homes during February edged up 2.1% after the sharp 7.7% decline during January. The decline left sales so far this year 6.4% below the 2008 average after last year&#39;s 9.5% decline. Consensus expectations had been for a 0.5% February slip.
The home sales figures are analogous to the new home sales data from the Commerce Department in that they measure existing home sales when the sales contract is signed, not at the time the sale is closed. The series dates back to 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090401h.jpg" width="353">
Lower prices continued to bolster home sales. The median sales price of an existing home rose in February (-15.5% y/y) after seven straight months of decline. Prices were down by one quarter from their peak during June 2007. Lower prices combined with lower interest rates to significantly raise the affordability index of a home by 26.5% year-to-year and by three quarters from the 2006 low. The latest level was a record high for the series which extends back to 1970.
Weak home sales are encouraging potential sellers to keep their homes off the market. The Realtors Association indicated in an earlier report that the number of homes on the market and available for sale fell by 5.5% during February versus one year earlier.
At the current sales rate there was a 9.7 months&#39; supply of homes on the market and there was a 10.4 months&#39; supply during all of last year, up from the 8.9 months supply during 2007 and 6.5 months during 2006. For single family homes, there was a 9.1 months&#39; supply in February versus a full-year figure of 10.0 months during 2008.
The pending home sales data are available in Haver&#39;s PREALTOR database. The number of homes on the market and prices are in the REALTOR database.

<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/WEEKLY/@W5/@W507/@W507.HTM">Pending Home Sales (2001=100)&nbsp;</a></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&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>82.1</td>
<td>80.4</td>
<td>&nbsp;&nbsp; -1.4%</td>
<td>86.8</td>
<td>95.8</td>
<td>112.1&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Northeast</td>
<td>63.9</td>
<td>57.8</td>
<td>-11.3</td>
<td>72.6</td>
<td>85.6</td>
<td>98.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Midwest</td>
<td>83.1</td>
<td>72.6</td>
<td>3.4</td>
<td>80.6</td>
<td>89.5</td>
<td>102.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South</td>
<td>85.8</td>
<td>82.2</td>
<td>-0.1</td>
<td>89.8</td>
<td>107.3</td>
<td>127.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; West</td>
<td>89.6</td>
<td>103.6</td>
<td>-1.8</td>
<td>99.3</td>
<td>92.1</td>
<td>109.5</td>
</tr>
</tbody>
</table>
</body>
</html>

The National Association of Realtors indicated that pending sales of existing homes during February edged up 2.1% after the sharp 7.7% decline during January. The decline left sales so far this year 6.4% below the 2008 average after [...]

U.S. Pending Home Sales Tick Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090401i.jpg" width="353">
Perhaps the worst news on construction activity has passed. However, the industry detail suggests not to count on it. The value of construction put-in-place slipped just 0.9% during February following three consecutive months of decline in excess of 3%. Consensus expectations had been for a 1.7% drop.
A 0.3% increase in the value of nonresidential building activity was the source of the February surprise. It followed three consecutive months of decline between 1% and 4% which reflected the lagged effects of economic recession and the collapse of corporate profits. Those forces are ongoing. February increases in the lodging, health care, amusement and transportation sectors accounted for most of the overall increase in activity, but the gains made up at best half of the January declines. Spending on office construction was roughly flat after four months of sharp decline while the food/beverage, multi-retail, commercial, power and highways &amp; streets sectors continued down.
Residential building activity continued its downward march with a 4.3% decline after the similar 3.7% January drop. Single-family construction activity fell another 10.9% and remained off by nearly one half year-to-year. Building activity on multi-family units also was weak (-11.2% y/y) though spending on improvements repeated the January gain and rose 1.9% (-6.9% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090401j.jpg" width="353">
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.
Public construction edged up just 0.8% after two months of sharp decline. Again, the recession&#39;s effect on tax revenues may be taking hold. The level of activity for January and February was 1.8% below 2008. The value of spending on transportation facilities edged up just 0.8% (-4.7% y/y) after three months of sharp decline. Spending on highways &amp; streets also fell for the third straight month (+3.0% y/y). The value of construction on highways &amp; streets is roughly one-third of the value of total public construction spending.
The more detailed categories of construction represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002, and that constant-dollar data are no longer computed.
The construction put-in-place figures 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"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E907.HTM">Construction</a> (%)</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>-0.9</td>
<td>-3.5</td>
<td>-10.0</td>
<td>-5.7</td>
<td>-2.7</td>
<td>6.3</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-1.6</td>
<td>-4.0</td>
<td>-15.0</td>
<td>-9.8</td>
<td>-6.9</td>
<td>5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-4.3</td>
<td>-3.7</td>
<td>-29.8</td>
<td>-27.7</td>
<td>-19.8</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.3</td>
<td>-4.3</td>
<td>-0.2</td>
<td>14.9</td>
<td>19.6</td>
<td>16.2</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>0.8</td>
<td>-2.4</td>
<td>3.4</td>
<td>6.7</td>
<td>12.3</td>
<td>9.3</td>
</tr>
</tbody>
</table>
</body>
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Perhaps the worst news on construction activity has passed. However, the industry detail suggests not to count on it. The value of construction put-in-place slipped just 0.9% during February following three consecutive months of [...]

U.S. Construction Spending; A More Moderate Decline

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090401f.jpg" align="left" border="0" height="265" width="353">
With the advent of Japan&#8217;s Tankan report, the US-UK Japan
point of view will line up on the side of more stimulus. It is not
clear that they have enough support to carry the day, however. Germany
is still opposed to more stimulus now and that position has been stated
again today. Both France and Germany want progress on regulation. Each
has said it wants real progress and agreement on a series of key
principles. So it&#8217;s not clear how these very different priorities will
play out at the summit. Where the US president says unity is the most
important theme, claiming that differences among G-20 members have been
exaggerated by the press. Wow, no wonder so many newspapers are failing. 
 

Japan&#8217;s Tankan is a worst-ever reading for large corporate
participants in the survey. Each of the survey categories across
various industries points to full period lows. Personal services at
large enterprises are an exception but not much of one. 
 

The MFG reading fell to -58 in Q1-2009 from -24 in Q4-2008.
Non MFG fell to -31 in Q1 from -9 in 2008-Q4. 
 

The MFG outlook index for large firms has dropped to -51 in
2009-Q1 from -36 in 2008-Q4. For non MFG firms the drop in the outlook
is to -30 in Q1 from -14 in 2008-Q4. These are deeply negative numbers
and represent sharp deteriorations from already weak readings in Q4. 
 

Medium and small companies have a similar unraveling in
progress. 
 

Japan has seen its domestic auto production fall sharply as
its exports have been hammered. The exports are lower by over 50%
Yr/Yr. Export markets have generally dried up as recession forces hit
hard on the cusp of the third to fourth quarter last year. Japan is
caught as its main exports are to the US, a very weak economy, and to
China where some growth remains in train but where its exports, too are
being clobbered. As of January US imports from Japan are down by 30%
Yr/Yr. Japan is burdened by a large outstanding balance of public debt
and as a rising yen value has crimped its competitiveness in a fading
market. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">Tankan Results Large Enterprises </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="4">Readings</td>
<td colspan="2">Averages</td>
<td>PERCENTILES</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Q1-09</td>
<td>Q4-08</td>
<td>Q3-08</td>
<td>Q2-08</td>
<td>1-Y Avg</td>
<td>Since Q3'03</td>
<td>Since Q1'04</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG</td>
<td>-58.0</td>
<td>-24.0</td>
<td>-3.0</td>
<td>5.0</td>
<td>-41.0</td>
<td>12.1</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">NonMFG</td>
<td>-31.0</td>
<td>-9.0</td>
<td>1.0</td>
<td>10.0</td>
<td>-20.0</td>
<td>11.7</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Industry</td>
<td>-45.0</td>
<td>-16.0</td>
<td>0.0</td>
<td>7.0</td>
<td>-30.5</td>
<td>11.9</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>-27.0</td>
<td>-10.0</td>
<td>-7.0</td>
<td>-1.0</td>
<td>-18.5</td>
<td>-4.5</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Real Estate</td>
<td>-21.0</td>
<td>-7.0</td>
<td>5.0</td>
<td>22.0</td>
<td>-14.0</td>
<td>27.7</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Wholesale</td>
<td>-44.0</td>
<td>-7.0</td>
<td>11.0</td>
<td>12.0</td>
<td>-25.5</td>
<td>14.1</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail</td>
<td>-42.0</td>
<td>-18.0</td>
<td>-5.0</td>
<td>0.0</td>
<td>-30.0</td>
<td>2.5</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Transportation</td>
<td>-46.0</td>
<td>-7.0</td>
<td>6.0</td>
<td>16.0</td>
<td>-26.5</td>
<td>10.9</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services 4 Biz</td>
<td>-21.0</td>
<td>-1.0</td>
<td>4.0</td>
<td>20.0</td>
<td>-11.0</td>
<td>20.0</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Serv</td>
<td>-9.0</td>
<td>-11.0</td>
<td>6.0</td>
<td>10.0</td>
<td>-10.0</td>
<td>8.7</td>
<td>6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Restaurants &amp; Hotels</td>
<td>-45.0</td>
<td>-32.0</td>
<td>-13.0</td>
<td>-14.0</td>
<td>-38.5</td>
<td>1.9</td>
<td>0.0%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Forecast</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Q2-09</td>
<td>Q1-09</td>
<td>Q4-08</td>
<td>Q3-08</td>
<td>1-Y Avg</td>
<td>Since Q3'03</td>
<td>Since Q1'04</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG-OtLk</td>
<td>-51.0</td>
<td>-36.0</td>
<td>-4.0</td>
<td>4.0</td>
<td>-21.8</td>
<td>10.4</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">NonMFG -Otlk</td>
<td>-30.0</td>
<td>-14.0</td>
<td>-1.0</td>
<td>8.0</td>
<td>-9.3</td>
<td>11.4</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">All Industry-Otlk</td>
<td>-41.0</td>
<td>-25.0</td>
<td>-2.0</td>
<td>6.0</td>
<td>-15.5</td>
<td>10.8</td>
<td>0.0%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Tankan Results Medium
Enterprises</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Q1-09</td>
<td>Q4-08</td>
<td>Q3-08</td>
<td>1-Y Avg</td>
<td>1-Y Avg</td>
<td>Since Q3'03</td>
<td>Since Q1'04</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG</td>
<td>-57.0</td>
<td>-24.0</td>
<td>-8.0</td>
<td>-22.8</td>
<td>-22.8</td>
<td>1.5</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">NonMFG</td>
<td>-37.0</td>
<td>-21.0</td>
<td>-12.0</td>
<td>-18.8</td>
<td>-18.8</td>
<td>-3.3</td>
<td>0.0%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Forecast</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Q2-09</td>
<td>Q1-09</td>
<td>Q4-08</td>
<td>Q3-08</td>
<td>1-Y Avg</td>
<td>Since Q3'03</td>
<td>Since Q1'04</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG-OtLk</td>
<td>-61.0</td>
<td>-45.0</td>
<td>-12.0</td>
<td>-5.0</td>
<td>-30.8</td>
<td>-2.0</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">NonMFG -Otlk</td>
<td>-45.0</td>
<td>-32.0</td>
<td>-17.0</td>
<td>-10.0</td>
<td>-26.0</td>
<td>-5.6</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">All Industry-Otlk</td>
<td>-51.0</td>
<td>-38.0</td>
<td>-15.0</td>
<td>-9.0</td>
<td>-28.3</td>
<td>-4.1</td>
<td>0.0%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Tankan Results Small
Enterprises</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Q2-09</td>
<td>Q1-09</td>
<td>Q4-08</td>
<td>Q3-08</td>
<td>1-Y Avg</td>
<td>Since Q3'03</td>
<td>Since Q1'04</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG</td>
<td>-57.0</td>
<td>-29.0</td>
<td>-17.0</td>
<td>-43.0</td>
<td>-43.0</td>
<td>-5.5</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">NonMFG</td>
<td>-42.0</td>
<td>-29.0</td>
<td>-24.0</td>
<td>-35.5</td>
<td>-35.5</td>
<td>-14.9</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Industry</td>
<td>-42.0</td>
<td>-29.0</td>
<td>-24.0</td>
<td>-35.5</td>
<td>-35.5</td>
<td>-14.9</td>
<td>0.0%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Forecast</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Q2-09</td>
<td>Q1-09</td>
<td>Q4-08</td>
<td>Q3-08</td>
<td>1-Y Avg</td>
<td>Since Q3'03</td>
<td>Since Q1'04</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG-OtLk</td>
<td>-63.0</td>
<td>-48.0</td>
<td>-25.0</td>
<td>-15.0</td>
<td>-37.8</td>
<td>-8.2</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">NonMFG -Otlk</td>
<td>-52.0</td>
<td>-42.0</td>
<td>-31.0</td>
<td>-27.0</td>
<td>-38.0</td>
<td>-19.0</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">All Industry-Otlk</td>
<td>-56.0</td>
<td>-44.0</td>
<td>-29.0</td>
<td>-22.0</td>
<td>-37.8</td>
<td>-15.1</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
</body></html>

With the advent of Japan’s Tankan report, the US-UK Japan point of view will line up on the side of more stimulus. It is not clear that they have enough support to carry the day, however. Germany is still opposed to more stimulus now [...]

Japan TANKAN Makes Heavy Weight for Pre-Summit

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090401e.jpg">
The outplacement firm of Challenger, Grey &amp; Christmas reported that March job cut announcements eased for the second month to 150,411 following 186,350 layoffs during February. Both of the figures were down from the cycle high of 241,749 reached in January. Challenger also reported that announced hiring plans picked up somewhat from February.
Announcements of job cuts in the pharmaceutical industry were a strong 17,796 which was the second most on record. Announcements in the electronics industry also were strong. Another 11,550 jobs were shed and that was near the rate of decline during the prior three months.
Job cut announcements in the automotive sector eased sharply to 6,806 after a huge jump during February and the financial business shed 8,651 jobs. Employment in the retail industry fell 3,821 after the 18,759 February cut. Employment in the industrial goods industry also fell a more moderate 8,787. The computer industry shed 5,290 after the 3,960 February cutback.
During the last ten years there has been a 67% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
The Challenger figures are available in Haver&#39;s SURVEYS database.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</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>
<td class="firstcol">Announced Job Cuts</td>
<td>150,411</td>
<td>186,350</td>
<td>180.7%</td>
<td>1,223,993</td>
<td>768,264</td>
<td>839,822</td>
</tr>
</tbody>
</table>
</body>
</html>

The outplacement firm of Challenger, Grey & Christmas reported that March job cut announcements eased for the second month to 150,411 following 186,350 layoffs during February. Both of the figures were down from the cycle high of [...]

Challenger Layoffs Ease Slightly Second Month

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090401c.jpg" width="353">
The March composite index of activity in the manufacturing sector from the Institute for Supply Management improved slightly to 36.3 from 35.8 in February. Though the latest figure was still near the lowest level since the recession year of 1980, the index has remained in a range of 33 to 37 during the last five months. The break-even level for this diffusion index of factory sector activity is a level of 50.
During the last twenty years there has been a 72% correlation between the level of the composite index and the three-month growth in factory sector industrial production. The latest reading of the composite index suggests that the recent 10% rate of decline in industrial output will continue.
It is appropriate to correlate the ISM index level with factory sector growth because the ISM index is a diffusion index. It measures growth by using all of the positive changes in activity added to one half of the zero change in activity measures.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090401d.jpg" width="353">
Improvement in the new orders index has been sharp since its December low as 28% of survey participants reported higher orders versus a low of 5%. Even the export order index improved modestly to a still low 39.0 versus the December reading of 35.5. Nevertheless, it remained near the lowest level in this index&#39;s short twenty year history. During the last ten years there has been a 53% correlation between the index and the q/q change in real exports of goods in the GDP accounts.
The production component was about unchanged after sharp improvement in January and February. Offsetting these gains were sharp declines in the vendor deliveries index to the lowest level since 1989. The inventory index was weak and fell to the lowest level since 1982.
The separate index of prices paid improved slightly but it remained near the record low. During the last twenty years there has been a 79% correlation between the price index and the three-month change in the PPI for intermediate goods.
The ISM data is available in Haver&#39;s USECON database.
How Will a Credit Crunch Affect Small Business Finance? from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-09.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/SURVEYS/@S2/@S201/@S201.HTM">ISM Mfg</a></th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">March &#39;08</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">Composite Index</td>
<td>36.3</td>
<td>35.8</td>
<td>49.0</td>
<td>45.5</td>
<td>51.1</td>
<td>53.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>41.2</td>
<td>33.1</td>
<td>47.1</td>
<td>42.1</td>
<td>54.3</td>
<td>55.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>28.1</td>
<td>26.1</td>
<td>49.3</td>
<td>43.2</td>
<td>50.5</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>31.0</td>
<td>29.0</td>
<td>83.5</td>
<td>66.5</td>
<td>64.6</td>
<td>65.0</td>
</tr>
</tbody>
</table>
</body>
</html>

The March composite index of activity in the manufacturing sector from the Institute for Supply Management improved slightly to 36.3 from 35.8 in February. Though the latest figure was still near the lowest level since the recession [...]

Rise In ISM Index Suggests Factory Sector Stabilization

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.

260120.jpg

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.

260119T1.jpg

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.

260119T2.jpg

**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.

260119T3.jpg

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.

260119T4.gif

**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).

260119T5.jpg

**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).

260119T6.jpg

Asia

Economic Letter from Asia: Shifting Gears

Winnie Tapasanun

260116R23.jpg

260116S23.jpg

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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