Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090401a.jpg" width="353">
According to the payroll processor ADP in the latest National Employment Report, private nonfarm payrolls fell 742,000 last month after a 706,000 decline. The February figure was revised from the initial estimate of a 697,000 drop. The latest reading was the fourteenth consecutive monthly decline. Moreover, the annualized rate of decline in payrolls accelerated to 7.2% during the last three months, a record for the series which dates back only to 2001. Last month medium sized payrolls fell 330,000 (-4.5% y/y) followed by a 284,000 (-3.3% y/y) worker decline in small sized payrolls. Large payrolls fell by 128,000 (-4.7% y/y).
The U.S. Bureau of Labor Statistics will report payroll employment this Friday. For comparison, February&#39;s 706,000 worker decline (-3.4% y/y) in ADP&#39;s measure of private nonfarm payrolls was accompanied by a 660,000 worker decline (-3.7% y/y) in the BLS measure of private sector payrolls. According to ADP and Macro Advisers, the correlation between the monthly percentage change in the ADP estimate and that in the BLS data is 0.90.
ADP reported that weakness in the goods producing sector resulted in 327,000 fewer jobs last month (-10.1% y/y). Medium sized payrolls fell 152,000 (-10.5% y/y) followed by a 111,000 (-9.3% y/y) shortfall in small sized payrolls. Large payrolls fell 64,000 (-10.5% y/y). In the manufacturing sector alone, payrolls fell 206,000 (-10.1% y/y). It has fallen in almost every month since 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090401b.jpg" width="353">
Employment in the service producing industry continued to fall sharply. The 415,000 (-2.6% y/y) decline was the twelfth consecutive monthly decline. Medium sized service payrolls fell 178,000 (-2.9% y/y) and small sized payrolls were off 173,000 (-2.2% y/y). Large service producing payrolls dropped by 64,000 (-3.0% y/y).
ADP compiled the estimate from its database of individual companies&#39; payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator.
The ADP National Employment Report data is maintained in Haver&#39;s USECON database; historical figures date back to December 2000. The figures in this report cover only private sector jobs and exclude employment in the public sector, which rose an average 11,083 during the last twelve months. 
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/pdf/final_report_march_09.pdf" title="blocked::http://www.adpemploymentreport.com/PDF/FINAL_Report_june_09.pdf">here</a>, and the ADP methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf" title="blocked::http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf">here</a>.

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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</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">Nonfarm Private Payroll Employment (m/m Chg.)</td>
<td>-742,000</td>
<td>-706,000</td>
<td>-4.0%</td>
<td>-0.4</td>
<td>1.2%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>


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According to the payroll processor ADP in the latest National Employment Report, private nonfarm payrolls fell 742,000 last month after a 706,000 decline. The February figure was revised from the initial estimate of a 697,000 drop. [...]

ADP Report: Payroll Employment Down Another 742,000

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090331i.jpg" align="left" border="0" height="265" width="353">
Fourth quarter Turkish Gross Domestic Product, released today,
declined on a seasonally adjusted basis 4.9% from the third quarter
continuing the declines of 3.6% and 1.7% in the second and third
quarters, respectively. For the year as a whole, GDP increased only
1.1%, the lowest annual increase since 2001.
There were two factors having a positive effect on GDP in the
last three quarters of the year that were actually suggesting weakness
in the economy. The decline in imports of 1.4 billion lira from
7.6.billion lira in the first quarter to 6.2 billion lira in the last
quarter affected GDP positively, but it suggested weakness in consumer
and business demand. The other was the increase in inventories in the
first three quarters of the year, which, again, had a positive effect
on GDP, but was beginning to reflect the piling up of unsold goods
rather than the piling up of goods in response to vigorous demand. The
major factors affecting GDP--consumption expenditures, gross fixed
capital formation, exports and changes in stocks--are show in the first
chart.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090331j.jpg" align="right" border="0" height="265" width="353">
The magnitude of the fourth quarter decline in total GDP was
largely due to a sharp decline in stocks as can be seen in the second
chart which shows the changes in consumption expenditures, gross
capital formation, exports, and stocks.
Inflation, in Turkey, as measured by the year to year increase
in the GDP deflator rose steadily through the year and was 10.1% in the
fourth quarter. In spite of the rise in inflation, the Central Bank of
Turkey concluded that the weakness in the economy was more important
than inflation and reduced its Policy rate--the overnight borrowing
rate--from 16.25% in October to 10.50% currently.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">TURKEY
ACCOUNT (100 Mil Yen)</th>
<th scope="col">Q4 08&nbsp;</th>
<th scope="col">Q3 08&nbsp;</th>
<th scope="col">Q2&nbsp; 08&nbsp;</th>
<th scope="col">Q1 08&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total GDP (NSA) Y/Y
%chg&nbsp;</td>
<td> -6.17</td>
<td> 1.19</td>
<td> 2.75</td>
<td> 7.33</td>
</tr>
<tr>
<td class="firstcol">Household Consumption</td>
<td>-4.62</td>
<td>-1.25</td>
<td>1.54</td>
<td>6.07</td>
</tr>
<tr>
<td class="firstcol">Gross Fixed Capital
Formation</td>
<td>-17.48</td>
<td>-6.89</td>
<td>-1.16</td>
<td>9.55</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>-23.05</td>
<td>-2.79</td>
<td>2.25</td>
<td>14.94</td>
</tr>
<tr>
<td class="firstcol">Exports&nbsp;</td>
<td>8.21</td>
<td>3.59</td>
<td>38.7</td>
<td>13.27</td>
</tr>
<tr>
<td class="firstcol">Stocks</td>
<td>-1613535</td>
<td>1286937</td>
<td>92754</td>
<td>-69591</td>
</tr>
<tr class="odd">
<td class="firstcol">Total GDP (SA) Y/Y %chg</td>
<td>-4.87</td>
<td>-1.70</td>
<td>-3.58</td>
<td>4.10</td>
</tr>
<tr>
<td class="firstcol">Household Consumption</td>
<td>-2.55</td>
<td>-1.18</td>
<td>-1.57</td>
<td>0.67</td>
</tr>
<tr>
<td class="firstcol">Gross Fixed Capital
Formation</td>
<td>-8.22</td>
<td>-3.36</td>
<td>-8.41</td>
<td>1.16</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>-18.02</td>
<td>-0.11</td>
<td>-8.86</td>
<td>2.80</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>-8.13</td>
<td>-2.62</td>
<td>-7.87</td>
<td>11.37</td>
</tr>
<tr>
<td class="firstcol">Stocks</td>
<td>-824576</td>
<td>360674</td>
<td>233648</td>
<td>426821</td>
</tr>
</tbody>
</table>
</body></html>

Fourth quarter Turkish Gross Domestic Product, released today, declined on a seasonally adjusted basis 4.9% from the third quarter continuing the declines of 3.6% and 1.7% in the second and third quarters, respectively. For the year [...]

Turkey -- Another Emerging Economy Reports A Dismal 4Th Quarter Gross Domestic Product

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090331h.jpg" align="left" border="0" height="265" width="353">Fat Chance&#8230; 
The EMU FLASH HICP is at an all time low skinny 0.6% gain
Yr/Yr. If it were human we&#8217;d say it is anorexic. Italy also got on the
board with a weak HICP, posting the lowest reading since &#8216;Ed Sullivan&#8217;
and &#8216;Leave it to Beaver&#8217; were first run shows. (roughly 1968). 
 

Gooey Good News 
Despite al this gooey good news the pace of inflation&#8217;s drop
actually is slowing, not speeding up. The Yr/Yr at 0.6% is higher than
the six month pace of -1.4% but then over three-months the pace
flattens at 0%. Core inflation is still stepping down. But we know what
is going on and what is driving these trends. Headline inflation is
driven by food and energy and in this cycle energy has taken the wheel,
not some deity. Spot oil prices had collapsed but the have climbed back
to the vicinity of $50.bbl. It is hard to tell where oil goes short
term, but prices are the up from their lowest, meaning headline
inflation will perform that same magic trick. 
 

Peak oil not an issue now&#8230; 
In broader terms inflation is clearly under control. When the
world economy grows again there will once again be all those questions
about peak oil or not. China is a new factor underpinning demand. But
we can put those questions off for a while. 
 

Reality bites and the OECD worries 
For now, and for some time to come, inflation seems to be
under control. The big news on our plate is the G-20 meeting and how
policy will respond to the current diverse challenges. The OECD
introduced a series of forecasts ahead of this meeting that have gotten
even glummer. The OECD is urging more stimulus as a result. All this is
going to put more pressure on the ECB to move rates lower, especially
with Euro-stimulus policy in the shape it&#8217;s in. The summit seems to be
a done deal as euro-stubbornness has won out. In addition French
intransigence is trying to make headway as France has threatened to
boycott if the regulation proposals are not enacted. Summit policy is
always pre-determined but it isn&#8217;t always this clear. 
 

Policy options are alive&#8230;but not well&#8230;not even good 
All in all it is not really surprising with such economic
weakness to find inflation is under control. That development puts more
leeway in the hands of policymakers. But what happens when they refuse
to take up the opportunity? Europe admits its 200bln euro plan will not
have much impact until 2010. That was Junker&#8217;s contribution to the
discussion today as the OECD ramped up the bad news. The US seems to be
living in a different world where action is required while Europe sits
back to watch. Some of this is that Europe already has a better social
safety net than the US. But that is &#8216;cushion&#8217; and what the world needs
now is &#8216;stimulus,&#8217; sweet stimulus. But it&#8217;s not happening in London.
London 2009 will make the same mistake as London 1977. It will reject a
chance for more stimulus and stretch out the pain. If London 1977 is a
learning experience, it launched Bonn 1978 and the result was that too
much stimulus was enacted too late. I hope that is not our true path.
On the other hand part of me says, &#8216;Fat chance&#8217;. 
 





<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Trends in
EMU HICP: Flash Index</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% SAAR</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>Jan-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU-13</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>-0.2%</td>
<td>0.0%</td>
<td>-1.4%</td>
<td>0.6%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>0.6%</td>
<td>1.1%</td>
<td>1.7%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods&nbsp;</td>
<td>#N/A</td>
<td>0.3%</td>
<td>-1.2%</td>
<td>-6.3%</td>
<td>-3.2%</td>
<td>0.3%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>#N/A</td>
<td>0.5%</td>
<td>-0.4%</td>
<td>3.9%</td>
<td>0.6%</td>
<td>2.4%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="8">&nbsp;</td>
</tr>
<tr>
<td class="firstcol" colspan="8">HICP</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>-0.2%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.4%</td>
<td>-1.3%</td>
<td>0.4%</td>
<td>3.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>-0.3%</td>
<td>-1.0%</td>
<td>1.0%</td>
<td>3.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.0%</td>
<td>0.4%</td>
<td>-0.6%</td>
<td>-0.7%</td>
<td>-0.9%</td>
<td>1.0%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.2%</td>
<td>-0.4%</td>
<td>-2.4%</td>
<td>-2.7%</td>
<td>0.7%</td>
<td>4.4%</td>
</tr>
<tr>
<td colspan="2">Core excl Food Energy
&amp; Alcohol</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>#N/A</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>1.5%</td>
<td>0.8%</td>
<td>1.2%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>#N/A</td>
<td>0.5%</td>
<td>-0.6%</td>
<td>0.4%</td>
<td>1.1%</td>
<td>2.2%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>-1.3%</td>
<td>-0.1%</td>
<td>1.6%</td>
<td>3.3%</td>
</tr>
<tr class="odd">
<td colspan="8">Blue shaded area data trail by one
month</td>
</tr>
</tbody>
</table>

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Fat Chance… The EMU FLASH HICP is at an all time low skinny 0.6% gain Yr/Yr. If it were human we’d say it is anorexic. Italy also got on the board with a weak HICP, posting the lowest reading since ‘Ed Sullivan’ and ‘Leave it to [...]

Flash Dance - Inflation Waltzes to New Lows as Risk Soars to Dizzying Heights

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090331e.jpg" align="right" border="0" height="265" width="353">
The Conference Board reported that its March index of consumer
confidence stabilized this month near its record low level reached
during February. The reading of 26.0 was roughly stable with February
but it left confidence three-quarters lower than the July 2007 peak.
The latest figure was slightly lower than Consensus expectations.
The Conference Board data can be found in Haver's CBDB database.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090331f.jpg" align="right" border="0" height="265" width="353">During
the last ten years there has been an 86% correlation between the level
of consumer confidence and the y/y change in real consumer spending.
Consumers' economic outlook improved slightly as indicated by a
higher expectations index, but the latest reading made up little of
February's more than one-third decline from January. The latest figure
also was off by more than one-half from last February. The percentage
of respondents expecting business conditions to worsen in six months
was little changed at 39.1%, near the highest since 1974. Just 9.1%
expected improvement in conditions. More jobs were expected by only
7.1% of respondents. As a result of that jobs outlook a near-record
23.9% foresaw less income. That was versus 15.0% last year and just
8.6% in 2007.
The present conditions index added 3.6% to the more-than one
quarter February drop. It remained off more than three-quarters from a
year earlier. Jobs were seen as hard to get by 48.7% of respondents,
the highest (by just a bit) since 1992 and jobs were seen as plentiful
by only 4.6%. Business conditions were seen as good by just 6.8% and
that matched the 1991 low. Those who thought conditions were bad rose
to 51.1%, the highest since 1983. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090331g.jpg" align="right" border="0" height="265" width="353">
Expectations for the inflation rate in twelve months have been roughly
stable since November at 5.9%. That's down from last year's high of
7.7%. Expectations about interest rates has started to sort out for an
increase with 35.6% of respondents expecting higher interest rates
while 29.7% expect rates to fall. A separate question indicated that a
near record 54.3% of respondents expected lower stock prices. The
decline in overall consumer confidence over the last year has been
greatest amongst higher income earners. It has been fairly uniform by
age group.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Conference
Board &nbsp;(SA, 1985=100)</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">Consumer
Confidence Index</td>
<td>26.0</td>
<td>25.3</td>
<td>-60.5</td>
<td>57.9</td>
<td>103.4</td>
<td>105.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Present Situation</td>
<td>21.5</td>
<td>22.3</td>
<td>-76.3</td>
<td>69.9</td>
<td>128.8</td>
<td>130.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
Expectations</td>
<td>28.9</td>
<td>27.3</td>
<td>-52.6</td>
<td>50.0</td>
<td>86.4</td>
<td>89.7</td>
</tr>
</tbody>
</table>
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The Conference Board reported that its March index of consumer confidence stabilized this month near its record low level reached during February. The reading of 26.0 was roughly stable with February but it left confidence three- [...]

U.S. Consumer Confidence Stabilizes Near Record Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090330c.jpg" width="353">
Petroleum prices continued to rally last week as sentiment continued to shift on the economy. Firmer data on U.S. consumer spending, home sales &amp; factory orders helped lift crude oil prices to their highest level since last November. For a barrel of West Texas Intermediate prices rose to $53.09, up more than 50% from the December low of $32.37 per barrel. That bullish economic sentiment reversed somewhat yesterday, however. In futures trading the May contract price for crude oil fell back to $48.41 per barrel. Prices reached a high of $145.66 last July.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090331d.jpg" width="353">
Regular gasoline prices followed the rise in crude and increased last week to $2.05 per gallon, also the highest level since last November. The latest was up 43 cents from the December low. Yesterday, the spot market price for regular gasoline turned with the drop in crude oil prices and fell nearly ten cents from Friday&#39;s level. These prices compare to those that were slightly below $1.00 at the end of last year. The figures are reported by the U.S. Department of Energy.
Weekly gasoline prices can be found in Haver&#39;s WEEKLY database. Daily prices are in the DAILY database.
The price effect on driving has been little changed. Gasoline demand continued to suffer due to the effects of the U.S. recession although earlier declines in gasoline prices have given some lift to driving. The latest y/y change of -0.4% moderated from the 4.8% rate of decline seen last October. (Gasoline prices at the time were just off their peak.) The change in demand is measured using the latest four weeks versus the same four weeks in 2008. Demand for all petroleum products was down 3.2% y/y. That negative comparison was led by a 10.1% decline in distillate demand and a 7.2% drop in residual fuel oil consumption. These numbers are available in Haver&#39;s OILWKLY database.
The price of natural gas continued downward with the coming end to the winter heating season. Though prices did tick up last week to $3.92 per mmbtu (-57.7% y/y) they still were near the lowest level since 2002. The latest average price was down more than two-thirds from the high reached in early-July of $13.19/mmbtu.

<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/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">03/30/09</th>
<th scope="col">03/23/09</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">Retail Regular Gasoline ($ per Gallon, Regular)</td>
<td>2.05</td>
<td>1.96</td>
<td>-37.8%</td>
<td>3.25</td>
<td>2.80</td>
<td>2.57</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>53.09</td>
<td>49.46</td>
<td>-49.1%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
</body>
</html>

Petroleum prices continued to rally last week as sentiment continued to shift on the economy. Firmer data on U.S. consumer spending, home sales & factory orders helped lift crude oil prices to their highest level since last November. [...]

Petroleum Prices Strengthen, Then Fall Back

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090331a.jpg" align="left" border="0" height="265" width="353">
The January S&amp;P/Case-Shiller 20
Home Price Composite Index fell 2.2% from December. That
pulled prices down 19.0% during the last twelve months and by 29.1%
since their peak in May 2006. The series dates back only to
2000. The January decline in prices was as expected.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090331b.jpg" align="right" border="0" height="265" width="353">
The S&amp;P/Case-Shiller home price series can be found in
Haver's USECON database but the city data is in the
REGIONAL database.
The Case-Shiller index of 20 U.S. cities and their surrounding
areas is weighted to reflect price changes due to extensive remodeling,
home additions or extreme neglect. For example, smaller weights are
assigned to sales of homes that have undergone extensive remodeling.
The Case-Shiller composite index of homes in 10 metropolitan
areas, which has a longer history and dates back to 1987, fell 2.0% and
was down 19.4% year-to-year. The measure was down 29.7% since the 2006
peak.
Weakest Regions: Home prices in Phoenix,
Nevada were quite weak and fell 35.0% y/y and in San Diego prices fell
24.9% y/y, off 40.4% from their early 2006 peak. Home prices in Las
Vegas, Nevada fell 32.5% y/y and were down 46.2% from their peak.
Prices in Miami fell 29.4% y/y while home prices in Los Angeles were
down 25.8% y/y. In San Francisco home prices were off 32.4%
year-to-year. In Tampa they fell 23.3% and in Detroit home prices fell
by 22.6% y/y.
Less Weak Regions: In the Northeast, the
decline in home prices continued less severe. Prices in New York fell
9.6% y/y, off 16.2% from their 2006 peak. Prices were down 7.3%
year-to-year in Boston and in Dallas prices were off by a modest 4.8%
y/y and by 8.8% from the 2007 peak. In Charlotte, North Carolina prices
fell a moderate 8.8% y/y and in Denver home prices prices fell just
5.1% y/y. In Cleveland, Ohio prices were off 5.1% y/y but in Chicago
home prices were down a larger 16.4% y/y, 22.0% from the 2007 peak.
The latest press release from Standard &amp; Poor's can be
found <a href="http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_033114.pdf">here</a>.
An overview of the S&amp;P/Case-Shiller home price series can be
found <a href="http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,1,1,0,0,0,0,0.html">here</a>.
The Case-Shiller data is 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">S&amp;P/Case-Shiller
Home Price Index (SA, Jan 00 = 100)</th>
<th scope="col">January</th>
<th scope="col">December</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">20 City Composite
Index</td>
<td>147.45</td>
<td>150.75</td>
<td>-19.0%</td>
<td>-15.8%</td>
<td>-3.8%</td>
<td>7.6%</td>
</tr>
</tbody>
</table>
</body></html>

The January S&P/Case-Shiller 20 Home Price Composite Index fell 2.2% from December. That pulled prices down 19.0% during the last twelve months and by 29.1% since their peak in May 2006. The series dates back only to 2000. The January [...]

Case-Shiller Home Price Index Falls Further

Case-Shiller Home Price IndexFalls Further

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.

260116T23.jpg

260116U23.jpg

- 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

260116E.jpg

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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