Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090327a.jpg" align="right" border="0" height="265" width="353">Consumer
spending is recovering from its swoon this past Fall. The U.S. Bureau
of Economic Analysis reported that personal spending during February
logged its second increase after six consecutive monthly declines. That
recovery is hardly robust however. Adjusted for inflation, spending in
fact fell 0.2% last month after January's 0.7% rise. For the quarter so
far, real spending is up at just a 1.3% annual rate which makes up
little of the 4.3% rate of decline during 4Q and the 3.8% 3Q drop. 
Much of the recovery in overall real spending this quarter
traces to
the modest, halting rise in spending on autos, after an abysmal Fall.
Real spending on autos &amp; parts fell 3.9% last month retracing
most of a 5.3% January increase. This flatness follows declines at 10%
to 40% annual rates during each quarter of 2008. Elsewhere, earlier
declines in real outlays indeed may be stabilizing as indicated by two
consecutive firm gains in furniture &amp; appliances spending. But
that's about it for the good news. Real spending on apparel rose all of
0.4% last month after no change during January. It's still down 2.6%
year-to-year. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090327b.jpg" align="right" border="0" height="265" width="353">
And real spending on services has been modest as well. It
declined 0.1% last month and has been flat since November (+0.7% y/y).

The pullback in personal spending reflects lower levels of
personal
income. Income declined 0.2% after a 0.2% January increase (that was
half the initially reported gain) and is down 1.3% versus its peak last
June. The latest decline about equaled the Consensus expectation. Also
losing steam, disposable personal income slipped
0.1% after the 1.6% January surge that owed to a 9.7% monthly drop in
taxes. Real disposable income also fell by 0.4% after January's gain of
1.3%. Despite the decline, real income increased 2.2% versus last
year.
 Wages &amp; salaries further reflected the weak job
market
with a 0.4% decline (-0.2% y/y). So bad are the figures that wage
income was down in each of the last four months and at a 4.0% annual
rate during that period. That rate is the fastest since 1994. Private
sector wages during that period were down at a 6.0% annual rate, also
the worst since 1994. These declines contrast to wages in the
government sector which continue to increase. A 0.3% February rise
pulled wages up 5.1% versus last year.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090327c.jpg" align="right" border="0" height="265" width="353">Lower
interest rates continued
to pull interest income down. It has fallen 1.0% to 2.0% during each of
the last five months (-7.2% y/y). In addition, weak corporate profits
lowered dividend income by 1.5%, about the rate of decline since
September and down 7.2% year-to-year.
The stabilization of oil prices
caused the PCE chain price index to rise 0.3%
during the last two months. Core pricing power in fact firmed slightly
showing two months of 0.2% increase after having been unchanged for
two. The latest gain matched Consensus expectations.
 The personal
income &amp; consumption figures are available in Haver's USECON
and USNA databases.&nbsp; &nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition
of Personal Income</a> (%)&nbsp;</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">Personal Income</td>
<td>-0.2</td>
<td>0.2</td>
<td>1.0</td>
<td>3.8</td>
<td>6.1</td>
<td>7.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Disposable
Personal Income</td>
<td>-0.1</td>
<td>1.6</td>
<td>3.2</td>
<td>4.6</td>
<td>5.5</td>
<td>6.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Consumption
Expenditures</td>
<td>0.2</td>
<td>1.0</td>
<td>-0.4</td>
<td>3.6</td>
<td>5.5</td>
<td>5.9</td>
</tr>
<tr>
<td class="firstcol">Saving Rate</td>
<td>4.2</td>
<td>4.4</td>
<td>0.3 (Feb. 08)</td>
<td>1.8</td>
<td>0.5</td>
<td>0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">PCE Chain Price Index</td>
<td>0.3</td>
<td>0.3</td>
<td>1.0</td>
<td>3.3</td>
<td>2.6</td>
<td>2.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food
&amp; energy</td>
<td>0.2</td>
<td>0.2</td>
<td>1.8</td>
<td>2.2</td>
<td>2.2</td>
<td>2.3</td>
</tr>
</tbody>
</table>
Michigan Consumer Sentiment
Improves As The Opinion Of Government Jumps 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 27, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090327d.jpg" align="right" border="0" height="265" width="353">As reported
mid-month, consumers' moods have stabilized as suggested by the
University of Michigan. It reported that the full month March reading
of consumer sentiment held stable in the range of the last several
months. Despite this stability, however, the latest figure was down
17.6% from last March. During the last ten years, there has been a 63%
correlation between the level of sentiment and the three-month change
in real personal consumption expenditures. The March reading came in
slightly above Consensus expectations.
The expectations component of
consumer sentiment firmed a bit and recovered nearly half of the
February decline. Expectations for business conditions during the next
year led that increase but remained near the lowest level
since 1980.&nbsp; Expectations for conditions during the
next five years fell slightly to the lowest level since last June.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090327e.jpg" align="right" border="0" height="265" width="353">The
expected change in personal finances ticked higher.
The current
economic conditions index also improved slightly from February after an
initial reading of sharp decline. Buying conditions for large household
goods fell just slightly m/m but they remained down 21.0% from a year
earlier. The view of current personal finances also fell and remained
down by one-half from early 2007.
 The opinion of government
policy, which may eventually influence economic expectations, improved
sharply to the highest level since January of 2007. Twenty two percent
of respondents thought that a good job was being done by government, up
from the four percent low of last December, while a much reduced twenty
eight percent thought that a poor job was being done.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090327f.jpg" align="right" border="0" height="265" width="353">Inflation
expectations for the next year were about stable at 2.4%.
They were as high as 7.0% last May. The range of expectations is from
slight price deflation to a 5.3% increase in prices. The expected
inflation rate during the next five years reversed most of the
increases during the last two months and fell to 2.9%.
 The
University of Michigan survey data is not seasonally adjusted.
&nbsp;The reading is based on telephone interviews with about 500
households at month-end; the mid-month results are based on about 300
interviews.&nbsp; The summary indexes are in Haver's USECON
database with details in the proprietary UMSCA database.
Payments Fraud: An Introduction from the
Federal
Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/economicperspectives/ep_1qtr2009_part1_amromin_porter.pdf">
here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">March (Final)</th>
<th scope="col">Mid-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">Consumer Sentiment</td>
<td>57.3</td>
<td>56.6</td>
<td>56.3</td>
<td>61.2</td>
<td>-17.6%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>63.3</td>
<td>62.3</td>
<td>65.5</td>
<td>66.5</td>
<td>-24.8</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>53.5</td>
<td>53.0</td>
<td>50.5</td>
<td>57.8</td>
<td>-11.0</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>

EMU Orders: Still Sinking Fast 
by <a href="/comment/Brusca.html">Robert
Brusca</a> March 27, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090327g.jpg" align="left" border="0" height="265" width="353">
 Egad! Still very weak: Euro industrial
orders continued their steep rate of decline in January. The 3.4% mo/mo
drop was less than the 8% plunge in December and the 9.4% stunner in
November, but it fell far short of being reassuring. 
 

Weak Q1 in train, too: The three month pace
of decline is 57% at an annual rate. The rate of decline in the quarter
is also at a -50% annual rate. So 2009-Q1 is not an encouraging number
to look forward to at this point. 
 

Imported weakness for Europe: The
domestic/foreign split for orders is somewhat illuminating. Domestic
orders fell at by 3.9% from December. Foreign orders fell by 7.3%. The
pace of decline for past growth rates also shows that the domestic rate
of decline has lagged the pace of the foreign orders decline. But that
growth gap has become more pronounced this month with domestic orders
off by so much less than foreign orders. Clearly the EMU is importing
weakness from abroad. Its foreign orders and exports are falling at a
faster pace than its domestic activity. 
 

Dissent at home: While the ECB is coming
under more criticism from business groups (today it is Business Europe,
which represents national business federations and industry groups) the
industrial orders data strongly suggest that the pulse of weakness is
from beyond the ECBs border and reach. That does not mean that the ECB
or that fiscal stimulus could not make up for it, but that there is a
continuing drag of controllable influence on the euro-economy. 
 

A glint or two of good news: Still, it is
encouraging that the Markit PMI indices for services and for MFG turned
higher in March. Today the CEPR index of activity echoed that signal
and turned just a little bit less negative in March compared to
February. This sort of statistic is not bankable but it is indicative
of an economy that may be passing from its most severe phase of
negative growth to a milder phase and perhaps eventually headed to
recovery. 
 

Looking ahead to March data&#8230; For the bulk
of Euro-data the readings remain dispirited and grim. But the March
reports which are so few in number have begun to stake out a less
negative view. There it is: the precursor to a positive view. Not to
get too excited yet, but this is the way that the rebound will start.
So despite the discouraging data on the day the there is some good news
in train but it&#8217;s only found in the freshest of reports. That means we
are apt to see better news for COUNTRY level data first, since the EMU
reports lag the timeliest of national reports. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col">E-zone-13
and UK Industrial Orders And Sales</th>
</tr>
</thead>
<tbody>
<tr class="grey5">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>Jan-09</td>
<td>Dec-08</td>
</tr>
<tr class="grey4">
<td class="firstcol">E- AREA Detail</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>Nov-08</td>
<td>3-Mo</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">MFG Orders</td>
<td>-3.4%</td>
<td>-8.0%</td>
<td>-9.4%</td>
<td>-57.9%</td>
<td>-63.9%</td>
<td>-50.1%</td>
<td>-46.2%</td>
<td>-32.0%</td>
<td>-28.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">MFG Sales</td>
<td>#N/A</td>
<td>-3.5%</td>
<td>-3.9%</td>
<td>#N/A</td>
<td>-34.7%</td>
<td>#N/A</td>
<td>-24.0%</td>
<td>#N/A</td>
<td>-11.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp; Consumer</td>
<td>#N/A</td>
<td>-0.4%</td>
<td>-0.4%</td>
<td>#N/A</td>
<td>-4.9%</td>
<td>#N/A</td>
<td>-4.3%</td>
<td>#N/A</td>
<td>-2.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp; Capital</td>
<td>#N/A</td>
<td>-1.7%</td>
<td>-2.1%</td>
<td>#N/A</td>
<td>-20.3%</td>
<td>#N/A</td>
<td>-16.1%</td>
<td>#N/A</td>
<td>-8.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp; Intermediate</td>
<td>-3.9%</td>
<td>-5.9%</td>
<td>-8.4%</td>
<td>-52.8%</td>
<td>-56.1%</td>
<td>-46.9%</td>
<td>-40.8%</td>
<td>-28.6%</td>
<td>-23.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Memo: MFG</td>
<td>&nbsp;</td>
<td>&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 class="grey3">
<td class="firstcol">Total Orders</td>
<td>-3.4%</td>
<td>-8.0%</td>
<td>-9.4%</td>
<td>-57.9%</td>
<td>-63.9%</td>
<td>-50.1%</td>
<td>-46.2%</td>
<td>-32.0%</td>
<td>-28.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp; E-13 Domestic MFG
orders</td>
<td>-3.9%</td>
<td>-5.9%</td>
<td>-8.4%</td>
<td>-52.8%</td>
<td>-56.1%</td>
<td>-46.9%</td>
<td>-40.8%</td>
<td>-28.6%</td>
<td>-23.8%</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp; E-13 Foreign MFG
orders</td>
<td>-7.3%</td>
<td>-7.1%</td>
<td>-10.3%</td>
<td>-64.4%</td>
<td>-64.0%</td>
<td>-56.2%</td>
<td>-45.5%</td>
<td>-37.2%</td>
<td>-28.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Countries:</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>Nov-08</td>
<td>3-Mo</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp; Germany (MFG):</td>
<td>-7.6%</td>
<td>-8.1%</td>
<td>-7.5%</td>
<td>-61.9%</td>
<td>-61.3%</td>
<td>-52.5%</td>
<td>-46.3%</td>
<td>-35.0%</td>
<td>-30.3%</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp; France (Ind):</td>
<td>-2.5%</td>
<td>-2.0%</td>
<td>-6.6%</td>
<td>-36.6%</td>
<td>-52.1%</td>
<td>-44.6%</td>
<td>-36.5%</td>
<td>-28.0%</td>
<td>-23.3%</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp; Italy (Ind):</td>
<td>#N/A</td>
<td>-2.0%</td>
<td>-6.6%</td>
<td>#N/A</td>
<td>-47.2%</td>
<td>#N/A</td>
<td>-31.4%</td>
<td>#N/A</td>
<td>-18.4%</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp; UK (Engineering Ind):</td>
<td>-25.2%</td>
<td>26.1%</td>
<td>-11.9%</td>
<td>-52.3%</td>
<td>-33.0%</td>
<td>-39.7%</td>
<td>5.0%</td>
<td>-34.4%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
</body></html>

Consumer spending is recovering from its swoon this past Fall. The U.S. Bureau of Economic Analysis reported that personal spending during February logged its second increase after six consecutive monthly declines. That recovery is [...]

U.S. Personal Spending IncreasesAgain, Modestly

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090326e.jpg" align="left" border="0" height="265" width="353">
If there is an enigmatic economy right now it is the UK&#8217;s. The
central bank is very worried about deflation and economic weakness. Yet
the last retail prices report showed inflation up sharply and the core
rate stubborn. While surveys of consumer activity and measures of
confidence are weak, Yr/Yr real retail sales excluding autos are up a
very solid and strong 5.6% and two months into the quarter they are up
at a 5.9% pace. 
 

Still, in February, retail sales fell by 1% in nominal terms
and 1.9% in real terms (ex autos). 
 

Retail sales have fallen in seven of the last 12 months. They
are down in four of the last six months and have risen in only one of
the last six months- hardly a picture of strength. The 1.5% rise in
nominal sales in January is an important factor keeping the current
growth rates firm. Just to complicated things, ex auto real retail
sales are up in Three of the past six months as well as in three of the
past four months. 
 

This strength in ex-auto sales is surprising. The UK economy
is suffering though severe financial problems as is the US. Sentiment
is down strongly. But the inflation figures do not want to settle down
and consumer spending simply finds ways to stay alive despite some
sputtering. It is hard to get a grip on the UK economy because of these
divergences. The inability of the government to sell as many bonds as
it tried to auction yesterday is another sign of unmoored expectations.
Inventors are having a hard time getting a grip on the economy and that
makes it hard for them to make investment decisions. I still think
weakness will enfold this economy and that the moves to stimulate are
the right ones, but for the moment, some unexpected readings of
strength are helping to support UK growth and to confuse investors. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">UK Real
and Nominal Retail Sales</th>
<th scope="col">Quarter</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Nominal</td>
<td>Feb-09</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>Yr Ago</td>
<td>2-date</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Retail Total</td>
<td>-1.0%</td>
<td>1.5%</td>
<td>0.0%</td>
<td>2.1%</td>
<td>-0.7%</td>
<td>0.5%</td>
<td>4.8%</td>
<td>4.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food Bev &amp;
Tobacco</td>
<td>0.7%</td>
<td>0.6%</td>
<td>-0.7%</td>
<td>2.2%</td>
<td>5.3%</td>
<td>5.1%</td>
<td>5.7%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Clothing footwear</td>
<td>-3.0%</td>
<td>5.0%</td>
<td>1.0%</td>
<td>11.8%</td>
<td>-4.8%</td>
<td>-1.1%</td>
<td>3.1%</td>
<td>19.7%</td>
</tr>
<tr>
<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>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">Real</td>
<td>&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 class="odd">
<td class="firstcol">&nbsp; Retail Ex auto</td>
<td>-1.9%</td>
<td>0.8%</td>
<td>1.9%</td>
<td>3.2%</td>
<td>0.9%</td>
<td>0.5%</td>
<td>5.6%</td>
<td>5.9%</td>
</tr>
</tbody>
</table>
</body></html>

If there is an enigmatic economy right now it is the UK’s. The central bank is very worried about deflation and economic weakness. Yet the last retail prices report showed inflation up sharply and the core rate stubborn. While surveys [...]

UK Retail Sales Fall But Trend Holds Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090326c.jpg" width="353">
Labor market stress continues. Continuing claims for unemployment insurance rose to yet another record high of 5,560,000 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 5,331,250. Continuing claims provide some indication of workers&#39; ability to find employment and they lag the initial claims figures by one week.
At the margin, there appears to be no let-up in the bleak employment picture. Initial claims for unemployment insurance rose to 652,000 which was near the series&#39; recent high. At 652,000 the figure was close to its highest since 1982 and it roughly equaled expectations.
The Labor Department indicated that the largest increases in initial claims for the week ending March 14 were in Tennessee (+1,394), Texas (+1,028), Rhode Island (+904), North Dakota (+857), and Connecticut (+522), while the largest decreases were in California (-8,555), Michigan (-7,523), Indiana (-7,475), Pennsylvania (-3,757), and Ohio (-3,397).
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 4.2% which was the highest since June of 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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090326d.jpg" width="353">
The highest insured unemployment rates in the week ending March 7 were in Michigan (7.8 percent), Oregon (7.6), Idaho (7.2), Wisconsin (6.8), Pennsylvania (6.5), Rhode Island (6.5), Nevada (6.2), Montana (6.0), Indiana (5.9), and Vermont (5.9).
The unemployment insurance claim data is available in Haver&#39;s WEEKLY database.

<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">03/21/09</th>
<th scope="col">03/14/09</th>
<th scope="col">03/07/09</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>652</td>
<td>644</td>
<td>657</td>
<td>77.7%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>5,560</td>
<td>5,438</td>
<td>96.1%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
</tbody>
</table>
</body>
</html>

Labor market stress continues. Continuing claims for unemployment insurance rose to yet another record high of 5,560,000 and remained nearly double that of last March. The series dates back to 1966. The four-week average of continuing [...]

U.S. Continuing Claims for Unemployment Insurance Reach Another Record High

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090326a.jpg" width="353">
The U.S. Bureau of Economic Analysis indicated that its revised estimate of 4Q &#39;08 was little changed. The 6.3% (AR) decline compared to the preliminary estimate of a 6.2% drop. Nevertheless, the decline was the steepest since 1982 and it approached the 7.8% quarterly decline during the &quot;credit crunch&quot; recession of 1980. Consensus expectations had been for a deepening of the 4Q decline to 6.6%.
Accompanying the GDP report was the first look at 4Q corporate profits. They fell 16.5% (-21.5% y/y) and the decline was just short of the record 17.0% drop logged during the recession of 1953. A record 59.3% drop (-66.9% y/y) in financial sector earnings led the downturn as the real estate industry imploded. Economic recession further reduced nonfinancial sector earnings by 10.7% (-8.9% y/y) before costs were brought fully under control. That decline came despite the halving of crude oil prices and was the worst quarterly drop since early 1981. Foreign sector earnings held together and rose 4.6% during 4Q but they were off 6.0% versus the year prior.
Revisions to the GDP components were fairly minor. Offsetting one another were downward revisions to inventories&#39; negative contribution to GDP growth and an upward revision to foreign trade. Nevertheless, the negative contribution from trade to U.S. growth was the first since 1Q &#39;07. Exports fell at a 23.6% rate (-1.8% y/y) as recessions abroad intensified. U.S. imports fell at a 17.5% rate (-7.5% y/y) with the developing U.S. recession.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090326b.jpg" width="353">
Real U.S. final sales to domestic purchasers contracted at a 5.8% annual rate and that was the worst decline since the 1980 recession when consumers pocketed their credit cards. Personal consumption expenditures fell an unrevised 4.3% (-1.5% y/y) as spending on motor vehicles declined at a huge 38.0% annual rate. Business fixed investment fell at a 21.7% rate (-5.2% y/y) and residential investment dropped at a 22.8% rate (-19.4% y/y).
The government sector contributed marginally to GDP growth last quarter. Activity rose at a 1.3% annual rate (3.2% y/y) led by a 6.9% (8.2% y/y) rise in Federal spending.
The estimate of price inflation was unrevised. The 0.5% increase in the GDP chain price index remained greatly reduced from the 3.9% advance during 3Q. The PCE price index fell at a 4.9% annual rate as gasoline prices fell. The residential investment chain price index fell at a 9.4% annual rate while the business fixed investment price index rose 4.6%.
The U.S. National Income &amp; Product Account data is available in Haver&#39;s USECON and the USNA databases.
Sources of the Great Moderation: shocks, friction, or monetary policy? from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/papers/2009/wp09-01bk.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">4Q &#39;08 (Final)</th>
<th scope="col">4Q &#39;08 (Preliminary)</th>
<th scope="col">4Q &#39;08 (Advance)</th>
<th scope="col">3Q &#39;08</th>
<th scope="col">4Q 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">GDP</td>
<td>-6.3</td>
<td>-6.2</td>
<td>-3.8</td>
<td>-0.5</td>
<td>-0.8</td>
<td>1.1</td>
<td>2.0</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-0.1</td>
<td>0.2</td>
<td>1.3</td>
<td>0.8</td>
<td>0.1</td>
<td>0.1</td>
<td>-0.4</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-6.2</td>
<td>-6.4</td>
<td>-5.1</td>
<td>-1.3</td>
<td>-0.7</td>
<td>1.4</td>
<td>2.4</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">Foreign Trade Effect</td>
<td>-0.2</td>
<td>-0.5</td>
<td>0.1</td>
<td>1.1</td>
<td>1.4</td>
<td>1.4</td>
<td>0.6</td>
<td>0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>-5.8</td>
<td>-5.7</td>
<td>-4.9</td>
<td>-2.2</td>
<td>-1.7</td>
<td>-0.0</td>
<td>1.8</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>0.5</td>
<td>0.5</td>
<td>-0.1</td>
<td>3.9</td>
<td>2.0</td>
<td>2.2</td>
<td>2.7</td>
<td>3.2</td>
</tr>
</tbody>
</table>


</html>

The U.S. Bureau of Economic Analysis indicated that its revised estimate of 4Q '08 was little changed. The 6.3% (AR) decline compared to the preliminary estimate of a 6.2% drop. Nevertheless, the decline was the steepest since 1982 [...]

U.S. 4Q GDP Decline Remains Sharpest Since Early 1980s As Profits Crater

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090326a.jpg" align="left" border="0" height="265" width="353">
The U.S. Bureau of Economic Analysis indicated that its
revised estimate of 4Q '08 was little changed. The 6.3% (AR) decline
compared to the preliminary estimate of a 6.2% drop. Nevertheless, the
decline was the steepest since 1982 and it approached the 7.8%
quarterly decline during the "credit crunch" recession of 1980.
Consensus expectations had been for a deepening of the 4Q decline to
6.6%.
Accompanying the GDP report was the first look at 4Q corporate
profits. They fell 16.5% (-21.5% y/y) and the decline was just short of
the record 17.0% drop logged during the recession of 1953. A record
59.3% drop (-66.9% y/y) in financial sector earnings led the downturn
as the real estate industry imploded. Economic recession further
reduced nonfinancial sector earnings by 10.7% (-8.9% y/y) before costs
were brought fully under control. That decline came despite the halving
of crude oil prices and was the worst quarterly drop since early 1981.
Foreign sector earnings held together and rose 4.6% during 4Q but they
were off 6.0% versus the year prior.
Revisions to the GDP components were fairly minor. Offsetting
one another were downward revisions to inventories' negative
contribution to GDP growth and an upward revision to foreign trade.
Nevertheless, the negative contribution from trade to U.S. growth was
the first since 1Q '07. Exports fell at a 23.6% rate (-1.8% y/y) as
recessions abroad intensified. U.S. imports fell at a 17.5% rate (-7.5%
y/y) with the developing U.S. recession.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090326b.jpg" align="right" border="0" height="265" width="353">
Real U.S. final sales to domestic purchasers
contracted at a 5.8% annual rate and that was the worst decline since
the 1980 recession when consumers pocketed their credit cards. Personal
consumption expenditures fell an unrevised 4.3% (-1.5% y/y) as spending
on motor vehicles declined at a huge 38.0% annual rate. Business fixed
investment fell at a 21.7% rate (-5.2% y/y) and residential investment
dropped at a 22.8% rate (-19.4% y/y).
The government sector contributed marginally to GDP growth
last quarter. Activity rose at a 1.3% annual rate (3.2% y/y) led by a
6.9% (8.2% y/y) rise in Federal spending.
The estimate of price inflation was unrevised. The 0.5%
increase in the GDP chain price index remained
greatly reduced from the 3.9% advance during 3Q. The PCE price index
fell at a 4.9% annual rate as gasoline prices fell. The residential
investment chain price index fell at a 9.4% annual rate while the
business fixed investment price index rose 4.6%.
The U.S. National Income &amp; Product Account data is
available in Haver's USECON and the USNA
databases.
Sources of the Great Moderation: shocks, friction, or
monetary policy? from the Federal Reserve Bank of San
Francisco is available <a href="http://www.frbsf.org/publications/economics/papers/2009/wp09-01bk.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained
2000$, % AR</a></th>
<th scope="col">4Q '08 (Final)</th>
<th scope="col">4Q '08 (Preliminary)</th>
<th scope="col">4Q '08 (Advance)</th>
<th scope="col">3Q '08</th>
<th scope="col">4Q 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">GDP</td>
<td>-6.3</td>
<td>-6.2</td>
<td>-3.8</td>
<td>-0.5</td>
<td>-0.8</td>
<td>1.1</td>
<td>2.0</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory
Effect</td>
<td>-0.1</td>
<td>0.2</td>
<td>1.3</td>
<td>0.8</td>
<td>0.1</td>
<td>0.1</td>
<td>-0.4</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-6.2</td>
<td>-6.4</td>
<td>-5.1</td>
<td>-1.3</td>
<td>-0.7</td>
<td>1.4</td>
<td>2.4</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">Foreign Trade Effect</td>
<td>-0.2</td>
<td>-0.5</td>
<td>0.1</td>
<td>1.1</td>
<td>1.4</td>
<td>1.4</td>
<td>0.6</td>
<td>0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>-5.8</td>
<td>-5.7</td>
<td>-4.9</td>
<td>-2.2</td>
<td>-1.7</td>
<td>-0.0</td>
<td>1.8</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>0.5</td>
<td>0.5</td>
<td>-0.1</td>
<td>3.9</td>
<td>2.0</td>
<td>2.2</td>
<td>2.7</td>
<td>3.2</td>
</tr>
</tbody>
</table>
U.S. Continuing Claims for
Unemployment Insurance Reach Another Record High 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 26, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090326c.jpg" align="left" border="0">
Labor market stress continues. Continuing claims for
unemployment insurance rose to yet another record high of 5,560,000
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 5,331,250. Continuing claims provide some
indication of workers' ability to find employment and they lag the
initial claims figures by one week.
At the margin, there appears to be no let-up in the bleak
employment picture. Initial claims for unemployment insurance rose to
652,000 which was near the series' recent high. At 652,000 the figure
was close to its highest since 1982 and it roughly equaled expectations.
The Labor Department indicated that the largest increases in
initial claims for the week ending March 14 were in Tennessee (+1,394),
Texas (+1,028), Rhode Island (+904), North Dakota (+857), and
Connecticut (+522), while the largest decreases were in California
(-8,555), Michigan (-7,523), Indiana (-7,475), Pennsylvania (-3,757),
and Ohio (-3,397).
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 4.2% which was the highest since June of 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.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090326d.jpg" align="right" border="0">
The highest insured unemployment rates in the week ending
March 7 were in Michigan (7.8 percent), Oregon (7.6), Idaho (7.2),
Wisconsin (6.8), Pennsylvania (6.5), Rhode Island (6.5), Nevada (6.2),
Montana (6.0), Indiana (5.9), and Vermont (5.9).
The unemployment insurance claim data is available in Haver's WEEKLY
database.

<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">03/21/09</th>
<th scope="col">03/14/09</th>
<th scope="col">03/07/09</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>652</td>
<td>644</td>
<td>657</td>
<td>77.7%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>5,560</td>
<td>5,438</td>
<td>96.1%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
</tbody>
</table>
UK Retail Sales Fall But Trend
Holds Up 
by <a href="/comment/Brusca.html">Robert
Brusca</a> March 26, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090326e.jpg" align="left" border="0" height="265" width="353">
If there is an enigmatic economy right now it is the UK&#8217;s. The
central bank is very worried about deflation and economic weakness. Yet
the last retail prices report showed inflation up sharply and the core
rate stubborn. While surveys of consumer activity and measures of
confidence are weak, Yr/Yr real retail sales excluding autos are up a
very solid and strong 5.6% and two months into the quarter they are up
at a 5.9% pace. 
 

Still, in February, retail sales fell by 1% in nominal terms
and 1.9% in real terms (ex autos). 
 

Retail sales have fallen in seven of the last 12 months. They
are down in four of the last six months and have risen in only one of
the last six months- hardly a picture of strength. The 1.5% rise in
nominal sales in January is an important factor keeping the current
growth rates firm. Just to complicated things, ex auto real retail
sales are up in Three of the past six months as well as in three of the
past four months. 
 

This strength in ex-auto sales is surprising. The UK economy
is suffering though severe financial problems as is the US. Sentiment
is down strongly. But the inflation figures do not want to settle down
and consumer spending simply finds ways to stay alive despite some
sputtering. It is hard to get a grip on the UK economy because of these
divergences. The inability of the government to sell as many bonds as
it tried to auction yesterday is another sign of unmoored expectations.
Inventors are having a hard time getting a grip on the economy and that
makes it hard for them to make investment decisions. I still think
weakness will enfold this economy and that the moves to stimulate are
the right ones, but for the moment, some unexpected readings of
strength are helping to support UK growth and to confuse investors. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">UK Real
and Nominal Retail Sales</th>
<th scope="col">Quarter</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Nominal</td>
<td>Feb-09</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>Yr Ago</td>
<td>2-date</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Retail Total</td>
<td>-1.0%</td>
<td>1.5%</td>
<td>0.0%</td>
<td>2.1%</td>
<td>-0.7%</td>
<td>0.5%</td>
<td>4.8%</td>
<td>4.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food Bev &amp;
Tobacco</td>
<td>0.7%</td>
<td>0.6%</td>
<td>-0.7%</td>
<td>2.2%</td>
<td>5.3%</td>
<td>5.1%</td>
<td>5.7%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Clothing footwear</td>
<td>-3.0%</td>
<td>5.0%</td>
<td>1.0%</td>
<td>11.8%</td>
<td>-4.8%</td>
<td>-1.1%</td>
<td>3.1%</td>
<td>19.7%</td>
</tr>
<tr>
<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>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">Real</td>
<td>&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 class="odd">
<td class="firstcol">&nbsp; Retail Ex auto</td>
<td>-1.9%</td>
<td>0.8%</td>
<td>1.9%</td>
<td>3.2%</td>
<td>0.9%</td>
<td>0.5%</td>
<td>5.6%</td>
<td>5.9%</td>
</tr>
</tbody>
</table>
</body></html>

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090325c.jpg" align="left" border="0" height="265" width="353">
The IFO Index fell again in March but the IFO expectations
index rose. Expectations are still only in the 16th percentile with
this ongoing bounce. The overall business climate and the current
situation indices are at lows. 
 

The chart above shows how some of the sector indices based on
diffusion indices are doing. All three pictured indices are falling
sharply. The services and retail sectors have made a small rebound.
Manufacturing is slowing its descent. Manufacturing and the all- sector
index (not pictures) are at the bottom of their range. The wholesaling
and services sectors (wholesaling not pictured) hover around the bottom
10% of their respective ranges. The retail sector is in the bottom 20%
of its range. Construction is nearly midrange, being far less affected
overall &#8211; so far. 
 

On the month the manufacturing index ticked a bit lower.
Retailing, services and wholesaling moved a bit lower too. But
Construction showed higher diffusions reading. Contraction in there is
becoming less pronounced. And even though manufacturing deteriorated it
was by the slimmest of margins. In broad terms the IFO reading is in
agreement with the PMI sector indices from Market that show a reduction
in the rate of decline in both MFG and services. 
 

Still, the news from IFO was not good and was not a positive
as some had hoped for. The upshot is that the report weighed on the
euro. However there might be enough evidence of an abatement in the
slowdown for Europe to call for additional stimulus. Today the EU&#8217;s
Junker was saying Europe would not simply cave into the US wishes for
more European stimulus because the economy&#8217;s spiral was still so
severe. But if the severe phase of the European downturn is abating, a
dollop of stimulus might be helpful. If Europe turns more to look at
the facts of its circumstance in stead of being disagreeable with the
US, it might find that the US urging is pushing it in the right
direction. 
 
 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="10" scope="col"> IFO Survey: Germany
</th></tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="5"> Percent: Yr/Yr</td>
<td colspan="4"> Index Numbers</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td> Mar 09</td>
<td> Feb 09</td>
<td> Jan 09</td>
<td> Dec 08</td>
<td> Nov 08</td>
<td> Current</td>
<td> Feb 09</td>
<td> Curr/Avg</td>
<td>%tile</td>
</tr>
<tr class="grey2">
<td class="firstcol">Biz Climate</td>
<td> -21.5%</td>
<td> -20.6%</td>
<td> -19.7%</td>
<td> -20.0%</td>
<td> -17.8%</td>
<td>82.1</td>
<td>82.6</td>
<td>85.5%</td>
<td>0.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Current Situation</td>
<td> -25.8%</td>
<td> -23.5%</td>
<td> -19.7%</td>
<td> -18.1%</td>
<td> -14.2%</td>
<td>82.7</td>
<td>84.3</td>
<td>86.2%</td>
<td>0.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Biz Expectations</td>
<td> -16.9%</td>
<td> -17.5%</td>
<td> -19.8%</td>
<td> -22.0%</td>
<td> -21.3%</td>
<td>81.6</td>
<td>80.9</td>
<td>84.8%</td>
<td>16.3%</td>
</tr>
<tr class="grey1">
<td class="firstcol">average &amp; range since</td>
<td>Jun-91</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body></html>

The IFO Index fell again in March but the IFO expectations index rose. Expectations are still only in the 16th percentile with this ongoing bounce. The overall business climate and the current situation indices are at lows. The chart [...]

IFO Index Drops But Sentiment Drops But Sentiment Makes Some Gains

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090325d.jpg" width="353">
February sales of new single-family homes ticked up off their lowest level in the series&#39; history. Their 4.7% month-to-month rebound to 337,000 units, nevertheless, left them down by roughly three-quarters from their peak during July 2005. February sales exceeded Consensus expectations for 300,000 units.
The February rebound in home sales was not broad based and limited to moderate increases in the South and the West. Home sales in the Midwest and in the Northeast continued lower.
Reflecting sales weakness was another decline in the median price for a new single-family home. At $200,900, the figure was off 11.6% during just the last two months and by nearly 20% since last year as homebuilders attempted to move inventory. Since their peak early in 2007, new home prices have fallen by roughly one quarter.
In fact, that effort to move homes continued successful and the inventory of unsold homes is down by 43% since the peak during 2006. In each of the country&#39;s regions, the inventory is down by one-quarter to one-third just during the last year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090325e.jpg" width="353">
Despite the declines in inventory levels, the month&#39;s supply of new homes for sale remains high due to low sales. It ticked down just slightly during February from the record high to 12.2 months.
By range there have no sales of new homes priced over $750,000 during the last three months. There were 1,000 registered sales of a homes priced between $500,000 &amp; $750,000 and 2,000 sales of homes priced between $400,000 and $500,000. These figures compare to sales between 3,000 and 8,000 of homes in the ranges below $400,000.
The new home sales figures are available in Haver&#39;s USECON database.
Today&#39;s House testimony by Fed Governor Elizabeth A. Duke titled Credit availability and prudent lending standards can be found <a href="http://www.federalreserve.gov/newsevents/testimony/duke20090325a.htm"> here</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">US New Homes</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 Sales (SAAR, 000s)</td>
<td>337</td>
<td>332</td>
<td>-41.1</td>
<td>479</td>
<td>768</td>
<td>1,049</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Northeast</td>
<td>29</td>
<td>30</td>
<td>&nbsp;-25.6</td>
<td>35</td>
<td>64</td>
<td>64</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>50</td>
<td>55</td>
<td>-35.1</td>
<td>69</td>
<td>118</td>
<td>161</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; South</td>
<td>193</td>
<td>176</td>
<td>-38.5</td>
<td>264</td>
<td>408</td>
<td>559</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>65</td>
<td>61</td>
<td>-54.2</td>
<td>111</td>
<td>178</td>
<td>266</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA, $)</td>
<td>200,900</td>
<td>206,800</td>
<td>-18.1</td>
<td>230,217</td>
<td>243,742</td>
<td>243,067</td>
</tr>
</tbody>
</table>
</body>
</html>

February sales of new single-family homes ticked up off their lowest level in the series' history. Their 4.7% month-to-month rebound to 337,000 units, nevertheless, left them down by roughly three-quarters from their peak during July [...]

U.S. New Home Sales Step Up From Record Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090325a.jpg" width="353">
New orders for durable goods rose a surprising 3.4% last month after a revised 7.3% January decline that was deeper than reported initially. Despite the latest increase, new orders have fallen by roughly one quarter since the middle of last year; however, downward momentum in the level of bookings may have slackened. The latest increase compared to Consensus expectations for a 2.3% drop.
The unexpected rise in orders last month was not limited to any one sector. Machinery orders were the strongest and they posted a 13.5% rise (-13.1% y/y) which recovered the sharp downdraft during January. Orders for computers &amp; related products followed with a 10.1% increase (-21.2% y/y). That erased the January drop. Orders for transportation equipment recouped their descent during January with a 2.0% increase. They remained off by nearly one-half from the year ago level. Still to the downside were February orders for new aircraft which dropped 3.6% and orders for motor vehicles &amp; parts which fell by 0.6%. Orders for communications equipment also fell sharply.
There were glimmers of stability in other industries, too. Electrical equipment bookings rose 1.6% but that made up just a piece of a January drop. They&#39;re still down by one quarter from the year ago level.Primary metals orders ticked lower by just 0.6%.
Capital equipment orders recouped nearly all of their January shortfall with an 11.0% rise. Nevertheless, they still are down by one-quarter from last February. Orders for nondefense capital goods made up their January decline but orders excluding aircraft recovered just half the January down draft. During the last ten years there has been an 80% correlation between the y/y change in nondefense capital goods orders and the change in equipment &amp; software spending in the GDP accounts. The correlation of the GDP figure with capital goods shipments is, as one would expect, a larger 92%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090325b.jpg" width="353">
The rise in new orders was not accompanied by higher shipments of durable goods. They ticked 0.5% lower last month and are off 15.4% y/y. That year-to-year weakness has been accompanied by a 17.9% twelve-month decline in industrial production of durable goods. During the last ten years there has been an 83% correlation between the twelve-month change in shipments of durable goods and the change in durables industrial production.
Inventory accumulation has responded resoundingly to these production cuts. Inventories of manufactured durables fell 0.9% after a 1.1% January drop. But the last was just the second substantial monthly decline since 2003 suggesting that continued efforts to curb the inventories are waiting. Six-month growth was about flat and that compares to outright inventory decumulation at an 8.0% rate during the last recession.
The durable goods 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/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</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">Durable Goods Orders</td>
<td>3.4</td>
<td>-7.3</td>
<td>-23.4</td>
<td>-5.8</td>
<td>1.4</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>3.9</td>
<td>-5.9</td>
<td>-16.2</td>
<td>-1.2</td>
<td>-0.3</td>
<td>9.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>7.4</td>
<td>-8.9</td>
<td>-29.1</td>
<td>-6.8</td>
<td>3.5</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>6.6</td>
<td>-11.3</td>
<td>-17.8</td>
<td>-0.3</td>
<td>-2.7</td>
<td>10.7</td>
</tr>
</tbody>
</table>
</body>
</html>

New orders for durable goods rose a surprising 3.4% last month after a revised 7.3% January decline that was deeper than reported initially. Despite the latest increase, new orders have fallen by roughly one quarter since the middle [...]

Rise in U.S. Durable Goods Orders Surprises

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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Kathleen Stephansen, CBE

260121A2.jpg

260121B2.jpg

Mortgage applications rose 14.1% w/w (76.8% y/y) in the week ending January 16, after soaring 28.5% w/w (55.1% y/y) in the week ending January 9, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house rose 5.1% w/w (19.1% y/y) in the week ending January 16, after rising 15.9% w/w (14.0% y/y) in the week ending January 9.  Applications for loan refinancing jumped 20.4% w/w (182.9% y/y) in the latest week, following a surge of 40.1% w/w (128.1% y/y) in the January 9 week.

The effective interest rate on a 30-year fixed-rate loan fell 3bps to 6.32% in the week ending January 16 from 6.35% in the week ending January 9. The rate on 15-year fixed-rate mortgages dropped 4bps to 5.71% in the latest week from 5.75% in the prior week. The 30-year Jumbo rate also fell 4bps to 6.50% in the January 16 week from 6.54% in the January 9 week. The rate on a 5-year ARM rose 5bps to 5.65% in the latest week from 5.60% in the January 9 week.

The share of applications for refinancing an existing loan rose to 61.9% of total applications in the January 16 week from 60.2% in the week ending January 9. The adjustable-rate mortgage (ARM) share of activity rose to 7.1% in the week ending January 16 from 7.0% in the week ending January 9.

The average size of a mortgage loan rose 2.9% w/w (11.1% y/y) to $415,300 in the week ending January 16, after rising 6.3% w/w (9.9% y/y) to $403,600 in the week ending January 9. The average size of a purchase loan edged down 0.7% w/w (+1.3% y/y) to $437,100 in the latest week after rising 7.7% w/w (4.9% y/y) to $440,300 in the January 9 week. The average size of a loan to refinance a mortgage rose 6.0% w/w (39.4% y/y) to $401,900 in the week ending January 16, after rising 6.0% w/w (27.8% y/y) to $379,200 in the week ending January 9.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Purchase and refinancing loan applications posted healthy rises in the latest week.
- Effective interest rate on 30-year fixed loans fell to 6.32%.
- Average loan size rose.

U.S. Mortgage Applications Continue to Surge in the Week of January 16

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.

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

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

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Asia

Economic Letter from Asia: Shifting Gears

Winnie Tapasanun

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Economy in Brief

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