Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090319d.jpg" width="353">
The latest figures from the Philadelphia Federal Reserve Bank indicate that economic contraction continued. During March, the Index of General Business conditions in the manufacturing sector came in at -35.0 versus a reading of -41.3 last month. Expectations were for -39. The latest was near the lowest since 1991.
During the last ten years there has been a 70% correlation between the level of the Philadelphia Fed Business Conditions Index and the three-month growth in factory sector industrial production. There has been a 64% correlation with q/q growth in real GDP.
The Philadelphia Fed constructs a diffusion index for total business activity and each of the sub-indexes. The business conditions index reflects a separate survey question.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090319e.jpg" width="353">
Amongst the sub-indexes, the employment index fell out of bed. The 6.2 point decline pulled the index to another record low. Fifty-two percent of respondents expected to reduce employment levels, another record, while none expected to raise them. During the last ten years there has been a 79% correlation between the index level and the m/m change in manufacturing sector payrolls.
The new orders figure again was quite weak and deteriorated to the lowest level since 1980. The shipments index improved from its record low, but the move was slight.
The prices paid index at -31.3 was near the record low. Five percent of respondents planned to raise prices while thirty seven percent expected to lower them. During the last ten years there has been a 73% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 82% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months fell slightly but remained near its highest level since September. The expectations index for new orders fell back to the lowest level since December but the expectations index for employment held steady at a slightly improved reading versus the lows this past fall.
The figures from the Philadelphia Federal Reserve can be found in Haver&#39;s SURVEYS database.
The latest Business Outlook Survey from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2009/bos0309.cfm">here.</a>
The Peopling of Macroeconomics: Microeconomics of Aggregate Consumer Expenditures from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2009/q1/brq109_peopling-of-macroeconomics.pdf">here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Philadelphia Fed (%)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">March&nbsp; &#39;08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>-35.0</td>
<td>-41.3</td>
<td>-15.9</td>
<td>-21.3</td>
<td>5.0</td>
<td>8.0</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>-31.3</td>
<td>&nbsp;-13.7</td>
<td>&nbsp;53.4</td>
<td>36.4</td>
<td>26.3</td>
<td>36.7</td>
</tr>
</tbody>
</table>
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The latest figures from the Philadelphia Federal Reserve Bank indicate that economic contraction continued. During March, the Index of General Business conditions in the manufacturing sector came in at -35.0 versus a reading of -41.3 [...]

Philadelphia Fed Index Indicates Further Economic Contraction

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090319f.jpg" width="353">
The Conference Board reported that the February composite index of leading economic indicators fell 0.4% to a new low for this cycle. The decline followed a 0.1% January increase that was downwardly revised.
Six of the ten components of the leading index rose last month including a sharp steepening of the yield curve, but these gains were offset by materially higher claims for unemployment insurance, shorter hours worked, lower stock prices and reduced consumer expectations.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090319g.jpg" width="353">
The breadth of one-month increase amongst the leaders&#39; 10 components improved to 60% but over a six-month period the breadth of gain amongst the components fell to just 20%.
The leading index is based on actual reports for eight economic data series. The Conference Board initially estimates two series, orders for consumer goods and orders for capital goods.
Continuing to reflect economic recession, the coincident indicators dropped a sharp 0.4% and they are off 4.0% during the last year. Half of the four component series fell with outsized declines registered by employment and production. Over the last ten years there has been a 76% correlation between this y/y change and real GDP.
The lagging index fell 0.4% after a 0.3% January decline. The ratio of coincident-to-lagging indicators (a measure of economic excess) was stable at its lowest level since 1975.
The Conference Board figures are available in Haver&#39;s BCI database. Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
Risk management in the banking industry is yesterday&#39;s U.S. Senate testimony of Roger T. Cole, Director, Division of Banking Supervision and Regulation, U.S. Federal Reserve. It can be found <a href="http://www.federalreserve.gov/newsevents/testimony/cole20090318a.htm">here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a> (%)</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">Nov. 6-Month % (AR)</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">Leading</td>
<td>-0.4</td>
<td>0.1</td>
<td>-0.1</td>
<td>-4.1</td>
<td>-2.8</td>
<td>-0.3</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>-0.4</td>
<td>-0.6</td>
<td>-0.7</td>
<td>-6.1</td>
<td>-0.8</td>
<td>1.6</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>-0.4</td>
<td>-0.3</td>
<td>-0.1</td>
<td>0.9</td>
<td>2.9</td>
<td>2.8</td>
<td>3.3</td>
</tr>
</tbody>
</table>


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The Conference Board reported that the February composite index of leading economic indicators fell 0.4% to a new low for this cycle. The decline followed a 0.1% January increase that was downwardly revised. Six of the ten components [...]

U.S. Leading Indicators Fall To Cycle Low

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090319c.jpg" width="353">
The UK CBI survey for industry shows a new low at -58. Exports also are on a new low despite the weakness in sterling that should aid competitiveness. 
New orders slipped to -58 in March from -56 in February. The outlook index continues to slide. At -48 it is on a new low as well. The outlook for the volume of output three-months ahead has slipped by 6 points since November while orders have slipped much more, by 20 points. Still both readings are on at their lows since 2000. 
The six month changes (declines) seem to have slowed down for as orders are dropping at a slower pace. The three-month change in orders has been cycling and is well off it lows. Only the Yr/Yr measure of declines continues to move relentlessly lower, indicating deeper declines. All of this is consistent with the notion that the UK is going to leave the most severe part of its downturn behind it. It is not yet certain, but the data are consistent with such a transition in the phase of the UK cycle. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol" colspan="10">
UK Industrial volume data CBI Survey</th>
</tr>
</thead>
<tbody>
<tr class="grey2">
<td class="firstcol">Reported:</td>
<td>Mar-09</td>
<td>Feb-09</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>Nov-08</td>
<td>12MO Avg</td>
<td>Pcntle</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr class="even">
<td class="firstcol">Total Orders</td>
<td>-58</td>
<td>-56</td>
<td>-48</td>
<td>-35</td>
<td>-38</td>
<td>-20</td>
<td>0%</td>
<td>9</td>
<td>-56</td>
<td>65</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Export Orders</td>
<td>-51</td>
<td>-49</td>
<td>-39</td>
<td>-33</td>
<td>-31</td>
<td>-18</td>
<td>0%</td>
<td>3</td>
<td>-49</td>
<td>52</td>
</tr>
<tr class="even">
<td class="firstcol">Stocks: FinGds</td>
<td>31</td>
<td>27</td>
<td>27</td>
<td>21</td>
<td>25</td>
<td>18</td>
<td>100%</td>
<td>27</td>
<td>-2</td>
<td>29</td>
</tr>
<tr class="grey2">
<td class="firstcol">Looking ahead</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>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">Output Volume :Nxt 3M</td>
<td>-48</td>
<td>-44</td>
<td>-43</td>
<td>-42</td>
<td>-42</td>
<td>-16</td>
<td>0%</td>
<td>28</td>
<td>-44</td>
<td>72</td>
</tr>
<tr class="odd">
<td class="firstcol">Avg Prices 4Nxt 3m</td>
<td>-13</td>
<td>-12</td>
<td>0</td>
<td>0</td>
<td>10</td>
<td>18</td>
<td>13%</td>
<td>34</td>
<td>-19</td>
<td>53</td>
</tr>
<tr class="grey4">
<td class="firstcol" colspan="11">From end 2000</td>
</tr>
</tbody>
</table>
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The UK CBI survey for industry shows a new low at -58. Exports also are on a new low despite the weakness in sterling that should aid competitiveness. New orders slipped to -58 in March from -56 in February. The outlook index [...]

UK Orders Decline To New Low But Pace Of Decline Slows... Sort Of

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090319a.jpg" width="353">
The latest figures from the Labor Department continue to indicate extreme weakness in the labor market. Continuing claims for unemployment insurance reached another record. At 5,473,000, the level of continuing claims in the latest week remained nearly double that of last March. The series dates back to 1966. The four-week average of continuing claims jumped 118,800 to 5,251,250. Continuing claims provide some indication of workers&#39; ability to find employment and they lag the initial claims figures by one week.
The figures on initial claims may indicate improvement in the picture of the labor market, but at this point, it&#39;s very tentative. First time claims for unemployment insurance reversed the prior week&#39;s upwardly revised gain and claims have been stable for a few weeks. The 12,000 decline in the latest period to 646,000, nevertheless, still left them near their highest level since 1982.
The latest initial claims figures include the survey period for March nonfarm payroll employment. There was a 15,000 (2.4%) increase in claims from the February period. During the last ten years there has been an 85% (negative) correlation between the level of claims and the month-to-month change in nonfarm payroll employment.
BLS indicated that the largest increases in initial claims for the week ending March 7 were in Indiana (+5,603), Pennsylvania (+4,702), Texas (+4,007), Florida (+3,894), and Michigan (+2,276), while the largest decreases were in New York (-11,218), Connecticut (-2,254), Tennessee (-2,153), California (-1,277), and Oregon (-1,139).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090319b.jpg" width="353">
Though the latest level of continuing claims was a record, the labor force has grown as well, by nearly 30% over the last twenty years. Therefore, the insured rate of unemployment is not at a record high. It rose to 4.1% 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. The highest insured unemployment rates in the week ending February 28 were in Michigan (8.0 percent), Oregon (7.7), Idaho (7.3), Wisconsin (6.9), Pennsylvania (6.8), Puerto Rico (6.6), Rhode Island (6.4), Nevada (6.2), Montana (6.1), and Alaska (6.0).
The unemployment insurance claim data is available in Haver&#39;s WEEKLY database.
More Money: Understanding Recent Changes in the Monetary Base from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/09/03/Gavin.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">03/14/09</th>
<th scope="col">03/07/09</th>
<th scope="col">02/28/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>646</td>
<td>658</td>
<td>645</td>
<td>72.3%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>5,473</td>
<td>5,288</td>
<td>91.0%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
</tbody>
</table>
</body>
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The latest figures from the Labor Department continue to indicate extreme weakness in the labor market. Continuing claims for unemployment insurance reached another record. At 5,473,000, the level of continuing claims in the latest [...]

U.S. Continuing Claims for Unemployment Insurance Touch New Record; Initial Claims Dip

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090319a.jpg" align="left" border="0" height="265" width="353">
It is the largest drop in e-Zone IP since records have been
kept. Intermediate goods, capital goods and consumer goods output
trends are being clobbered. Each sector is worsening sequentially. Each
of the countries displayed: Germany, France, Italy, and the UK, is
experiencing sequentially worsening rates of growth for their selected
measures of IP. 
 

It is getting worse. The EU is in the belly of the beast and
beast is recession. 
 

Statements for Germany today confirm that things are getting
worse there and that there are no signs of a turnaround. In France
INSEE is now looking for Q1-2009 to be weaker than Q4-2008. In France
despite the lobbying Sarkozy has done for more stimulus and relaxation
within the Zone, French workers are striking as if he could DO
SOMETHING about the severity of the recession. They are in fact wanting
him to do more to mitigate it. But France, like other EMU members, has
to be mindful of the Maastricht rules that apply to budget deficits.
Europeans, despite seeing this worsening in their respective economies,
are amazingly blasé about doing more to mitigate the effects. Moreover,
within the Group of 20 European member are far more interested in rules
and regulations for the future than in dealing with current issues. If
they were firemen they&#8217;d be calling in the arson investigators instead
of dousing the still-raging and expanding flames. Europeans are
different. 
 


<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">03/14/09</th>
<th scope="col">03/07/09</th>
<th scope="col">02/28/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>646</td>
<td>658</td>
<td>645</td>
<td>72.3%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>5,473</td>
<td>5,288</td>
<td>91.0%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
</tbody>
</table>
UK Orders Decline To New Low But
Pace Of Decline Slows...Sort Of 
by <a href="/comment/Brusca.html">Robert
Brusca</a> March 19, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090319c.jpg" align="left" border="0" height="265" width="353">
The UK CBI survey for industry shows a new low at -58. Exports
also are on a new low despite the weakness in sterling that should aid
competitiveness. 
 

New orders slipped to -58 in March from -56 in February. The
outlook index continues to slide. At -48 it is on a new low as well.
The outlook for the volume of output three-months ahead has slipped by
6 points since November while orders have slipped much more, by 20
points. Still both readings are on at their lows since 2000. 
 

The six month changes (declines) seem to have slowed down for
as orders are dropping at a slower pace. The three-month change in
orders has been cycling and is well off it lows. Only the Yr/Yr measure
of declines continues to move relentlessly lower, indicating deeper
declines. All of this is consistent with the notion that the UK is
going to leave the most severe part of its downturn behind it. It is
not yet certain, but the data are consistent with such a transition in
the phase of the UK cycle. 
 
 


 
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="11" scope="col">UK Industrial volume data CBI Survey</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Reported:</td>
<td>Mar 09</td>
<td>Feb 09</td>
<td>Jan 09</td>
<td>Dec 08</td>
<td>Nov 08</td>
<td>12MO Avg</td>
<td>Pcntle</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Orders</td>
<td>-58</td>
<td>-56</td>
<td>-48</td>
<td>-35</td>
<td>-38</td>
<td>-20</td>
<td>0%</td>
<td>9</td>
<td>-56</td>
<td>65</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Export Orders</td>
<td>-51</td>
<td>-49</td>
<td>-39</td>
<td>-33</td>
<td>-31</td>
<td>-18</td>
<td>0%</td>
<td>3</td>
<td>-49</td>
<td>52</td>
</tr>
<tr class="odd">
<td class="firstcol">Stocks: FinGds</td>
<td>31</td>
<td>27</td>
<td>27</td>
<td>21</td>
<td>25</td>
<td>18</td>
<td>100%</td>
<td>27</td>
<td>-2</td>
<td>29</td>
</tr>
<tr class="even">
<td class="firstcol">Looking ahead</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>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Output Volume :Nxt 3M</td>
<td>-48</td>
<td>-44</td>
<td>-43</td>
<td>-42</td>
<td>-42</td>
<td>-16</td>
<td>0%</td>
<td>28</td>
<td>-44</td>
<td>72</td>
</tr>
<tr class="odd">
<td class="firstcol">Avg Prices 4Nxt 3m</td>
<td>-13</td>
<td>-12</td>
<td>0</td>
<td>0</td>
<td>10</td>
<td>18</td>
<td>13%</td>
<td>34</td>
<td>-19</td>
<td>53</td>
</tr>
<tr>
<td colspan="11" class="firstcol">From end 2000</td>
</tr>
</tbody>
</table>
U.S. Leading Indicators Fall To
Cycle Low 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 19, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090319f.jpg" align="left" border="0" height="265" width="353">
The Conference Board reported that the February composite
index of leading economic indicators fell 0.4% to a new low for this
cycle. The decline followed a 0.1% January increase that was downwardly
revised.
Six of the ten components of the leading index rose last month
including a sharp steepening of the yield curve, but these gains were
offset by materially higher claims for unemployment insurance, shorter
hours worked, lower stock prices and reduced consumer expectations.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090319g.jpg" align="right" border="0" height="265" width="353">
The breadth of one-month increase amongst the leaders' 10
components improved to 60% but over a six-month period the breadth of
gain amongst the components fell to just 20%.
The leading index is based on actual reports for eight
economic data series. The Conference Board initially estimates two
series, orders for consumer goods and orders for capital goods.
Continuing to reflect economic recession, the coincident
indicators dropped a sharp 0.4% and they are off 4.0% during the last
year. Half of the four component series fell with outsized declines
registered by employment and production. Over the last ten years there
has been a 76% correlation between this y/y change and real GDP.
The lagging index fell 0.4% after a 0.3% January decline. The
ratio of coincident-to-lagging indicators (a measure of economic
excess) was stable at its lowest level since 1975.
The Conference Board figures are available in Haver's BCI
database. Visit the Conference Board's <a href="http://www.conference-board.org">site</a> for
coverage of leading indicator series from around the world.


Risk management in the banking industry is
yesterday's U.S. Senate testimony of Roger T. Cole, Director, Division
of Banking Supervision and Regulation, U.S. Federal Reserve. It can be
found <a href="http://www.federalreserve.gov/newsevents/testimony/cole20090318a.htm">here.</a>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business
Cycle Indicators</a> (%)</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">Nov. 6-Month % (AR)</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">Leading</td>
<td>-0.4</td>
<td>0.1</td>
<td>-0.1</td>
<td>-4.1</td>
<td>-2.8</td>
<td>-0.3</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>-0.4</td>
<td>-0.6</td>
<td>-0.7</td>
<td>-6.1</td>
<td>-0.8</td>
<td>1.6</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>-0.4</td>
<td>-0.3</td>
<td>-0.1</td>
<td>0.9</td>
<td>2.9</td>
<td>2.8</td>
<td>3.3</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Indicates
Further Economic Contraction 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 19, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090319d.jpg" align="left" border="0" height="265" width="353">
The latest figures from the Philadelphia Federal Reserve Bank
indicate that economic contraction continued. During March, the Index
of General Business conditions in the manufacturing sector came in at
-35.0 versus a reading of -41.3 last month. Expectations were for -39.
The latest was near the lowest since 1991.
During the last ten years there has been a 70% correlation
between the level of the Philadelphia Fed Business Conditions Index and
the three-month growth in factory sector industrial production. There
has been a 64% correlation with q/q growth in real GDP.
The Philadelphia Fed constructs a diffusion index for total
business activity and each of the sub-indexes. The business conditions
index reflects a separate survey question.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090319e.jpg" align="right" border="0" height="265" width="353">
Amongst the sub-indexes, the employment index fell out of bed.
The 6.2 point decline pulled the index to another record low. Fifty-two
percent of respondents expected to reduce employment levels, another
record, while none expected to raise them. During the last ten years
there has been a 79% correlation between the index level and the m/m
change in manufacturing sector payrolls.
The new orders figure again was quite weak and deteriorated to
the lowest level since 1980. The shipments index improved from its
record low, but the move was slight.
The prices paid index at -31.3 was near the record low. Five
percent of respondents planned to raise prices while thirty seven
percent expected to lower them. During the last ten years there has
been a 73% correlation between the prices paid index and the
three-month growth in the intermediate goods PPI. There has been an 82%
correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six
months fell slightly but remained near its highest level since
September. The expectations index for new orders fell back to the
lowest level since December but the expectations index for employment
held steady at a slightly improved reading versus the lows this past
fall.
The figures from the Philadelphia Federal Reserve can be found
in Haver's SURVEYS database.
The latest Business Outlook Survey from the Federal
Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2009/bos0309.cfm">here.</a>
The Peopling of Macroeconomics: Microeconomics of
Aggregate Consumer Expenditures from the Federal Reserve Bank
of Philadelphia is available <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2009/q1/brq109_peopling-of-macroeconomics.pdf">here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Philadelphia
Fed (%)</th>
<th scope="col">March</th>
<th scope="col">February</th>
<th scope="col">March&nbsp; '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>-35.0</td>
<td>-41.3</td>
<td>-15.9</td>
<td>-21.3</td>
<td>5.0</td>
<td>8.0</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>-31.3</td>
<td>&nbsp;-13.7</td>
<td>&nbsp;53.4</td>
<td>36.4</td>
<td>26.3</td>
<td>36.7</td>
</tr>
</tbody>
</table>
</body></html>

It is the largest drop in e-Zone IP since records have been kept. Intermediate goods, capital goods and consumer goods output trends are being clobbered. Each sector is worsening sequentially. Each of the countries displayed: Germany, [...]

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318g.jpg" align="left" border="0" height="265" width="353">
Italy&#8217;s industrial production (IP) dropped again in January
but the decline was puny in comparison with the recent string of
monthly disasters. This month&#8217;s drop of 0.2% keeps the string of
declines alive but, ironically, gives some room for hope to come alive
that these declines will not go on forever. 
 

The declines in the quarter&#8211;to-date are still quite severe &#8211;
despite the small drop in January. That&#8217;s because the level of
industrial activity at the end of the quarter in Q4-2008 is so low that
the first month of 2009 leaves the early quarter reading at a very low
level compared to the Q4 2008 average level. 
 

All the main sectors industrial sectors have been showing
strong declines. Italy&#8217;s GDP has been dropping and its neighbors in the
Euro Area are experiencing continuing weakness. It is far too early to
treat the smaller IP decline in Italy as the beginning of good news on
the industrial front. The news is welcome but the good news is the
first such news and appears totally out of context and so far without
support elsewhere. Generally this is not the sector where you expect to
see good new appear first. 
 


 
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">Italy IP Excluding Construction</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td>Jan-09</td>
<td>Dec-08</td>
<td>Nov-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Quarter-to-date</td>
</tr>
<tr>
<td class="firstcol">IP-MFG</td>
<td>-0.2%</td>
<td>-2.7%</td>
<td>-3.2%</td>
<td>-21.9%</td>
<td>-20.7%</td>
<td>-14.6%</td>
<td>-17.2%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>-1.7%</td>
<td>-0.9%</td>
<td>0.4%</td>
<td>-8.5%</td>
<td>-8.4%</td>
<td>-8.2%</td>
<td>-12.3%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>0.5%</td>
<td>-3.5%</td>
<td>-2.9%</td>
<td>-21.3%</td>
<td>-19.5%</td>
<td>-15.0%</td>
<td>-15.9%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>-2.0%</td>
<td>-4.7%</td>
<td>-3.5%</td>
<td>-33.9%</td>
<td>-30.9%</td>
<td>-21.8%</td>
<td>-32.2%</td>
</tr>
</tbody>
</table>
</body></html>

Italy’s industrial production (IP) dropped again in January but the decline was puny in comparison with the recent string of monthly disasters. This month’s drop of 0.2% keeps the string of declines alive but, ironically, gives some [...]

January IP Drops but the Pace of Decline Slows

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318d.jpg" align="right" border="0" height="265" width="353">In an anticipated move the
Federal Open Market Committee today
left the Federal funds rate in a "range from 0 to 1/4
percent."&nbsp; The discount also was left unchanged at
0.50%.&nbsp; The Fed funds rate remained the lowest ever.
Regarding economic liquidity, the Fed focused on the housing
market indicating that "To provide greater support to mortgage lending
and housing markets, the Committee decided today to increase the size
of the Federal Reserve&#8217;s balance sheet further by purchasing up to an
additional $750 billion of agency mortgage-backed securities, bringing
its total purchases of these securities to up to $1.25 trillion this
year, and to increase its purchases of agency debt this year by up to
$100 billion to a total of up to $200 billion."&nbsp; Additional
action to provide liquidity also was taken.
Regarding economic growth, the Fed indicated that "that the
economy continues to contract.&nbsp; Job losses, declining equity
and housing wealth, and tight credit conditions have weighed on
consumer sentiment and spending.&nbsp; Weaker sales prospects and
difficulties in obtaining credit have led businesses to cut back on
inventories and fixed investment."<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318e.jpg" align="right" border="0" height="265" width="353">

"... the Committee anticipates that policy actions to
stabilize financial markets and institutions, together with fiscal and
monetary stimulus, will contribute to a gradual resumption of
sustainable economic growth."
Regarding inflation the same statement was offered as at the
last meeting. "... that inflation will remain subdued.&nbsp;
Moreover, the Committee sees some risk that inflation could persist for
a time below rates that best foster economic growth and price stability
in the longer term.
The decision was unanimous amongst FOMC voters.
For the complete text of the Fed's latest press release please
follow this <a href="http://www.federalreserve.gov/newsevents/press/monetary/20090318a.htm">link</a>.
The Fed's effort to liquefy the economic system has
succeeded.&nbsp; Growth in the money supply measure M2 has been
running at double-digit rates versus five-to-six percent from 2006 and
during all of 2008.&nbsp; Over the last three months growth in MZM
(M2 less time deposits, plus all money market funds) has been 22%
versus 14% during all of last year and 9% during 2007.&nbsp; <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318f.jpg" align="right" border="0" height="265" width="353">
Growth
in the monetary base ran at a 32% annual rate from November to March
after the level of the base doubled last autumn.&nbsp; This year,
the bond market has met these liquidity injections with uncertainty but
on balance has been not overly concerned about the eventual
inflationary consequences.
The Haver databases USECON, WEEKLY and DAILY
contain the figures from the Federal Reserve Board.&nbsp;
Credit and Liquidity Programs and the Balance Sheet
from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/monetarypolicy/bst.htm">here.</a>
G-20 Asks IMF to Track, Assess Global Crisis Response
is a recent article published in the IMF Survey Magazine: In
the News and it can be found <a href="http://www.imf.org/external/pubs/ft/survey/so/2009/NEW031409A.htm">here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Current</th>
<th scope="col">Last</th>
<th scope="col">December</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Federal Funds Rate, % (Target)</td>
<td>0.00 - 0.25</td>
<td>0.00 - 0.25</td>
<td>0.16</td>
<td>1.93</td>
<td>5.02</td>
<td>4.96</td>
</tr>
<tr>
<td class="firstcol">Discount Rate, %</td>
<td>0.50</td>
<td>0.50</td>
<td>0.50</td>
<td>2.39</td>
<td>5.86</td>
<td>5.96</td>
</tr>
</tbody>
</table>

</body></html>

In an anticipated move the Federal Open Market Committee today left the Federal funds rate in a "range from 0 to 1/4 percent." The discount also was left unchanged at 0.50%. The Fed funds rate remained the lowest ever. Regarding [...]

FOMC Leaves Rates Unchanged At Historically Low Level; Fed's Balance Sheet Expanded

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318a.jpg" align="right" border="0" height="265" width="353">Last
year's sharp decline in energy prices came to an abrupt end with the
turn of the calendar page to 2009; and the consumer price index
published by the Bureau of Labor Statistics (along with consumers'
wallets) noted the shift. During February, the CPI rose for only the
second time since July. The 0.4% increase followed an unrevised 0.3%
January gain as a 3.3% rise in energy prices roughly doubled their
January increase. The latest increase in the CPI&nbsp; slightly
outpaced Consensus expectations for a 0.3% rise.
The increase in
energy prices reflected higher gasoline prices which jumped by 8.3%
following the 6.0% January rise. Despite these gains, however, prices
are more than one-third lower versus last February. This month gasoline
prices have held the higher February level of $1.92 per gallon of
regular but this week have moved even higher. Offsetting some of that
upward pressure have been lower fuel oil prices. They fell 1.8% last
month (-21.4% y/y) and have fallen in each month since July. Similarly,
prices for natural gas &amp; electricity have fallen in all but one
of the last seven months though they still are 5.7% higher than last
February.
Some of that upward pressure has been relieved by a
moderation in food &amp; beverage price increases. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318b.jpg" align="right" border="0" height="265" width="353">
Prices actually
slipped 0.1% last month after 0.1% upticks during January and&nbsp;
December. Nevertheless, food prices still are a firm 4.7% higher than
last year but that's versus a 6.3% comparison this past fall. Recent
weakness has been led by lower dairy product prices (-1.7% y/y) and
five consecutive months of slight decline in meat and dairy product
prices (+4.2% y/y).
Core prices (CPI less food and energy)
rose for the second month by 0.2%. Those gains were the strongest since
August and moved the year-to-year increase up slightly to
1.8%.
 Core goods prices increased a firm
0.4% and that was enough to lift the three-month change to 1.2% (AR),
its highest since last August. Prices of new &amp; used motor
vehicles rose 0.5% (-2.5% y/y) while apparel prices jumped 1.3% (0.8%
y/y). Prices for household furnishings &amp; operations firmed by
0.2% after the slight January decline and the y/y change remained
healthy at 1.9%. Tobacco prices again were quite strong and rose 0.7%
to leave them up 6.3% y/y. 
 Gains in core services prices moderated
even further and posted a 0.1% uptick. The three-month rate of increase
remained a low at 1.6% (AR) after growing at a 3.9% rate this past
summer. That moderation owes mostly to weakness in the housing market
which caused February shelter prices to fall slightly. That was enough
to pull the three-month change down to 0.7%. Owners equivalent rent of
primary residence, a measure not equivalent to other house price
measures, ticked up 0.1% (2.1% y/y). <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090318c.jpg" align="right" border="0" height="265">
The increase in medical care
services prices fell back to 0.3% (3.1% y/y) while education costs rose
a moderate 0.4% (5.5% y/y).&nbsp; Public transportation prices fell
hard like they did during the prior month by 1.9%. They were down for
the sixth consecutive period (-1.8% y/y). The increase in recreation
prices held firm at 0.4% (1.9% y/y). v The chained CPI, which adjusts
for shifts in consumption patterns, rose 0.6%, about as it did during
January. Less food and energy, chained prices firmed even more and
doubled the January increase of 0.2%. 
 The consumer price data is
available in Haver's USECON database while detailed
figures can be found in the CPIDATA database. 
The
Impact of Credit Easing So Far from the Federal Reserve Bank
of Cleveland is available <a href="http://www.clevelandfed.org/research/trends/2009/0309/02monpol.cfm">here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer
Price Index</a> (%)</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Total&nbsp;</td>
<td>0.4</td>
<td>0.3</td>
<td>0.1</td>
<td>3.8</td>
<td>2.9</td>
<td>3.2</td>
</tr>
<tr class="even">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.2</td>
<td>0.2</td>
<td>1.8</td>
<td>2.3</td>
<td>2.3</td>
<td>2.5</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Goods less Food
&amp; Energy</td>
<td>0.4</td>
<td>0.1</td>
<td>-0.0</td>
<td>0.1</td>
<td>-0.4</td>
<td>0.2</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Services less Energy</td>
<td>0.1</td>
<td>0.2</td>
<td>2.5</td>
<td>3.1</td>
<td>3.4</td>
<td>3.4</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Energy</td>
<td>3.3</td>
<td>1.7</td>
<td>-19.1</td>
<td>13.5</td>
<td>5.7</td>
<td>11.0</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Food &amp;
Beverages</td>
<td>-0.1</td>
<td>0.1</td>
<td>4.7</td>
<td>5.4</td>
<td>3.9</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained
CPI: Total (NSA)</a>&nbsp;</td>
<td>0.6</td>
<td>0.5</td>
<td>-0.3 </td>
<td>3.3</td>
<td>2.5</td>
<td>2.9 </td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>0.4</td>
<td>0.2</td>
<td>1.3</td>
<td>2.0</td>
<td>2.0</td>
<td>2.2</td>
</tr>
</tbody>
</table>

</body></html>

Last year's sharp decline in energy prices came to an abrupt end with the turn of the calendar page to 2009; and the consumer price index published by the Bureau of Labor Statistics (along with consumers' wallets) noted the shift. [...]

Higher Energy Prices Lift U.S. CPI By Most Since July; Core Pricing Power Firm

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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Total construction spending fell 0.6% m/m (-1.5% y/y) in September to $2,164.3 billion following a 0.4% monthly gain in August. However, it rebounded in October, rising 0.5% m/m (-1.0% y/y) to $2,175.2 billion (saar). This is the ninth consecutive month that construction spending has been lower than a year ago. A 0.1% m/m decline in September and an unchanged reading in October had been expected in the Action Economics Forecast Survey. Over the first ten months of this year, construction spending amounted to $1,825.3 billion, 1.4% below the $1,851.4 billion for the same period in 2024.

Spending on private construction was at a seasonally adjusted annual rate of $1,651.3 billion in October, 0.6% above the September estimate of $1,640.8 billion (-3.0% y/y), which fell 0.9% m/m from August. Private residential construction was at a seasonally adjusted annual rate of $913.9 billion in October, up 1.3% m/m from September, which declined 1.4% from August. Private nonresidential construction was at a seasonally adjusted annual rate of $737.4 billion in October, down 0.2% m/m from September, which also had declined 0.2% in September from August.

The October increase in private residential investment was due entirely to a 4.5% m/m increase in spending on improvements, its largest monthly gain since April 2024, following a 2.2% monthly decline in September. Single family construction fell 1.3% m/m in October, its eight consecutive monthly decline, while multi-family construction slipped 0.2% m/m, its first monthly decline in five months. The decline in private nonresidential construction was more than accounted for by a 0.9% m/m drop in manufacturing construction, its ninth consecutive monthly decline.

The value of public construction spending edged up 0.1% m/m in October to $524.0 billion after having risen 0.4% m/m in September. Of particular importance, educational construction was at a seasonally adjusted annual rate of $114.8 billion, up 0.7% m/m in October on top of a 1.1% m/m increase in September. Highway construction was at a seasonally adjusted annual rate of $141.6 billion, 0.1% m/m above the September estimate after a 0.4% monthly decline in September from August. Spending on highways and educational facilities are by far the two largest components of public construction spending. Spending on water supply construction at $35.2 billion was also important in October, up 1.2% m/m on top of a 1.5% monthly gain in September.

The construction figures can be found in Haver’s **USECON** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.

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- Total construction spending fell 0.6% m/m in September but rebounded 0.5% m/m in October.
- Private construction spending slumped 0.9% m/m in September but rose 0.6% m/m in October.
- Private nonresidential construction fell for the fourth consecutive month while private residential construction posted a 1.3% m/m gain.

U.S. Construction Spending Slipped in September but Rebounded in October

Winnie Tapasanun

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The Pending Home Sales Index, a forward-looking measure of home sales based on contract signings, fell 9.3% m/m to 71.8 in December following unrevised increases of 3.3% in November and 2.4% in October, according to the National Association of Realtors (NAR). December marked the first m/m fall since July and the steepest since April 2020. The year-on-year rate was -3.0% in December, the first negative y/y pace since September, compared to +2.6% in November and -5.0% y/y in December 2024. The index had fallen 42.6% since its October 2021 high of 125.1. In 2025, the PHSI declined 0.9% after drops of 3.0% in 2024 and 16.1% in 2023.

The m/m fall in December pending home sales occurred alongside a decline in the average 30-year mortgage rate to 6.20% in December, the lowest since September 2024, down from 6.24% in November and 6.25% in October. These rates, while below a peak of 7.62% in October 2023, had remained higher than a low of 5.22% in August 2022 and more than double a record-low 2.68% in December 2020.

Pending home sales decreased m/m in December across all four major regions. The Midwest recorded the sharpest drop, with sales plunging 14.9% (-9.8% y/y) in December—the first m/m decline since September and the deepest since April 2020—after a 1.3% increase in November. Sales in the West slumped 13.3% (-5.1% y/y), the third m/m decrease in four months, following a 9.2% November rebound. Sales in the Northeast slid 11.0% (-3.6% y/y), the first m/m slide since August, after a 1.8% November rise. Sales in the South fell 4.0% (+2.0% y/y), the first m/m fall since June, after a 2.5% November gain.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- PHSI -9.3% m/m (-3.0% y/y) 71.8 in Dec., lowest index level since July.
- Home sales m/m down in all four major regions, w/ the Midwest seeing the steepest drop ( 14.9%).
- Home sales y/y down in the Northeast, Midwest, and West, but up in the South (+2.0%).

U.S. Pending Home Sales Drop in December Following Four Consecutive M/M Gains

Kathleen Stephansen, CBE

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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

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

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

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

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

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

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

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

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

ZEW Survey Shows Advancement All Around

Tian Yong Woon

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

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

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

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

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

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

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

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

Economy in Brief

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