Tom Moeller

The National Association of Realtors indicated that pending sales of existing homes fell 7.7% in January to a record low. The decline left sales 7.4% below the 2008 average and it was roughly twice the Consensus expectation. The home [...]

Falling Rates & Prices Push Affordability to New High

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302f.jpg" align="left" border="0" height="265" width="353">
Industrial production in South Korea increased 1.35% in
January, the first increase in four months. However, compared to a year
ago, the unadjusted index is down some 25%. Production of motor
vehicles continues to be the biggest drag with production down more
than 10% in January and down over 40% from a year ago. Production in
Electronic equipment and devices increased 22% in January, but was
still 32% below the year ago figure. Production in the Pharmaceuticals,
medical chemicals and botanical products industry was up only 2.5% in
January, but production in this industry has held relatively steady
and, although only 4% above January 2007,it is one of the few
industries where production is greater than a year ago. These four
indexes are shown in the first chart.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302g.jpg" align="right" border="0" height="265" width="353">
Data on international trade in goods in US dollars and Korean
won were released yesterday. The Bank of Korea publishes balance of
payments data in USD and much of the discussion of Korea's trade takes
place in USD terms. However, for domestic considerations the won data
may be more relevant. The two series can differ significantly when
there is a substantial appreciation or depreciation in the won. For
example, in February seasonally unadjusted data on exports in USD show
a year to year decline of 17%, while the seasonally unadjusted data in
won show and increase of 26%. The difference is due to the change that
has taken place in the won over the year. As can be seen in the third
chart which shows the won versus the USD on an inverted scale, the won
has depreciated substantially over the past year. As a result, the
increase in exports in yen, when converted to USD, turn into a decline.
Recent data are shown in the table below.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">SOUTH
KOREA&nbsp;</th>
<th scope="col">Jan&nbsp; 09&nbsp;</th>
<th scope="col">Dec 08&nbsp;</th>
<th scope="col">Nov 08&nbsp;</th>
<th scope="col">Oct 08</th>
<th scope="col">Sep 08</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Industrial Production
(2005=100)&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>97.9</td>
<td>*6.6</td>
<td>106.8</td>
<td>118.8</td>
<td>121.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
Pharmaceuticals, medical chemicals and botanic products</td>
<td>140.1</td>
<td>136.7</td>
<td>124.6</td>
<td>129.5</td>
<td>130.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Motor
Vehicles</td>
<td>69.2</td>
<td>77.5</td>
<td>102.2</td>
<td>117.2</td>
<td>103.3</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Electronic
equipment and devices&nbsp;</td>
<td>117.2</td>
<td>96.2</td>
<td>119.8</td>
<td>143.9</td>
<td>159.9</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>Feb 09</td>
<td>Jan&nbsp; 09&nbsp;</td>
<td>Dec 08&nbsp;</td>
<td>Nov 08&nbsp;</td>
<td>Oct 08</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Y/Y %
Change in Yen Exports</td>
<td>25.55</td>
<td>-4.83</td>
<td>20.06</td>
<td>22.61</td>
<td>56.57</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Y/Y %
Change in Yen Depreciation</td>
<td>52.50</td>
<td>43.70</td>
<td>42.03</td>
<td>52.57</td>
<td>45.05</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Y/Y $
Change in USD Exports</td>
<td>-17.67</td>
<td>-33.76</td>
<td>-18.36</td>
<td>-19.64</td>
<td>7.94</td>
</tr>
</tbody>
</table>
</body></html>

Industrial production in South Korea increased 1.35% in January, the first increase in four months. However, compared to a year ago, the unadjusted index is down some 25%. Production of motor vehicles continues to be the biggest drag [...]

South Korea: Industrial Production Improves a Bit; Exports in Won Rise, but in USD, Fall

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302e.jpg" align="left" border="0" height="265" width="353">
Despite the slippage some consolidation is evident. 
 

Germany Spain and Austria were among the ground hogs that left
their heads in February and did not scurry lower for the winter. There,
MFG PMIs managed to stay higher even though for most of the region
manufacturing was seeing darker days in February. France, a country
that had been holding off the declines succumbed in February with its
MFG index dropping to 34.81 from 37.90; Ireland&#8217;s MFG sector made a
similarly large drop. EMU as a whole, France, Ireland and The
Netherlands this month sport MFG PMI readings that are the lowest ever.
The UK, Italy and Germany each are less than 1% up from their
respective lows. To be sure it remains a very weak February for
European manufacturing. But the good news is that the downturn is NOT
getting worse in several key countries and that the pace of
deterioration where things are unraveling is largely slowing. France
and Ireland are to be taken as notable exceptions. Looks like the Irish
have run out of luck and the French continue to buck the trends to
which everyone else is subject. 
 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">NTC/Markit MFG Indices</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Feb-09</td>
<td> Jan-09</td>
<td> Dec-08</td>
<td> 3Mo</td>
<td> 6Mo</td>
<td> 12Mo</td>
<td> Percentile</td>
</tr>
<tr>
<td class="firstcol"> Euro-13</td>
<td> 33.55</td>
<td> 34.42</td>
<td> 33.87</td>
<td> 33.95</td>
<td> 37.25</td>
<td> 43.41</td>
<td> 0.0%</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>32.14</td>
<td> 31.96</td>
<td> 32.66</td>
<td>32.25</td>
<td>37.11</td>
<td>44.84</td>
<td> 0.7%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td> 34.81</td>
<td>37.90</td>
<td> 34.91</td>
<td>35.87</td>
<td>38.08</td>
<td>43.75</td>
<td> 0.0%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td> 34.99</td>
<td>36.06</td>
<td>35.54</td>
<td>35.53</td>
<td>37.61</td>
<td>42.55</td>
<td> 0.2%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>31.85</td>
<td>31.51</td>
<td> 28.49</td>
<td>30.62</td>
<td>32.37</td>
<td>37.65</td>
<td> 11.7%</td>
</tr>
<tr>
<td class="firstcol">Austria</td>
<td>34.58</td>
<td> 33.12</td>
<td> 35.01</td>
<td>34.24</td>
<td>38.40</td>
<td>43.95</td>
<td> 5.7%</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td> 33.20</td>
<td>38.94</td>
<td>37.87</td>
<td>36.67</td>
<td>38.42</td>
<td>41.62</td>
<td> 0.0%</td>
</tr>
<tr>
<td class="firstcol">Netherlands</td>
<td> 35.47</td>
<td> 36.29</td>
<td> 38.42</td>
<td>36.73</td>
<td>40.41</td>
<td>45.62</td>
<td> 0.0%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol"> EU</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td> 34.68</td>
<td>35.79</td>
<td>34.94</td>
<td>35.14</td>
<td>36.94</td>
<td>42.26</td>
<td> 0.2%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">percentile is over range since March
2000</td>
</tr>
</tbody>
</table>
</body></html>

Despite the slippage some consolidation is evident. Germany Spain and Austria were among the ground hogs that left their heads in February and did not scurry lower for the winter. There, MFG PMIs managed to stay higher even though for [...]

Euro Area MFG PMIs Drop

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302c.jpg" width="353">
For February, the Institute for Supply Management (ISM) reported that its Composite Index of Activity in the manufacturing sector remained about unchanged at 35.8 versus the 35.6 January reading. The latest was still near the lowest level since the recession year of 1980. The break-even level for this diffusion index of factory sector activity is a level of 50.
During the last twenty years there has been a 72% correlation between the level of the Composite Index and the three-month growth in factory sector industrial production. The latest reading of the composite index suggests that the recent 10% rate of decline in industrial output will continue.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302d.jpg" width="353">
It is appropriate to correlate the ISM index level with factory sector growth because the ISM index is a diffusion index. It measures growth by using all of the positive changes in activity added to one half of the zero change in activity measures.
The separate index of prices paid also was unchanged from January and still barely above the lowest level since 1949. During the last twenty years there has been a 79% correlation between the price index and the three-month change in the PPI for intermediate goods.
The February new orders index was about unchanged from January as 13% of survey participants reported higher orders but 44% reported that orders fell. The export order index also was unchanged as economic weakness outside of the U.S. continued. It was still near the lowest level in this index&#39;s short twenty year history. During the last ten years there has been a 53% correlation between the index and the q/q change in real exports of goods in the GDP accounts.
The ISM data is 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/SURVEYS/@S2/@S201/@S201.HTM">ISM Mfg</a></th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">February &#39;08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>35.8</td>
<td>35.6</td>
<td>48.8</td>
<td>45.5</td>
<td>51.1</td>
<td>53.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>33.1</td>
<td>33.2</td>
<td>48.9</td>
<td>42.1</td>
<td>54.3</td>
<td>55.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>26.1</td>
<td>29.9</td>
<td>47.0</td>
<td>43.2</td>
<td>50.5</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>29.0</td>
<td>29.0</td>
<td>75.5</td>
<td>66.5</td>
<td>64.6</td>
<td>65.0</td>
</tr>
</tbody>
</table>
</body>
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For February, the Institute for Supply Management (ISM) reported that its Composite Index of Activity in the manufacturing sector remained about unchanged at 35.8 versus the 35.6 January reading. The latest was still near the lowest [...]

ISM Index Flat Month-To-Month, Still Near Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302a.jpg" width="353">
The personal &amp; outlays report from the U.S. Bureau of Economic Analysis indicated that the savings rate continued its recent improvement. During January, individuals pared spending against the background of the current economic uncertainties and the personal savings rate rose to 5.0%, up from the monthly low of 0.0% reached last April. The saving rate averaged less than 1.0% from 2005 to 2007.
The personal income &amp; consumption figures are available in Haver&#39;s USECON and USNA databases.
Life expectancy and old age savings from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/workingpapers/wp2008_18.pdf"> here</a>
Personal consumption expenditures did rise last month, but the 0.6% increase was the first monthly increase since last June. The figure was slightly better than expectations for a 0.4% increase. Nevertheless, the three-month annualized rate of growth of -4.9% followed even more negative growth rates during the prior three months. The recent figures have been very much influenced by the change in energy prices. Real personal spending rose 0.4% during January and three-month growth amounted to 0.7%. The latest monthly increase was only the second since May.
Real spending on discretionary items continued weak. Motor vehicle &amp; parts purchases fell 0.8% in January after a 13.3% decline during all of last year. Real spending on household furniture &amp; appliances rose a moderate 0.6% and it has been flat since last summer while real spending on apparel fell 0.5% (-2.7% year-to-year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302b.jpg" width="353">
The pullback in personal spending continues to reflect the weakness in personal income. Though it rose 0.4% last month, it was the first monthly increase since September and the three month growth rate stood at -1.0%. The latest monthly figure was better than expectations for a 0.2% monthly decline. Disposable personal income also firmed and rose 1.7% last month (4.0% y/y) thanks to a 9.3% monthly drop in taxes. Real disposable income growth increased by 1.5% last month (3.3% y/y).
Wages &amp; salaries continued to move lower last month. Declines in employment levels dropped wage income by 0.2% during January and at a 3.3% rate during the last three months. That was the weakest growth rate since 2004. Private sector wages fell at a 5.2% rate during those three months while government sector wages remained immune to the recession and rose at a 5.9% annual rate.
Lower interest rates caused another decline in interest income which is down at a 17.6% annual rate during the last three months. Dividend income also fell at a 3.7% annual rate during that three-month period as corporate profits fell.
The PCE chain price index continued to reflect the weakness in income &amp; spending and rose just 0.2%. Prices rose 0.7% year-to-year, held back by the decline in energy prices. Core power logged just a 0.1% rise following the slight decline in December. The dip matched Consensus expectations. Durable goods prices fell 0.1% (-1.9% y/y).
The U.S. Treasury and Federal Reserve Board Announce Participation in AIG Restructuring Plan can be found <a href="http://www.federalreserve.gov/newsevents/press/other/20090302a.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"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a> (%)&nbsp;</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.4</td>
<td>-0.2</td>
<td>1.9</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>1.7</td>
<td>-0.2</td>
<td>4.0</td>
<td>4.7</td>
<td>5.5</td>
<td>6.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Consumption Expenditures</td>
<td>0.6</td>
<td>-1.0</td>
<td>-1.0</td>
<td>3.6</td>
<td>5.5</td>
<td>5.9</td>
</tr>
<tr>
<td class="firstcol">Saving Rate</td>
<td>5.0</td>
<td>3.9</td>
<td>0.1 (Jan. 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>0.2</td>
<td>-0.5</td>
<td>0.7</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>0.1</td>
<td>-0.0</td>
<td>1.6</td>
<td>2.2</td>
<td>2.2</td>
<td>2.3</td>
</tr>
</tbody>
</table>
</body>
</html>

The personal & outlays report from the U.S. Bureau of Economic Analysis indicated that the savings rate continued its recent improvement. During January, individuals pared spending against the background of the current economic [...]

U.S. January Personal Savings Rate Highest Since 1995

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302a.jpg" align="left" border="0" height="265" width="353">
The personal &amp; outlays report from the U.S. Bureau of
Economic Analysis indicated that the savings rate continued its recent
improvement. During January, individuals pared spending against the
background of the current economic uncertainties and the personal
savings rate rose to 5.0%, up from the monthly low of 0.0% reached last
April. The saving rate averaged less than 1.0% from 2005 to 2007.
The personal income &amp; consumption figures are
available in Haver's USECON and USNA
databases.
Life expectancy and old age savings from
the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/workingpapers/wp2008_18.pdf">
here</a>
Personal consumption expenditures did rise last month, but the
0.6% increase was the first monthly increase since last June. The
figure was slightly better than expectations for a 0.4% increase.
Nevertheless, the three-month annualized rate of growth of -4.9%
followed even more negative growth rates during the prior three months.
The recent figures have been very much influenced by the change in
energy prices. Real personal spending rose 0.4% during January and
three-month growth amounted to 0.7%. The latest monthly increase was
only the second since May.
Real spending on discretionary items continued weak. Motor
vehicle &amp; parts purchases fell 0.8% in January after a 13.3%
decline during all of last year. Real spending on household furniture
&amp; appliances rose a moderate 0.6% and it has been flat since
last summer while real spending on apparel fell 0.5% (-2.7%
year-to-year.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302b.jpg" align="right" border="0" height="265" width="353">
The pullback in personal spending continues to reflect the
weakness in personal income. Though it rose 0.4% last month, it was the
first monthly increase since September and the three month growth rate
stood at -1.0%. The latest monthly figure was better than expectations
for a 0.2% monthly decline. Disposable personal income
also firmed and rose 1.7% last month (4.0% y/y) thanks to a 9.3%
monthly drop in taxes. Real disposable income growth increased by 1.5%
last month (3.3% y/y).
Wages &amp; salaries continued to move lower last month.
Declines in employment levels dropped wage income by 0.2% during
January and at a 3.3% rate during the last three months. That was the
weakest growth rate since 2004. Private sector wages fell at a 5.2%
rate during those three months while government sector wages remained
immune to the recession and rose at a 5.9% annual rate.
Lower interest rates caused another decline in interest income
which is down at a 17.6% annual rate during the last three months.
Dividend income also fell at a 3.7% annual rate during that three-month
period as corporate profits fell.
The PCE chain price index continued to
reflect the weakness in income &amp; spending and rose just 0.2%.
Prices rose 0.7% year-to-year, held back by the decline in energy
prices. Core power logged just a 0.1% rise following the slight decline
in December. The dip matched Consensus expectations. Durable goods
prices fell 0.1% (-1.9% y/y).
The U.S. Treasury and Federal Reserve Board Announce
Participation in AIG Restructuring Plan can be found <a href="http://www.federalreserve.gov/newsevents/press/other/20090302a.htm">here</a>.

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<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">January</th>
<th scope="col">December</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.4</td>
<td>-0.2</td>
<td>1.9</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>1.7</td>
<td>-0.2</td>
<td>4.0</td>
<td>4.7</td>
<td>5.5</td>
<td>6.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Consumption
Expenditures</td>
<td>0.6</td>
<td>-1.0</td>
<td>-1.0</td>
<td>3.6</td>
<td>5.5</td>
<td>5.9</td>
</tr>
<tr>
<td class="firstcol">Saving Rate</td>
<td>5.0</td>
<td>3.9</td>
<td>0.1 (Jan. 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>0.2</td>
<td>-0.5</td>
<td>0.7</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>0.1</td>
<td>-0.0</td>
<td>1.6</td>
<td>2.2</td>
<td>2.2</td>
<td>2.3</td>
</tr>
</tbody>
</table>
ISM Index Flat Month-To-Month,
Still Near Low 
by <a href="/comment/Moeller.html">Tom
Moeller</a> March 2, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302c.jpg" align="left" border="0" height="265" width="353">
For February, the Institute for Supply Management (ISM)
reported that its Composite Index of Activity in the manufacturing
sector remained about unchanged at 35.8 versus the 35.6 January
reading. The latest was still near the lowest level since the recession
year of 1980. The break-even level for this diffusion index of factory
sector activity is a level of 50.
During the last twenty years there has been a 72% correlation
between the level of the Composite Index and the three-month growth in
factory sector industrial production. The latest reading of the
composite index suggests that the recent 10% rate of decline in
industrial output will continue.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302d.jpg" align="right" border="0" height="265" width="353">
It is appropriate to correlate the ISM index level
with factory sector growth because the ISM index
is a diffusion index. It measures growth by using all of the positive
changes in activity added to one half of the zero change in activity
measures.
The separate index of prices paid also was unchanged from
January and still barely above the lowest level since 1949.
During the last twenty years there has been a 79% correlation between
the price index and the three-month change in the PPI for intermediate
goods.
The February new orders index was about unchanged from January
as 13% of survey participants reported higher orders but 44% reported
that orders fell. The export order index also was unchanged as economic
weakness outside of the U.S. continued. It was still near the lowest
level in this index's short twenty year history. During the last ten
years there has been a 53% correlation between the index and the q/q
change in real exports of goods in the GDP accounts.
The ISM data is available in Haver's USECON database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">February '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>35.8</td>
<td>35.6</td>
<td>48.8</td>
<td>45.5</td>
<td>51.1</td>
<td>53.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>33.1</td>
<td>33.2</td>
<td>48.9</td>
<td>42.1</td>
<td>54.3</td>
<td>55.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>26.1</td>
<td>29.9</td>
<td>47.0</td>
<td>43.2</td>
<td>50.5</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>29.0</td>
<td>29.0</td>
<td>75.5</td>
<td>66.5</td>
<td>64.6</td>
<td>65.0</td>
</tr>
</tbody>
</table>
Euro Area MFG PMIs Drop 
by <a href="/comment/Brusca.html">Robert
Brusca</a> March 2, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302e.jpg" align="left" border="0" height="265" width="353">
Despite the slippage some consolidation is evident. 
 

Germany Spain and Austria were among the ground hogs that left
their heads in February and did not scurry lower for the winter. There,
MFG PMIs managed to stay higher even though for most of the region
manufacturing was seeing darker days in February. France, a country
that had been holding off the declines succumbed in February with its
MFG index dropping to 34.81 from 37.90; Ireland&#8217;s MFG sector made a
similarly large drop. EMU as a whole, France, Ireland and The
Netherlands this month sport MFG PMI readings that are the lowest ever.
The UK, Italy and Germany each are less than 1% up from their
respective lows. To be sure it remains a very weak February for
European manufacturing. But the good news is that the downturn is NOT
getting worse in several key countries and that the pace of
deterioration where things are unraveling is largely slowing. France
and Ireland are to be taken as notable exceptions. Looks like the Irish
have run out of luck and the French continue to buck the trends to
which everyone else is subject. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">NTC/Markit
MFG Indices</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Feb-09</td>
<td> Jan-09</td>
<td> Dec-08</td>
<td> 3Mo</td>
<td> 6Mo</td>
<td> 12Mo</td>
<td> Percentile</td>
</tr>
<tr>
<td class="firstcol"> Euro-13</td>
<td> 33.55</td>
<td> 34.42</td>
<td> 33.87</td>
<td> 33.95</td>
<td> 37.25</td>
<td> 43.41</td>
<td> 0.0%</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>32.14</td>
<td> 31.96</td>
<td> 32.66</td>
<td>32.25</td>
<td>37.11</td>
<td>44.84</td>
<td> 0.7%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td> 34.81</td>
<td>37.90</td>
<td> 34.91</td>
<td>35.87</td>
<td>38.08</td>
<td>43.75</td>
<td> 0.0%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td> 34.99</td>
<td>36.06</td>
<td>35.54</td>
<td>35.53</td>
<td>37.61</td>
<td>42.55</td>
<td> 0.2%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>31.85</td>
<td>31.51</td>
<td> 28.49</td>
<td>30.62</td>
<td>32.37</td>
<td>37.65</td>
<td> 11.7%</td>
</tr>
<tr>
<td class="firstcol">Austria</td>
<td>34.58</td>
<td> 33.12</td>
<td> 35.01</td>
<td>34.24</td>
<td>38.40</td>
<td>43.95</td>
<td> 5.7%</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td> 33.20</td>
<td>38.94</td>
<td>37.87</td>
<td>36.67</td>
<td>38.42</td>
<td>41.62</td>
<td> 0.0%</td>
</tr>
<tr>
<td class="firstcol">Netherlands</td>
<td> 35.47</td>
<td> 36.29</td>
<td> 38.42</td>
<td>36.73</td>
<td>40.41</td>
<td>45.62</td>
<td> 0.0%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol"> EU</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td> 34.68</td>
<td>35.79</td>
<td>34.94</td>
<td>35.14</td>
<td>36.94</td>
<td>42.26</td>
<td> 0.2%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">percentile
is over range since March
2000</td>
</tr>
</tbody>
</table>
South Korea: Industrial Production
Improves a Bit; Exports in Won Rise, but in USD, Fall
 
by <a href="/comment/Curley.html">Louise
Curley</a> March 2, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302f.jpg" align="left" border="0" height="265" width="353">
Industrial production in South Korea increased 1.35% in
January, the first increase in four months. However, compared to a year
ago, the unadjusted index is down some 25%. Production of motor
vehicles continues to be the biggest drag with production down more
than 10% in January and down over 40% from a year ago. Production in
Electronic equipment and devices increased 22% in January, but was
still 32% below the year ago figure. Production in the Pharmaceuticals,
medical chemicals and botanical products industry was up only 2.5% in
January, but production in this industry has held relatively steady
and, although only 4% above January 2007,it is one of the few
industries where production is greater than a year ago. These four
indexes are shown in the first chart.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090302g.jpg" align="right" border="0" height="265" width="353">
Data on international trade in goods in US dollars and Korean
won were released yesterday. The Bank of Korea publishes balance of
payments data in USD and much of the discussion of Korea's trade takes
place in USD terms. However, for domestic considerations the won data
may be more relevant. The two series can differ significantly when
there is a substantial appreciation or depreciation in the won. For
example, in February seasonally unadjusted data on exports in USD show
a year to year decline of 17%, while the seasonally unadjusted data in
won show and increase of 26%. The difference is due to the change that
has taken place in the won over the year. As can be seen in the third
chart which shows the won versus the USD on an inverted scale, the won
has depreciated substantially over the past year. As a result, the
increase in exports in yen, when converted to USD, turn into a decline.
Recent data are shown in the table below.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">SOUTH
KOREA&nbsp;</th>
<th scope="col">Jan&nbsp; 09&nbsp;</th>
<th scope="col">Dec 08&nbsp;</th>
<th scope="col">Nov 08&nbsp;</th>
<th scope="col">Oct 08</th>
<th scope="col">Sep 08</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Industrial Production
(2005=100)&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>97.9</td>
<td>*6.6</td>
<td>106.8</td>
<td>118.8</td>
<td>121.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
Pharmaceuticals, medical chemicals and botanic products</td>
<td>140.1</td>
<td>136.7</td>
<td>124.6</td>
<td>129.5</td>
<td>130.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Motor
Vehicles</td>
<td>69.2</td>
<td>77.5</td>
<td>102.2</td>
<td>117.2</td>
<td>103.3</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp; Electronic
equipment and devices&nbsp;</td>
<td>117.2</td>
<td>96.2</td>
<td>119.8</td>
<td>143.9</td>
<td>159.9</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>Feb 09</td>
<td>Jan&nbsp; 09&nbsp;</td>
<td>Dec 08&nbsp;</td>
<td>Nov 08&nbsp;</td>
<td>Oct 08</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Y/Y %
Change in Yen Exports</td>
<td>25.55</td>
<td>-4.83</td>
<td>20.06</td>
<td>22.61</td>
<td>56.57</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Y/Y %
Change in Yen Depreciation</td>
<td>52.50</td>
<td>43.70</td>
<td>42.03</td>
<td>52.57</td>
<td>45.05</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Y/Y $
Change in USD Exports</td>
<td>-17.67</td>
<td>-33.76</td>
<td>-18.36</td>
<td>-19.64</td>
<td>7.94</td>
</tr>
</tbody>
</table>
</body></html>

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090227d.jpg" align="left" border="0" height="265" width="353">
Deflation strikes back -- Uh, oh&#8230; Japan&#8217;s prices are falling
again. The chart of Japan&#8217;s Core CPI looks like the path of the ground
hog on ground hog&#8217;s day. In this case it is not four more weeks of
winter but another bout with deflation that is in prospect. Japan&#8217;s
quantitative easing seemed to have been successful in dispatching
Japan&#8217;s deflation as inflation began to rise in 2008. Then as oil
prices plunged, as the yen soared and as financial crisis gripped the
global economy, Japan&#8217;s recession took hold and now deflation is back.
Just today Japan issued a report of a 10% Yr/yr drop in industrial
production and with dwindling consumer spending. The downturn fuels the
deflation and deflation fuels the downturn. Japan&#8217;s economy has been
performing badly enough that the yen has reversed its course and is now
depreciating. The near 50% drop in Japan&#8217;s exports yr/yr is a clear
demonstration of how much the global economic downturn is battering
Japan. But the re-emergence of Japan&#8217;s deflation is a bad sign and an
event that will make Japan&#8217;s recovery that much more difficult. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col"> Japan CPI
Trends</th>

</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</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>Yr-Ago</td>
<td>Q-to-Date</td>
</tr>
<tr class="odd">
<td class="firstcol">All Items</td>
<td>-0.4%</td>
<td>-0.5%</td>
<td>-0.4%</td>
<td> -5.0%</td>
<td> -3.1%</td>
<td> 0.0%</td>
<td>2.8%</td>
<td> -5.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">All items less food and
energy-0.2%</td>
<td>-0.2%</td>
<td>0.0%</td>
<td>-0.1%</td>
<td> -1.2%</td>
<td> -0.4%</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>-1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Allitems except fresh food</td>
<td>-0.2%</td>
<td>-0.5%</td>
<td>-0.6%</td>
<td> -5.0%</td>
<td> -3.1%</td>
<td> 0.0%</td>
<td>3.2%</td>
<td> -4.3%</td>
</tr>
<tr>
<td colspan="9" class="firstcol">
Seasonally
Adjusted By Haver</td>
</tr>
<tr class="odd">
<td class="firstcol">Food&amp; Beverage</td>
<td>-0.5%</td>
<td>0.1%</td>
<td>0.4%</td>
<td> 0.0%</td>
<td> 0.8%</td>
<td>3.4%</td>
<td>2.0%</td>
<td> -1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">housing</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>0.0%</td>
<td> -0.4%</td>
<td> -0.2%</td>
<td>0.0%</td>
<td>0.0%</td>
<td> -0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Clothing $ Persoanl</td>
<td>-1.2%</td>
<td>0.0%</td>
<td>0.1%</td>
<td> -4.2%</td>
<td> -1.8%</td>
<td> -0.9%</td>
<td>3.6%</td>
<td> -6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Education</td>
<td>0.1%</td>
<td>0.0%</td>
<td>0.1%</td>
<td>0.8%</td>
<td> 0.6%</td>
<td> 0.7%</td>
<td>2.8%</td>
<td> 0.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Medical are</td>
<td>0.6%</td>
<td>0.1%</td>
<td>-0.4%</td>
<td>1.2%</td>
<td>0.4%</td>
<td> 0.1%</td>
<td> 0.8%</td>
<td> 3.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Misc</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td> -0.8%</td>
<td> -0.4%</td>
<td> -0.1%</td>
<td>2.4%</td>
<td> -0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Reading &amp; Rec</td>
<td>-0.9%</td>
<td>-0.1%</td>
<td>-0.2%</td>
<td> -4.9%</td>
<td> -1.9%</td>
<td>-1.3%</td>
<td> -2.0%</td>
<td> -6.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Transport&amp;Comm</td>
<td>-1.2%</td>
<td>-2.1%</td>
<td>-2.7%</td>
<td> -21.8%</td>
<td> -16.7%</td>
<td> -6.3%</td>
<td>10.8%</td>
<td> -19.5%</td>
</tr>
</tbody>
</table>
</body></html>

Deflation strikes back -- Uh, oh… Japan’s prices are falling again. The chart of Japan’s Core CPI looks like the path of the ground hog on ground hog’s day. In this case it is not four more weeks of winter but another bout with [...]

Deflation Is Back!

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090227e.jpg" align="left" border="0" height="265" width="353">
The University of Michigan reported that its February reading
of consumer sentiment fell a sharp 8.0% month-to-month, about equal to
the mid-month read. That nearly reversed all of the gains of the prior
two months and returned the index to its lowest level since 1980. The
latest figure was down 20.5% from last February and the reading about
matched Consensus expectations. During the last ten years there has
been a 62% correlation between the level of sentiment and the
three-month change in real personal consumption expenditures.
The expectations component of consumer sentiment led the
decline in the overall February index. The 12.6% month-to-month drop
reversed all of the increases during the prior several months and the
series landed at its lowest level since 1980.
Expectations for business conditions during the next
year plunged 34.0% m/m to the lowest level since 1980. Expectations
for conditions during the next five years also fell. The expected
change in personal finances also fell back to the lowest level since
last June with a sharp 9.6% decline.
The current economic conditions index fell 1.5% after the
sharp 4.3% January decline. Buying conditions for large household goods
were viewed as having improved very slightly but the index remained
down 16.3% from a year earlier. The view of current personal finances
fell sharply and the index remained down by nearly one-half from early
2007.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090227f.jpg" align="right" border="0" height="265" width="353">
The opinion of government policy, which apparently influences
economic expectations, improved to the highest level since last
January. Fourteen percent of respondents thought that a good job was
being done by government while a reduced forty-three percent thought
that a poor job was being done.
Inflation expectations for the next year fell back to 2.3%. It
was as high as 7.0% in May. The range of expectations is from slight
price deflation to a 5.2% increase in prices, though that latter figure
is half the year-ago expectation. The expected inflation rate during
the next five years worked the other way and ticked up to 3.5%.
The University of Michigan survey data is not seasonally
adjusted. The reading is based on telephone interviews with about 500
households at month-end; the mid-month results are based on about 300
interviews. The summary indexes are in Haver's USECON database
with details in the proprietary UMSCA database.
Budget of the United States Government Fiscal
Year 2010 The Budget Documents
from the Office of Management and Budget can be found <a href="http://www.whitehouse.gov/omb/budget/">here</a>.
The Shimer Puzzle and the Identification of
Productivity Shocks from the Federal Reserve Board is
available <a href="http://www.federalreserve.gov/pubs/feds/2009/200904/200904pap.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/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">February</th>
<th scope="col">Mid February</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">February 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>56.3</td>
<td>56.2</td>
<td>61.2</td>
<td>60.1</td>
<td>-20.5%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>65.5</td>
<td>67.1</td>
<td>66.5</td>
<td>69.5</td>
<td>-21.8</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>50.5</td>
<td>49.1</td>
<td>57.8</td>
<td>54.0</td>
<td>-19.1</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>
</body></html>

The University of Michigan reported that its February reading of consumer sentiment fell a sharp 8.0% month-to-month, about equal to the mid-month read. That nearly reversed all of the gains of the prior two months and returned the [...]

Michigan Consumer Sentiment Estimate Little Changed At Lowest Since 1980

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

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

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Andrew Cates

**The Global Monetary Policy Consensus**
The latest Blue Chip Financial Forecasts survey points to a notably more balanced global monetary policy outlook over the coming year. In contrast to the pronounced easing bias that dominated much of the past two years, expectations are now more symmetric, with a similar number of central banks projected to raise rates as to ease policy. Japan is seen delivering further tightening, while Canada is expected to initiate an interest rate hike in coming months. In Australia’s case, this tightening guidance was reinforced this week, with the Reserve Bank lifting its policy rate by 25 basis points. Elsewhere, and in contrast, the euro area, UK and US are expected to move in the opposite direction.

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**US manufacturing activity**
The second chart underscores the recent improvement in US economic momentum, highlighted by an unexpected surge in the January ISM manufacturing PMI. After spending much of the past year hovering below the 50 threshold consistent with stagnation, the index jumped sharply back into expansionary territory, signalling a renewed pickup in industrial activity. This rebound has coincided with a broader run of stronger-than-anticipated US economic data, as reflected in the upswing in the Citigroup Economic Surprise Index. Together, these developments point to a US economy that continues to display notable resilience, complicating expectations of monetary easing in the near term.

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**US Bank Lending Standards and Financial Stress** 
The next chart turns to US financial conditions, highlighting the latest readings from the Senior Loan Officer Opinion Survey. The net proportion of banks tightening lending standards on corporate loans and mortgages is now more modest by historical standards, and well below the extremes seen during past episodes of financial stress. Some easing in credit headwinds has occurred alongside relatively subdued readings on the OFR Financial Stress Index, which continues to hover below its long-run average. Together, these indicators suggest that the US financial system has continued to avoid the kind of acute stress typically associated with sharp slowdowns in credit availability—helping to underpin the recent resilience in economic activity.

260205Z3.jpg

**Semiconductor Sales**
The fourth chart highlights the renewed surge in global semiconductor sales, with momentum strengthening sharply over recent months across the Americas, China and the broader Asia-Pacific region. After the cyclical downturn in 2022–23, sales have rebounded to fresh highs, reflecting a powerful revival in demand for advanced chips and related technologies. This upswing has taken place amid intense investor preoccupation with artificial intelligence, with expectations that AI adoption will drive a sustained wave of capital spending on data centres, cloud infrastructure and high-performance computing. In contrast, semiconductor sales in Europe remain comparatively subdued, reflecting the region’s smaller footprint in high-end chip manufacturing, weaker industrial demand, and the ongoing impact of slower economic growth. While semiconductors are inherently cyclical, markets have increasingly interpreted the current rebound elsewhere as structural rather than purely cyclical—underpinned by the belief that AI represents a transformative and durable source of demand growth.

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**Large-Scale AI Models**
The next chart illustrates the rapid proliferation of large-scale AI models globally, with newly updated data for 2025 pointing to a further sharp acceleration in development activity. The United States continues to lead by a wide margin, while China has also seen a steep rise in model deployment in recent years, underscoring the intensifying technological competition between the two economies. Growth in the UK and other regions has been more modest by comparison, highlighting the increasingly concentrated nature of AI innovation. Taken together with the surge in semiconductor sales, these trends help explain the market’s strong preoccupation with AI as a potential driver of future productivity and investment cycles—although the geographic concentration of activity also raises questions about the uneven distribution of any resulting economic gains.

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**An AI Bubble?** 
The final chart draws on the latest Blue Chip Financial Forecasts special questions, highlighting market participants’ perceptions of the economic gains likely to be delivered by artificial intelligence. While a sizeable share of respondents still believe that financial markets may be overestimating AI’s potential benefits, an increasing proportion now judge current expectations to be broadly accurate, with only a small minority viewing the gains as underestimated. Notably, this represents a softening in scepticism compared with the survey results from last month, when concerns about excessive market optimism were more pronounced. The shift suggests a growing acceptance that AI-related investment and innovation could translate into meaningful economic impacts—though uncertainty remains high around the scale, timing and distribution of these gains.

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Financial markets have experienced renewed gyrations in recent weeks, as shifting geopolitical risks, questions around Federal Reserve independence, renewed talk of US dollar “debasement,” and ongoing enthusiasm surrounding artificial intelligence have combined to drive volatility across asset classes. These cross-currents have also contributed to a degree of rotation away from high-flying technology stocks, as investors reassess valuations and the timing of anticipated AI-driven gains. Against this backdrop, the charts in this week’s COTW highlight several important themes. Policy rate expectations now appear more balanced globally, marking a clear shift away from the one-sided easing bias of the past two years (chart 1), even as resilient US data—underscored by the unexpected jump in the January ISM index and a run of positive economic surprises—continues to complicate the outlook for monetary easing (chart 2). At the same time, US financial conditions remain relatively benign, with limited evidence of widespread credit stress or aggressive tightening in lending standards (chart 3). Meanwhile, the sharp rebound in semiconductor sales and the accelerating rollout of large-scale AI models underscore why investors remain so focused on the AI narrative, even as Europe lags behind due to weaker industrial momentum and a smaller footprint in advanced chip production (charts 4 and 5). Finally, while some scepticism about AI’s ultimate economic impact persists, the latest survey results suggest a moderation in concerns that markets are materially overestimating its gains (chart 6). Taken together, these developments paint a picture of a US economy that remains more resilient than many had anticipated, set against a financial landscape increasingly shaped by powerful—if sometimes competing—narratives around geopolitics, policy, and technological transformation.

Charts of the Week: Balanced Policy, Resilient Data and AI Narratives

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With the December report, Germany’s production and some of the early European industrial production data reveal a good deal of chaos in terms of the embedded trends. On the month, German industrial production fell by 1.9%, with consumer goods output up by 0.5%, capital goods output falling by 5.3%, and intermediate goods output falling by 1.2%. Among the early reporters in the monetary union—France, Spain, and Portugal—only Spain showed an increase in manufacturing IP in December; however, Spanish industrial production is notoriously volatile.

**Broader IP trends in Germany and elsewhere in Europe**
As for other early industrial production reporters, both Sweden and Norway showed strong-to-solid gains in December and each of them showed two-months of gains in a row. Beyond that, sequential growth rates from 12-months to six-months to three-months show accelerating growth in German consumer goods output against decelerating growth for intermediate goods. Real manufacturing output and real sales show mixed results- no clear trends; however, real manufacturing orders in Germany are off the map strong. 

**German manufacturing/industrial Surveys**
German industrial surveys from the IFO for manufacturing shows persistent weakening as well as for IFO manufacturing expectations, and in the EU Commission industrial index in the last three months. More broadly, Germany shows some modest but ongoing step up all of these based on average levels from 12-months to six-months to three-months for IFO expectations and the EU Commission industrial readings with mixed results for other survey readings.

**IP trends in Europe**
For the early reporting EMU members France, Spain, and Portugal, who report industrial production trends, each show mixed monthly trends against ongoing decelerations for manufacturing output over the broader sequential periods (12-month, to 6-month, to 3-month). However, for other Europe, Sweden and Norway, manufacturing trends are steadily accelerating on this broader timeline.

**A feeling of ‘Deja- What?’**
These combinations of opposed trends mixed with a lack of trends leave us with this sense of confusion about what's going on in manufacturing. For Germany, the extreme strength in orders is reassuring since orders should be forward-looking rather than backward-looking or even contemporaneous. But orders can also be a fickle series and so we'll have to watch it to see if the trends for German orders hold up.

**Current quarter-What’s been happening now**
In addition, current quarter growth for Germany actually looks quite good with industrial production up 3.7% at an annual rate in the current quarter, led by output increases in manufacturing against a decline in the intermediate goods output. Real orders in the quarter are surging at a 44% growth rate, while real sales in manufacturing only had a 0.1% uptick at an annual rate. The industrial indicators for Germany in the quarter show weakness or flatness with the only exception being IFO manufacturing expectations that advanced by a small amount. The three EMU members who report industrial production data show positive growth in the just-completed quarter except for Portugal where industrial production is falling at a 2.9% rate in the fourth quarter. Sweden and Norway, European countries but not monetary union members, show a strong 22% annual rate gain in Sweden against the 3% annual rate decline in Norway.

260206.jpg

**Rankings**
**How growth rates stack up…**
Moving away from short-term trends, the rankings of growth rates of these various metrics using 12-month growth rates on data back to 2006, show below-median growth rates for German industrial production and all three of its major sectors. All of them have rankings below the 50% mark where the median resides. Germany’s manufacturing output growth rate is below its median as is the growth of real sales; and once again real manufacturing orders break out and show a stunning 90th percentile standing, extremely strong compared to other growth rates on this period.

**Indicator rankings are poor**
However, the survey based industrial indicators for Germany, ranked based on their index levels, are all extremely weak and much weaker than German sector or other German metrics. The strongest indicator reading is the 29th percentile standing for IFO manufacturing expectations while the current ZEW index, IFO manufacturing index, and the EU Commission industrial readings, all reside below their 15th percentile. The survey rankings suggest that industrial sentiment is in much worse shape than activity and growth.

**IP elsewhere in Europe**
However, the growth ranking of manufacturing industrial production for the reporting EMU members and other European members are all quite solid, with percentile standings ranging from the 66th up to the 93rd percentile.

**Summing up**
From these data, Germany emerges as the weak economy compared with historic norms based on industrial production growth and indicator readings. However, there's a glimpse of positivity from the growth of real orders, and at the same time, some concern about ongoing sentiment for manufacturing in Germany as distinct from actual performance.

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

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**Total job openings** fell 5.6% m/m (-12.9% y/y) to 6.542 million in December after a downwardly revised 7.0% decline to 6.928 million in November (previously -4.1% m/m; 7.146 million), according to the Job Openings and Labor Turnover Survey. December marked the third consecutive m/m fall and the lowest level since September 2020. The job openings rate declined to 3.9% in December, the lowest since April 2020, from 4.2% in November, remaining below a record-high 7.4% in March 2022. This rate is calculated as the ratio of job openings to total nonfarm employment plus openings. Significantly, the drop in job openings also lowered the **ratio of job openings to unemployed individuals** to 0.872 in December—the lowest since March 2021—from 0.890 in November, down from 1.085 in December 2024 and a pre-pandemic 1.211 in February 2020. A reading of 0.872 implies there were about 0.87 open jobs per unemployed person—indicating fewer openings than unemployed workers. December was the fifth time in six months that this ratio remained below 1.0.

**Private sector job openings** fell 6.8% (-12.5% y/y) to 5.804 million in December after a 6.6% fall to 6.227 million in November, registering the third successive m/m decline and the lowest level since September 2020. The private sector job openings rate fell to 4.1% in December, the lowest since April 2020, from 4.4% in November. The December m/m decline in private sector openings reflected drops of 27.7% (-36.9% y/y) in financial activities, 20.2% (-25.5% y/y) in professional & business services, 14.4% (-5.1% y/y) in trade, transportation & utilities, and 5.2% (-12.4% y/y) in private educational & health services. To the upside, private sector openings in the following categories rose m/m in December: other services (21.1%; 11.0% y/y), mining & lodging (17.6%; 0.0% y/y), information (13.5%; -4.7% y/y), manufacturing (8.5%; 0.5% y/y), leisure & hospitality (7.5%; -17.2% y/y), and construction (2.8%; 42.4% y/y). Meanwhile, government job openings rose 5.3% (-15.6% y/y) in December, the first m/m rise in three months, after a 10.6% drop in November.

**Total hiring** rebounded 3.4% (-1.5% y/y) to 5.293 million in December, the first m/m increase since September, following a 4.6% decrease to 5.121 million in November. The hiring rate edged up to 3.3% in December from 3.2% in November, though it remained below pre-pandemic levels. **Private sector hiring** rose 3.1% (-0.4% y/y) to 4.978 million in December, the third m/m rise in four months, after a 4.0% decline to 4.826 million in November. The private sector hiring rate rose to 3.7% in December from 3.5% in November, the same as in October and September. The December m/m increase in private sector hiring was led by a 32.1% jump (42.3% y/y) in information, followed by gains of 24.0% (-4.6% y/y) in financial activities, 23.5% (0.0% y/y) in mining & lodging, 6.5% (-4.8% y/y) in private educational & health services, 4.2% (-4.9% y/y) in trade, transportation & utilities, 3.6% (6.1% y/y) in construction, 3.4% (7.9% y/y) in leisure & hospitality, and 1.8% (-4.3% y/y) in manufacturing. To the downside, private sector hiring in professional & business services (-5.2%; +0.5% y/y) and other services (-4.3%; -16.5% y/y) declined m/m in December. Meanwhile, government hiring rebounded 6.4% (-16.3% y/y) in December, the first m/m rise since September, following a 13.5% drop in November.

**Total separations** rose 2.1% (3.3% y/y) to 5.251 million in December after a 1.5% rise to 5.144 million in November, marking the third m/m increase in four months and the highest level since September. The total separations rate edged up to 3.3% after holding at 3.2% in November and October. Private sector separations rose 1.6% (4.2% y/y) to 4.932 million in December, the highest level since June, while government sector separations jumped 10.4% (-9.1% y/y) to 319,000 following two consecutive m/m declines. **Total quits** (voluntary separations initiated by the employee) increased 0.3% (3.5% y/y) to 3.204 million in December, the third m/m rise in four months and the highest level since June, after a 7.4% rebound in November. The quits rate (a measure of workers’ willingness or ability to leave jobs) held at 2.0% in December and November, slightly below 2.3% in February 2020. Private sector quits eased 0.2% (+4.5% y/y) following an 8.4% November rebound. **Layoffs and discharges** (involuntary separations initiated by the employer) increased 3.6% (5.6% y/y) to 1.762 million in December, up for the third time in four months, after an 8.1% drop in November. The layoffs & discharges rate remained at 1.1% in December and November, marginally below 1.3% in February 2020. Private sector layoffs grew 4.3% (7.8% y/y) following a 7.3% November decrease.

The Job Openings and Labor Turnover Survey (JOLTS) data are available in Haver’s **USECON** database.

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- Job openings down 5.6% (-12.9% y/y) to 6.542 mil., third straight m/m decline.
- Hiring up 3.4% (-1.5% y/y) to 5.293 mil., first m/m increase since September.
- Separations rise to a three-month high; quits reach a six-month high; layoffs rebound.

U.S. JOLTS: Openings Drop to Lowest Level Since Sept. ’20; Hiring Rebounds in December

Sandy Batten

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Initial claims for unemployment insurance jumped 22,000 to 231,000 in the week ended January 31 following an unrevised 209,000 in the prior week. The four-week average rose to 212,250 from 206,250. The Action Economics Forecast Survey looked for 213,000 claims to have been filed. Winter Storm Fern and the accompanying very cold temperatures could have provided a temporary boost. Historically speaking, claims remain at low levels.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—increased by 25,000 to 1.844 million in the week ending January 24, from a downwardly revised 1.819 million in the prior week (previously 1.827 million). The insured unemployment rate remained at 1.2% in the week of January 24, unchanged from the previous eight weeks.

The insured unemployment rate varied greatly across individual states and territories. In the week ending January 17, the highest unemployment rates were in Rhode Island (2.83%), New Jersey (2.77%), Massachusetts (2.67%), Washington (2.54%), and Minnesota (2.45%). The lowest rates were in Florida (0.30%), North Carolina (0.42%), Louisiana (0.43%), Alabama (0.46%), and Arkansas (0.47). Rates in other notable states include Illinois (2.15%), California, (2.08%), New York (2.02%), Pennsylvania (1.91%), and Texas (1.09%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.

260205C2.jpg

260205D2.jpg

- New claims jumped 22,000 to 231,000, the highest level since December 6.
- Continuing claims rose to 1.844 million from 1.819 million.

U.S. Initial Unemployment Claims Surged in Latest Week

260205E.jpg

German real orders in December adjusted for inflation rose strongly again, gaining 7.8% month-to-month after rising 5.7% month-to-month in November. Foreign orders were up by 5.6% in December compared to 5.2% in November. Domestic orders surged by 10.7% in December after rising 6.4% in November and 10% in October.

**Real sales**
Real sales were mixed in December with overall sales falling 1.4% month-to-month mostly on weakness in capital goods sales.

**Broad categorical acceleration**
Many flows are accelerating this month. Sequential growth rates show acceleration. Total real orders accelerate from a year ago, to the current year, to six-months, and to three-months. Sales growth rates for consumer goods, consumer nondurables, and intermediate goods all show accelerations in gear. The exceptions are foreign orders that are not as strong over six months compared to their 12-month growth. And on the sales side, consumer durables sales and capital goods sales are weak.

**Quarter-to-quarter**
Quarterly annualized growth is complete for Q4 with this report. Foreign orders are the ‘weak flow’ expanding at a 13.6% annual rate – certainly not a weak growth rate. But domestic real orders are up at an astounding 101.9% annual rate. The net impact on the total real orders growth is to lift it to a pace of 44.1%. 

**Order ranking is very strong**
The table provides two rankings: one based on the level of variables and the other based on its year-on-year growth. The rankings this month for real orders overall, foreign, and domestic orders all reside in their top 80th to 90th percentiles- extremely strong based on level or growth. Sales do not follow suit. This gives us some reason to suspect that there is some lumpiness involved in the manufacturing data as distinct from strength. That will be something to watch. Overall mining and manufacturing sales growth is essentially at its historic median at a rank of 49.8. However, capital goods, intermediate goods and manufacturing sales all have rankings at or above their medians - as high as a 61-percentile standing for capital goods.

**Industrial confidence**
Industrial confidence for Germany, France, Italy and Spain (the EU’s big-four economies) show rankings based on these survey levels that are much lower at the 11th percentile for Germany, the 42nd and 36th percentiles, for France and Italy, respectively. Spain scores better with a 61.8 percentile standing on its industrial confidence measure. 

On balance, there is now an accelerating profile that is broad in sales trends and especially strong order trends. Perhaps Europe, under the pressure to stimulate its miliary capabilities, has a core of demand to help drive output ahead more consistently. This is something to watch in the coming months.

Economy in Brief

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Falling Rates & Prices Push Affordability to New High

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Euro Area MFG PMIs Drop

ISM Index Flat Month-To-Month, Still Near Low

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U.S. January Personal Savings Rate Highest Since 1995

Deflation Is Back!

Michigan Consumer Sentiment Estimate Little Changed At Lowest Since 1980