Tom Moeller

The recession in the U.S. factory sector entered an even more dire phase during the last several months. New orders for durable goods fell 5.2% last month after downwardly revised declines of between 4.0% and 8.0% during four of the [...]

U.S. Durable Goods Orders Lowestin Six Years; Latest Six-Month Decline a Record

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090225e.jpg" align="left" border="0" height="265" width="353">
In a stunning blow to a reeling economy Japan reports that its
exports are lower in January compared to one year ago by 45% - nearly
halving of the flow. There are several components to this drop. One is
the yen that has risen; that will translate foreign currency-based
Japan exports into a smaller value in terms of yen. The yen rose to
90.12/$ in January compared to its level of 101.91/$ a year ago, a yen
rise of 16%. Another aspect of the drop in value is that yen-based
export prices have fallen Year over year. Japan export prices fell by
13.5% Year over year. These two factors make up a good deal of the 45%
drop in the yen value of Japan&#8217;s exports. But not all of Japan&#8217;s
exports are in dollar terms. Japan&#8217;s largest trade partner in fact is
China; its second largest partner is the US. Moreover, the drop in the
current value of yen trade flows is not simply an &#8216;index number&#8217;
problem. It does reflect real stress that flows back to Japan when
export dollar sales buy fewer yen, especially if Japan&#8217;s costs are
expressed in yen- as most surely are despite outsourcing. 
 

Japan&#8217;s imports are down by nearly 30% Year-over-year, another
significant number. The rise in the yen plays a role there by first
taking a fixed import bill expressed in foreign currency and making it
smaller when translated into a stronger yen, just as for exports. But
eventually the stronger yen and weaker FX value of competing currencies
should lead to an increase in Japan&#8217;s import volumes and cause yen
VALUE flows to rise or at least to mitigate their drop (depending on
the size of the import price elasticities). Let&#8217;s look at this concept
of &#8216;elasticity:&#8217; If Japan import price elasticities are less than
&#8216;minus one&#8217; Japan&#8217;s import values will eventually rise further as Japan
buys more of the cheaper import and that offsets the fact that each
import is worth fewer yen by increasing the volume of its purchases.
That is what the concept of elasticity measures. A price elasticity of
less than &#8216;minus one&#8217; means that a one percent drop in yen prices (say
forced by a yen appreciation) will lead to more than a one percent
increase in the volume of goods imported. Yen import prices are falling
already (mostly lower oil prices). But the progression of events that
lead to a boost in import volumes takes time. Plus don&#8217;t hold your
breath waiting for this impact since Japan&#8217;s own recession is
contracting imports, a factor that will swamp and elasticity effect
from prices. For the moment, yen-based import prices are down by nearly
25% Yr/Yr accentuating any VOLUME drop in Japan&#8217;s imports on observed
import VALUE. Of course, to the extent that Japan invoices its imports
in yen the result of the yen&#8217;s rise would me blunted, since a yen
import is a yen import regardless of the dollar, euro or yuan exchange
rate. 
 

On balance these trade flows for Japan paint a very distressed
picture of Japan&#8217;s economy. Japan has joined Germany and others in
being a voice in favor of maintaining &#8216;free trade.&#8217; Just today the WTO
has issued another call for nations to uphold their free trade
agreements. The &#8216;buy America&#8217; clause in the US stimulus bill is one
development that is cited again and again in these sorts of
communiqués. The US insists that its provision is fully consistent with
its free trade agreements. 
 

We can see that with the world economy shutting down, like
some out of control Windows command that is turning off your computer
while you are trying to work, that chaos is being spread. Export
dependent nations are being crushed by the global economies since
manufactured goods exports have high relatively high income
elasticities. That means when times are good and global incomes are
growing exports shoot ahead strongly but it also means that export
volumes contract sharply in a downturn. Japan is being battered in part
by the impact of US auto sales dropping from over 15mu to just about
10mu. There is nothing anticompetitive about that: it&#8217;s just recession.
That is a drop of 33% and it will cause the Yr/Yr drop in yen exports
to be registered at about 46% if Japan holds its share in this
contracting market. Of course cutting back on shipments to the US to
trim inventories plus taking lower prices into account could further
exaggerate the flow&#8217;s ultimate decline. In the event, Japan&#8217;s exports
of autos in yen terms to the world have fallen by 66% since January of
one year ago. 


 
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> Japan Trade Trends</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3"> in period level of % ch</td>
<td colspan="4"> Average in period/or %
change</td>
</tr>
<tr>
<td class="firstcol">All data yen
basis</td>
<td> Jan-09</td>
<td> Dec-08</td>
<td> Nov-08</td>
<td> 3Mprev</td>
<td> 6Mprv</td>
<td> 12-Mprv</td>
<td> 12 mo Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Goods</td>
<td>#N/A</td>
<td>(1,341)</td>
<td>(3,343)</td>
<td>(1,167)</td>
<td>(70)</td>
<td>3,271</td>
<td>10,356</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td colspan="3">% m/m</td>
<td colspan="4">% saar</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp;&nbsp;
X Goods %</td>
<td> -10.4%</td>
<td> -11.6%</td>
<td> -13.4%</td>
<td> -83.5%</td>
<td> -63.5%</td>
<td> -44.9%</td>
<td> 8.8%</td>
</tr>
<tr class="odd">
<td class="firstcol"> Motor Vehicles</td>
<td> -39.0%</td>
<td> -18.1%</td>
<td> -20.6%</td>
<td> -98.2%</td>
<td> -89.1%</td>
<td> -66.1%</td>
<td> 12.7%</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp;&nbsp;
M Goods %,</td>
<td> -6.9%</td>
<td> -14.2%</td>
<td> -11.7%</td>
<td> -79.5%</td>
<td> -57.1%</td>
<td> -29.6%</td>
<td> 11.3%</td>
</tr>
<tr class="odd">
<td class="firstcol"> Motor Vehicles</td>
<td> -24.4%</td>
<td> 7.4%</td>
<td> 6.2%</td>
<td> -74.1%</td>
<td> -61.1%</td>
<td> -31.5%</td>
<td> 4.3%</td>
</tr>
<tr>
<td class="firstcol">Prices In %, saar</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>3M</td>
<td>6M</td>
<td>12-M</td>
<td>12 mo Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; PX</td>
<td>0.1%</td>
<td>-4.4%</td>
<td>-3.7%</td>
<td>-46.8%</td>
<td>-29.0%</td>
<td>-13.5%</td>
<td>-5.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; PM</td>
<td>-4.2%</td>
<td>-11.4%</td>
<td>-10.3%</td>
<td>-77.8%</td>
<td>-57.0%</td>
<td>-24.6%</td>
<td>7.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: Yen/$, AVG, Level</td>
<td>90.12</td>
<td>91.28</td>
<td>96.97</td>
<td>92.79</td>
<td>99.05</td>
<td>101.91</td>
<td>116.72</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo Yen Percent ('-' is a fall)</td>
<td> 1.3%</td>
<td> 5.9%</td>
<td> 3.0%</td>
<td>48.9%</td>
<td>28.9%</td>
<td>16.4%</td>
<td>10.5%</td>
</tr>
</tbody>
</table>
</body></html>

In a stunning blow to a reeling economy Japan reports that its exports are lower in January compared to one year ago by 45% - nearly halving of the flow. There are several components to this drop. One is the yen that has risen; that [...]

Yen-Based Japan Exports Are Cut Nearly In Half

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090225c.jpg" width="353">
The Mortgage Bankers Association indicated that the total number of mortgage applications fell 15.1% from the prior week and that they were off roughly 40% from the peaks earlier this year. Applications had been boosted by lower interest rates which touched the lows of 2003. Few borrowers took out an adjustable rate loan last week (-85.6% y/y) while low interest rates encouraged fixed rate financing; it&#39;s more than double the volume at the end of last year.
The index of applications to refinance a home mortgage fell by 19.1% last week after a 64.3% spike during the prior period. While these applications are down by half from their earlier high, the trend still is up due to the decline in interest rates.
Applications for a mortgage to purchase a home also fell last week. The 2.6% decline reversed only some of the prior week&#39;s 9.1% rise but the trend remained sharply downward with the fallout in home sales. Since their peak early last year these applications are down nearly 50%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090225d.jpg" width="353">
The effective interest rate on a conventional 15-year mortgage fell week-to-week to 4.99%. That was near the lowest level since 2003, after which home sales surged. For a 30-year mortgage rates held near their recent lows at 5.32%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10-year Treasury securities. For an adjustable 1-Year mortgage the rate also held near its recent low at 6.18%, down nearly a full percentage point from this past Fall.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage. Moreover, during the last ten years there has been a 61% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The figures for weekly mortgage applications are available in Haver&#39;s SURVEYW database.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Tax Credits for Job Creation and Retention: What Can We Learn from the States? from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-08.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">02/20/09</th>
<th scope="col">02/13/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>743.5</td>
<td>875.3</td>
<td>11.8%</td>
<td>642.9</td>
<td>652.6</td>
<td>584.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>250.5</td>
<td>257.3</td>
<td>-30.1%</td>
<td>345.4</td>
<td>424.9</td>
<td>406.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>3,618.0</td>
<td>4,472.9</td>
<td>47.1%</td>
<td>2,394.1</td>
<td>1,997.9</td>
<td>1,634.0</td>
</tr>
</tbody>
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The Mortgage Bankers Association indicated that the total number of mortgage applications fell 15.1% from the prior week and that they were off roughly 40% from the peaks earlier this year. Applications had been boosted by lower [...]

U.S. Mortgage Applications Fall: Refi's & Purchase Applications Off

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090225a.jpg" width="353">
Any prior indication that home sales were stabilizing should be dismissed. According to the National Association of Realtors, sales of existing homes fell 5.3% last month to 4.490M after an unrevised December rise of 4.4%. Consensus expectations had been for January sales of 4.79M homes. Total sales include sales of condos and co-ops.
For existing single-family homes alone sales reversed all of their December rise with a 4.7% decline to 4,050 million units, the lowest level since July 1997. (These data have a longer history than the total series).
The weakness in sales continued to lower pricing power. Median home prices plumbed a new cycle low with a 3.1% month-to-month (NSA) decline. It was the seventh consecutive monthly drop and it lowered prices by 14.8% from January of 2008. Prices have fallen 25.8% since their peak in June 2005.
The number of unsold homes (condos &amp; single-family) on the market dropped 2.7% (-13.5% y/y) as sellers pulled homes for sale. At the current sales rate there was a 9.6 months&#39; supply on the market which was near the lowest since 2007. For single-family homes the inventory was unchanged after a sharp December decline and at the current sales rate there was a 9.2 month&#39;s supply, near the lowest since 2007.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090225b.jpg" width="353">
By region, home sales in the Northeast collapsed 14.7% m/m to lower them by nearly one quarter from the year ago level. Single family home sales here were at their lowest since 1991, off 46% from the 2007 peak. Sales in the South followed with a 5.7% decline which reversed the December gain. Single family sales were at their lowest since early 1998. Sales in the Midwest also reversed the December gain with a 5.7% decline to the lowest level since 1997. Only sales in the West held up. They were unchanged last month from December and they were up by 29% from the year ago level.
Declines in home prices and lower interest rates have gone a long way to increase the affordability of an existing home. The measure rose to a record high for the series which dates back to 1971.
The data on existing home sales, prices and affordability can be found in Haver&#39;s USECON database. The regional price, affordability and inventory data is available in the REALTOR database.
Commitment Versus Discretion in Monetary Policy from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2008/q4/brq408_commitment-vs-discretion.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">Existing Home Sales (Thous)</th>
<th scope="col">January</th>
<th scope="col">y/y %</th>
<th scope="col">December</th>
<th scope="col">January &#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">Total</td>
<td>4,490</td>
<td>-8.6</td>
<td>4,740</td>
<td>4,910</td>
<td>4,893</td>
<td>5,674</td>
<td>6,516</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Northeast</td>
<td>640</td>
<td>-23.8</td>
<td>750</td>
<td>840</td>
<td>845</td>
<td>1,010</td>
<td>1,093</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>1,000</td>
<td>-16.7</td>
<td>1,060</td>
<td>1,200</td>
<td>1,130</td>
<td>1,331</td>
<td>1,494</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South</td>
<td>1,640</td>
<td>-15.9</td>
<td>1,740</td>
<td>1,950</td>
<td>1,860</td>
<td>2,243</td>
<td>2,577</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>1,200</td>
<td>29.0</td>
<td>1,200</td>
<td>930</td>
<td>1,064</td>
<td>1,095</td>
<td>1,357</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>4,050</td>
<td>-7.1</td>
<td>4,250</td>
<td>4,360</td>
<td>4,341</td>
<td>4,960</td>
<td>5,712</td>
</tr>
<tr class="odd">
<td class="firstcol">Median Price, Total, $</td>
<td>170,300</td>
<td>-14.8</td>
<td>175,700</td>
<td>199,800</td>
<td>197,250</td>
<td>216,633</td>
<td>222,042++</td>
</tr>
</tbody>
</table>
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Any prior indication that home sales were stabilizing should be dismissed. According to the National Association of Realtors, sales of existing homes fell 5.3% last month to 4.490M after an unrevised December rise of 4.4%. Consensus [...]

January U.S. Existing Home Sales & Prices Fell

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090225a.jpg" align="left" border="0" height="265" width="353">
Any prior indication that home sales were stabilizing should
be dismissed. According to the National Association of Realtors, sales
of existing homes fell 5.3% last month to 4.490M
after an unrevised December rise of 4.4%. Consensus expectations had
been for January sales of 4.79M homes. Total sales include sales of
condos and co-ops.
For existing single-family homes alone sales reversed all of
their December rise with a 4.7% decline to 4,050 million units, the
lowest level since July 1997. (These data have a longer history than
the total series).
The weakness in sales continued to lower pricing power. Median
home prices plumbed a new cycle low with a 3.1%
month-to-month (NSA) decline. It was the seventh consecutive monthly
drop and it lowered prices by 14.8% from January of 2008. Prices have
fallen 25.8% since their peak in June 2005.
The number of unsold homes (condos &amp; single-family) on
the market dropped 2.7% (-13.5% y/y) as sellers pulled homes for sale.
At the current sales rate there was a 9.6 months' supply on the market
which was near the lowest since 2007. For single-family homes the
inventory was unchanged after a sharp December decline and at the
current sales rate there was a 9.2 month's supply, near the lowest
since 2007.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090225b.jpg" align="right" border="0">
By region, home sales in the Northeast collapsed 14.7% m/m to
lower them by nearly one quarter from the year ago level. Single family
home sales here were at their lowest since 1991, off 46% from the 2007
peak. Sales in the South followed with a 5.7% decline which reversed
the December gain. Single family sales were at their lowest since early
1998. Sales in the Midwest also reversed the December gain with a 5.7%
decline to the lowest level since 1997. Only sales in the West held up.
They were unchanged last month from December and they were up by 29%
from the year ago level.
Declines in home prices and lower interest rates have gone a
long way to increase the affordability of an existing home. The measure
rose to a record high for the series which dates back to 1971.
The data on existing home sales, prices and affordability can
be found in Haver's USECON database. The regional
price, affordability and inventory data is available in the REALTOR
database.
Commitment Versus Discretion in Monetary Policy
from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2008/q4/brq408_commitment-vs-discretion.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">Existing
Home Sales (Thous)</th>
<th scope="col">January</th>
<th scope="col">y/y %</th>
<th scope="col">December</th>
<th scope="col">January '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">Total</td>
<td>4,490</td>
<td>-8.6</td>
<td>4,740</td>
<td>4,910</td>
<td>4,893</td>
<td>5,674</td>
<td>6,516</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Northeast</td>
<td>640</td>
<td>-23.8</td>
<td>750</td>
<td>840</td>
<td>845</td>
<td>1,010</td>
<td>1,093</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>1,000</td>
<td>-16.7</td>
<td>1,060</td>
<td>1,200</td>
<td>1,130</td>
<td>1,331</td>
<td>1,494</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South</td>
<td>1,640</td>
<td>-15.9</td>
<td>1,740</td>
<td>1,950</td>
<td>1,860</td>
<td>2,243</td>
<td>2,577</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>1,200</td>
<td>29.0</td>
<td>1,200</td>
<td>930</td>
<td>1,064</td>
<td>1,095</td>
<td>1,357</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>4,050</td>
<td>-7.1</td>
<td>4,250</td>
<td>4,360</td>
<td>4,341</td>
<td>4,960</td>
<td>5,712</td>
</tr>
<tr class="odd">
<td class="firstcol">Median Price, Total, $</td>
<td>170,300</td>
<td>-14.8</td>
<td>175,700</td>
<td>199,800</td>
<td>197,250</td>
<td>216,633</td>
<td>222,042++</td>
</tr>
</tbody>
</table>
 U.S. Mortgage Applications Fall:
Refi's &amp; Purchase Applications Off 
by <a href="/comment/Moeller.html">Tom
Moeller</a> February 25, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090225c.jpg" align="left" border="0" height="265" width="353">
The Mortgage Bankers Association indicated that the total
number of mortgage applications fell 15.1% from the prior week and that
they were off roughly 40% from the peaks earlier this year.
Applications had been boosted by lower interest rates which touched the
lows of 2003. Few borrowers took out an adjustable rate loan last week
(-85.6% y/y) while low interest rates encouraged fixed rate financing;
it's more than double the volume at the end of last year.
The index of applications to refinance a home mortgage fell by
19.1% last week after a 64.3% spike during the prior period. While
these applications are down by half from their earlier high, the trend
still is up due to the decline in interest rates.
Applications for a mortgage to purchase a home also fell last
week. The 2.6% decline reversed only some of the prior week's 9.1% rise
but the trend remained sharply downward with the fallout in home sales.
Since their peak early last year these applications are down nearly 50%.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090225d.jpg" align="right" border="0" height="265" width="353">
The effective interest rate on a conventional 15-year mortgage
fell week-to-week to 4.99%. That was near the lowest level since 2003,
after which home sales surged. For a 30-year mortgage rates held near
their recent lows at 5.32%. Interest rates on 15 and 30 year mortgages
are closely correlated (&gt;90%) with the rate on 10-year Treasury
securities. For an adjustable 1-Year mortgage the rate also held near
its recent low at 6.18%, down nearly a full percentage point from this
past Fall.
During the last ten years there has been a (negative) 79%
correlation between the level of applications for purchase and the
effective interest rate on a 30-year mortgage. Moreover, during the
last ten years there has been a 61% correlation between the y/y change
in purchase applications and the change in new plus existing single
family home sales.
The figures for weekly mortgage applications are available in
Haver's SURVEYW database.
The Mortgage Bankers Association surveys between 20 to 35 of
the top lenders in the U.S. housing industry to derive its refinance,
purchase and market indexes. The weekly survey covers roughly 50% of
all U.S. residential mortgage applications processed each week by
mortgage banks, commercial banks and thrifts. Visit the Mortgage
Bankers Association site <a href="http://www.mbaa.org">here</a>.
Tax Credits for Job Creation and Retention: What
Can We Learn from the States? from the Federal Reserve
Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-08.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA
Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">02/20/09</th>
<th scope="col">02/13/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>743.5</td>
<td>875.3</td>
<td>11.8%</td>
<td>642.9</td>
<td>652.6</td>
<td>584.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>250.5</td>
<td>257.3</td>
<td>-30.1%</td>
<td>345.4</td>
<td>424.9</td>
<td>406.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>3,618.0</td>
<td>4,472.9</td>
<td>47.1%</td>
<td>2,394.1</td>
<td>1,997.9</td>
<td>1,634.0</td>
</tr>
</tbody>
</table>
 
Yen-Based Japan Exports Are CutNearly In Half 
by <a href="/comment/Brusca.html">Robert
Brusca</a> February 25, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090225e.jpg" align="left" border="0" height="265" width="353">
In a stunning blow to a reeling economy Japan reports that its
exports are lower in January compared to one year ago by 45% - nearly
halving of the flow. There are several components to this drop. One is
the yen that has risen; that will translate foreign currency-based
Japan exports into a smaller value in terms of yen. The yen rose to
90.12/$ in January compared to its level of 101.91/$ a year ago, a yen
rise of 16%. Another aspect of the drop in value is that yen-based
export prices have fallen Year over year. Japan export prices fell by
13.5% Year over year. These two factors make up a good deal of the 45%
drop in the yen value of Japan&#8217;s exports. But not all of Japan&#8217;s
exports are in dollar terms. Japan&#8217;s largest trade partner in fact is
China; its second largest partner is the US. Moreover, the drop in the
current value of yen trade flows is not simply an &#8216;index number&#8217;
problem. It does reflect real stress that flows back to Japan when
export dollar sales buy fewer yen, especially if Japan&#8217;s costs are
expressed in yen- as most surely are despite outsourcing. 
 

Japan&#8217;s imports are down by nearly 30% Year-over-year, another
significant number. The rise in the yen plays a role there by first
taking a fixed import bill expressed in foreign currency and making it
smaller when translated into a stronger yen, just as for exports. But
eventually the stronger yen and weaker FX value of competing currencies
should lead to an increase in Japan&#8217;s import volumes and cause yen
VALUE flows to rise or at least to mitigate their drop (depending on
the size of the import price elasticities). Let&#8217;s look at this concept
of &#8216;elasticity:&#8217; If Japan import price elasticities are less than
&#8216;minus one&#8217; Japan&#8217;s import values will eventually rise further as Japan
buys more of the cheaper import and that offsets the fact that each
import is worth fewer yen by increasing the volume of its purchases.
That is what the concept of elasticity measures. A price elasticity of
less than &#8216;minus one&#8217; means that a one percent drop in yen prices (say
forced by a yen appreciation) will lead to more than a one percent
increase in the volume of goods imported. Yen import prices are falling
already (mostly lower oil prices). But the progression of events that
lead to a boost in import volumes takes time. Plus don&#8217;t hold your
breath waiting for this impact since Japan&#8217;s own recession is
contracting imports, a factor that will swamp and elasticity effect
from prices. For the moment, yen-based import prices are down by nearly
25% Yr/Yr accentuating any VOLUME drop in Japan&#8217;s imports on observed
import VALUE. Of course, to the extent that Japan invoices its imports
in yen the result of the yen&#8217;s rise would me blunted, since a yen
import is a yen import regardless of the dollar, euro or yuan exchange
rate. 
 

On balance these trade flows for Japan paint a very distressed
picture of Japan&#8217;s economy. Japan has joined Germany and others in
being a voice in favor of maintaining &#8216;free trade.&#8217; Just today the WTO
has issued another call for nations to uphold their free trade
agreements. The &#8216;buy America&#8217; clause in the US stimulus bill is one
development that is cited again and again in these sorts of
communiqués. The US insists that its provision is fully consistent with
its free trade agreements. 
 

We can see that with the world economy shutting down, like
some out of control Windows command that is turning off your computer
while you are trying to work, that chaos is being spread. Export
dependent nations are being crushed by the global economies since
manufactured goods exports have high relatively high income
elasticities. That means when times are good and global incomes are
growing exports shoot ahead strongly but it also means that export
volumes contract sharply in a downturn. Japan is being battered in part
by the impact of US auto sales dropping from over 15mu to just about
10mu. There is nothing anticompetitive about that: it&#8217;s just recession.
That is a drop of 33% and it will cause the Yr/Yr drop in yen exports
to be registered at about 46% if Japan holds its share in this
contracting market. Of course cutting back on shipments to the US to
trim inventories plus taking lower prices into account could further
exaggerate the flow&#8217;s ultimate decline. In the event, Japan&#8217;s exports
of autos in yen terms to the world have fallen by 66% since January of
one year ago. 


 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Japan
Trade Trends</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3"> in period level of % ch</td>
<td colspan="4"> Average in period/or %
change</td>
</tr>
<tr>
<td class="firstcol">All data yen
basis</td>
<td> Jan-09</td>
<td> Dec-08</td>
<td> Nov-08</td>
<td> 3Mprev</td>
<td> 6Mprv</td>
<td> 12-Mprv</td>
<td> 12 mo Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Goods</td>
<td>#N/A</td>
<td>(1,341)</td>
<td>(3,343)</td>
<td>(1,167)</td>
<td>(70)</td>
<td>3,271</td>
<td>10,356</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td colspan="3">% m/m</td>
<td colspan="4">% saar</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp;&nbsp;
X Goods %</td>
<td> -10.4%</td>
<td> -11.6%</td>
<td> -13.4%</td>
<td> -83.5%</td>
<td> -63.5%</td>
<td> -44.9%</td>
<td> 8.8%</td>
</tr>
<tr class="odd">
<td class="firstcol"> Motor Vehicles</td>
<td> -39.0%</td>
<td> -18.1%</td>
<td> -20.6%</td>
<td> -98.2%</td>
<td> -89.1%</td>
<td> -66.1%</td>
<td> 12.7%</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp;&nbsp;
M Goods %,</td>
<td> -6.9%</td>
<td> -14.2%</td>
<td> -11.7%</td>
<td> -79.5%</td>
<td> -57.1%</td>
<td> -29.6%</td>
<td> 11.3%</td>
</tr>
<tr class="odd">
<td class="firstcol"> Motor Vehicles</td>
<td> -24.4%</td>
<td> 7.4%</td>
<td> 6.2%</td>
<td> -74.1%</td>
<td> -61.1%</td>
<td> -31.5%</td>
<td> 4.3%</td>
</tr>
<tr>
<td class="firstcol">Prices In %, saar</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>3M</td>
<td>6M</td>
<td>12-M</td>
<td>12 mo Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; PX</td>
<td>0.1%</td>
<td>-4.4%</td>
<td>-3.7%</td>
<td>-46.8%</td>
<td>-29.0%</td>
<td>-13.5%</td>
<td>-5.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; PM</td>
<td>-4.2%</td>
<td>-11.4%</td>
<td>-10.3%</td>
<td>-77.8%</td>
<td>-57.0%</td>
<td>-24.6%</td>
<td>7.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: Yen/$, AVG, Level</td>
<td>90.12</td>
<td>91.28</td>
<td>96.97</td>
<td>92.79</td>
<td>99.05</td>
<td>101.91</td>
<td>116.72</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo Yen Percent ('-' is a fall)</td>
<td> 1.3%</td>
<td> 5.9%</td>
<td> 3.0%</td>
<td>48.9%</td>
<td>28.9%</td>
<td>16.4%</td>
<td>10.5%</td>
</tr>
</tbody>
</table>
</body></html>

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090224i.jpg" align="right" border="0" height="265" width="353">
The latest release of the IFO survey of German entrepreneurs
engaged in industry and trade shows little change in their dismal
appraisal of the business climate. The overall business climate
indicator declined from 83.0 (2000=100) in January to 82.6 in February
to a new all time low. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090224j.jpg" align="right" border="0" height="265" width="353">
Concern over current conditions outweighed a
slightly less negative appraisal of the outlook for the next six
months. The indicator for current conditions declined from 86.8 to 84.3
while that for the next six months rose from 79.5 to 80.9. All three
measures are below or, close to, their all time lows, as can be seen in
the first chart.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090224k.jpg" align="right" border="0" height="265" width="353">
The indexes are based on the balance of opinions expressed by
the participants in the survey. The balance of opinion data are
published as well as the indexes, and, in the first release of the
data, only the balance of opinion data for the detailed business
sectors are given. Among the major business sectors, manufacturers are
the most pessimistic and they became more so in February, as the excess
of pessimists rose from 40.0% in January to 42.8%. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090224l.jpg" align="right" border="0" height="265" width="353">
Those engaged in
construction and trade were less negative. Wholesalers, however, became
more pessimistic in February, going to -27.8% from -25.4% in January.
The climate in construction improved to -24.5% in February from -29.5%
in January. The comparable figures for retail trade were -24.3% and
26.5%. The balance of opinions for the major sectors are shown in the
second chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">GERMANY&nbsp;</th>
<th scope="col">Feb 09</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>
<th scope="col">Aug 08</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">IFO Survey&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Business Climate
(2000=100)</td>
<td>82.6</td>
<td>83.0</td>
<td>82.7</td>
<td>85.9</td>
<td>90.1</td>
<td>92.7</td>
<td>94.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Current
Conditions (2000=100)</td>
<td>84.3</td>
<td>86.8</td>
<td>88.8</td>
<td>94.8</td>
<td>99.9</td>
<td>99.6</td>
<td>103.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Condition 6
Months Ahead (2000=100)</td>
<td>80.9</td>
<td>79.5</td>
<td>76.9</td>
<td>77.8</td>
<td>81.4</td>
<td>86.9</td>
<td>86.8</td>
</tr>
<tr class="even">
<td class="firstcol">Business Climate by
Sector&nbsp; (Percent Balance)&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>-35.4</td>
<td>-34.4</td>
<td>-35.2</td>
<td>-28.8</td>
<td>-20.5</td>
<td>-15.2</td>
<td>-11.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
Manufacturing</td>
<td>-42.8</td>
<td>-40.0</td>
<td>-39.9</td>
<td>-29.3</td>
<td>-19.2</td>
<td>-12.0</td>
<td>-7.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Construction</td>
<td>-24.5</td>
<td>-29.5</td>
<td>-30.3</td>
<td>-30.1</td>
<td>-27.7</td>
<td>-25.2</td>
<td>-26.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Wholesale
Trade</td>
<td>-27.8</td>
<td>-25.4</td>
<td>-26.2</td>
<td>-21.8</td>
<td>-15.3</td>
<td>-10.9</td>
<td>-5.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Retail Trade</td>
<td>-24.3</td>
<td>-26.5</td>
<td>-30.4</td>
<td>-33.2</td>
<td>-25.5</td>
<td>-24.5</td>
<td>-21.5</td>
</tr>
</tbody>
</table>
</body></html>

The latest release of the IFO survey of German entrepreneurs engaged in industry and trade shows little change in their dismal appraisal of the business climate. The overall business climate indicator declined from 83.0 (2000=100) in [...]

German IFO Survey Shows Little Change in the Dismal Appraisal of the Business Climate

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090224e.jpg" align="right" border="0" height="265" width="353">The
Conference Board reported that its February index of consumer
confidence fell to another record low.&nbsp; The decline to a
reading of 25.0 was a one-third drop versus January and it lowered
confidence by three-quarters from the July 2007 peak.&nbsp; The
February decline was much deeper than Consensus expectations. The
Conference Board data can be found in Haver's CBDB
database. During the last ten years there has been an 83% correlation
between the level of consumer confidence and the y/y change in real
consumer spending. The present conditions index fell 28.6% from the
January level and it was off more than three-quarters from a year
earlier.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090224f.jpg" align="right" border="0" height="265" width="353">
Jobs were seen as hard to get by 47.8% of
respondents, the highest since 1992 and jobs were seen as plentiful by
only 4.4%.&nbsp; Business conditions were seen as good by just 6.8%
and that matched the 1991 low.&nbsp; Those who thought conditions
were bad rose to 51.1%, the highest since 1983. Consumers'
economic outlook continued to worsen as indicated by yet another
decline in the expectations index.&nbsp; The figure fell by more
than one-third from January and by more than one-half from last
February.&nbsp; The percentage of respondents expecting business
conditions to worsen in six months rose to 40.5%, the highest since
1974.&nbsp; Just 8.7% expected improvement in conditions.&nbsp;
More jobs were expected by only 7.1% of respondents while a near-record
23.8% foresaw less income. Expectations for the inflation rate in
twelve months have been roughly stable at the February level of
5.9%.&nbsp; That's down from last year's high of 7.7%.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090224g.jpg" align="right" border="0" height="265" width="353">
Confusion about the interest rate outlook was evident by the fact that
roughly one-third of respondents expected higher interest rates while
one-third expected rates to fall.&nbsp; A separate question
indicated that 49.5% expected lower stock prices. The
decline in overall consumer confidence over the last year has been
greatest amongst higher income earners.&nbsp; It has been fairly
uniform by age group. An
Experimental Investigation of Why Individuals Conform from
the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/staff_reports/sr365.pdf">here</a>. Prospects for Macro- and Financial Policy is a
recent speech given by Gary H. Stern, President of the Federal Reserve
Bank of Minneapolis and it available <a href="http://www.minneapolisfed.org/news_events/pres/Stern02-05-09.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">Conference
Board &nbsp;(SA, 1985=100)</th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y %</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer
Confidence Index</td>
<td>25.0</td>
<td>37.4</td>
<td>-67.3</td>
<td>57.9</td>
<td>103.4</td>
<td>105.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Present Situation</td>
<td>21.2</td>
<td>29.7</td>
<td>-79.6</td>
<td>69.9</td>
<td>128.8</td>
<td>130.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
Expectations</td>
<td>27.5</td>
<td>42.5</td>
<td>-52.6</td>
<td>50.0</td>
<td>86.4</td>
<td>89.7</td>
</tr>
</tbody>
</table>
</body></html>

The Conference Board reported that its February index of consumer confidence fell to another record low. The decline to a reading of 25.0 was a one-third drop versus January and it lowered confidence by three-quarters from the July [...]

U.S. Consumer Confidence Fell To A Record Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090224d.jpg" width="353">
The consumer may be getting back on his feet. Chain store sales rose 0.6% last week (Feb.21) after the prior week&#39;s 0.9% increase, according to the International Council of Shopping Centers-Goldman Sachs Index. The latest increases lifted sales so far this month by 0.9% above the January average which had risen slightly from December.
The chain store sales figures are available in Haver&#39;s SURVEYW database.
During the last ten years there has been a 64% correlation between the year-to-year growth in chain store sales and the growth in general merchandise sales.
The ICSC-Goldman Sachs retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The outlook for sales, however, remains far from robust. The weekly leading indicator of chain store sales from ICSC-Goldman Sachs ticked up just slightly last week and so far this month is down 2.3% from January (-3.4% y/y).

<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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">02/21/09</th>
<th scope="col">02/14/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>485.9</td>
<td>482.8</td>
<td>-0.8%</td>
<td>1.4%</td>
<td>2.8%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>


</html>

The consumer may be getting back on his feet. Chain store sales rose 0.6% last week (Feb.21) after the prior week's 0.9% increase, according to the International Council of Shopping Centers-Goldman Sachs Index. The latest increases [...]

U.S. Chain Store Sales Up Again Last Week

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

Jump to:

U.S. Durable Goods Orders Lowestin Six Years; Latest Six-Month Decline a Record

Yen-Based Japan Exports Are Cut Nearly In Half

U.S. Mortgage Applications Fall: Refi's & Purchase Applications Off

January U.S. Existing Home Sales & Prices Fell

January U.S. Existing Home Sales & Prices Fell

German IFO Survey Shows Little Change in the Dismal Appraisal of the Business Climate

U.S. Consumer Confidence Fell To A Record Low

U.S. Chain Store Sales Up Again Last Week