Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090217e.jpg" align="left" border="0" height="265" width="353">
The Cabinet office's first estimate of Gross Domestic Product
for the fourth quarter of 2008 revealed today that Japan's GDP declined
at a seasonally adjusted annual rate of 12.7%, a full percent above
consensus, confirming Kazuo Momma's fears that GDP may have declined at
"an unimaginable speed" expressed a week ago. (Kazuo Momma is Head of
Research and Statistics at the Bank of Japan.) The decline in GDP in
Japan compares with a 5.8% decline in the Euro Area and a 3.8% decline
in the United States in the same period, as shown in the first chart.
The sharpest decline was registered in exports, which, on a
seasonally adjusted annual rate basis, fell 45.0%. Gross Fixed Capital
Formation declined 11.3% and Private Consumption declined 1.6%. The
increase in inventories continued to decline. Government Consumption
increased 4.9%, the first this year, and imports were up by 12.0%.
Increased imports, however, affect GDP negatively.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090217f.jpg" align="right" border="0" height="265" width="353">
Japan has been in recession since November 2007 according to a
government panel that dates recessions. Attempts to stimulate the
economy have been hampered by the already high ratio of debt to GDP
(1.70 for Japan in the fourth quarter, compared to 0.75 for the U. S.)
and political in-fighting.Kaoru Yosana, Economic and Fiscal Policy
Minister, is unwilling to support further stimulus until the
supplementary budget for fiscal year 2008 and the budget for fiscal
year 2009 have been passed in the Diet and begun to be implemented.
Meanwhile gridlock in the Parliament has blocked passage of a 10
trillion yen ($100 billion) stimulus package proposed by Prime Minister
Taro Aso.
One surprising result in the data is the increase in the
deflator. The first in ten years, as shown in the second chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">JAPAN&nbsp;Seasonally
Adjusted Annual Rate of Change 
(ex where noted)</th>
<th scope="col">Q4 08</th>
<th scope="col">Q3 08</th>
<th scope="col">Q2 08&nbsp;</th>
<th scope="col">Q1 08&nbsp;</th>
<th scope="col">Q4 07</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">GDP&nbsp;</td>
<td>-12.71</td>
<td>-2.28</td>
<td>-3.61</td>
<td>0.63</td>
<td>4.49</td>
</tr>
<tr class="odd">
<td class="firstcol">Private
Consumption&nbsp;</td>
<td>-1.63</td>
<td>1.19</td>
<td>-2.97</td>
<td>3.00</td>
<td>1.41</td>
</tr>
<tr class="odd">
<td class="firstcol">Government
Consumption&nbsp;</td>
<td>4.93</td>
<td>-0.63</td>
<td>-3.63</td>
<td>-0.86</td>
<td>7.56</td>
</tr>
<tr class="odd">
<td class="firstcol">Gross Fixed Capital
Formation&nbsp;</td>
<td>-11.29</td>
<td>-6.48</td>
<td>-7.82</td>
<td>-2.84</td>
<td>-0.66</td>
</tr>
<tr class="odd">
<td class="firstcol">Change in Inventory
(Billion Yen)</td>
<td>1932.7</td>
<td>2833.2</td>
<td>2599.3</td>
<td>4047.4</td>
<td>3566.5</td>
</tr>
<tr>
<td class="firstcol">Exports of Goods and
Services</td>
<td>-45.01</td>
<td>2.54</td>
<td>-9.00</td>
<td>12.57</td>
<td>12.40</td>
</tr>
<tr>
<td class="firstcol">Imports of Goods and
Services&nbsp;</td>
<td>12.03</td>
<td>6.28</td>
<td>-11.73</td>
<td>6.13</td>
<td>1.43</td>
</tr>
<tr class="even">
<td class="firstcol">Deflator&nbsp;Y/Y
% Chg</td>
<td>0.97</td>
<td>-1.66</td>
<td>-1.50</td>
<td>-1.32</td>
<td>-1.38</td>
</tr>
</tbody>
</table>
</body></html>

The Cabinet office's first estimate of Gross Domestic Product for the fourth quarter of 2008 revealed today that Japan's GDP declined at a seasonally adjusted annual rate of 12.7%, a full percent above consensus, confirming Kazuo [...]

Data Confirm Worst Fears Of Rapid Decline In Japanese Economy

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090213d.jpg" align="left" border="0" height="265" width="353">
GDP is declining in the e-Zone at a very rapid rate. The
fourth quarter GDP declines in the zone have been larger than had been
expected. Declines in Europe are now generally worse than the declines
in the US. Germany has just adopted a second stimulus package worth 50
billion euros over two years to buffer its sagging economy. Budgets in
EMU are beginning to strain or to shatter the EMU guidelines know as
the Maastricht Criteria. Italy and France have been warned by the
Chairman of e-Zone finance ministers, George Junker, about
protectionist policies. "The European Commission needs to examine very
intensively the details of the Italian and French stimulus programs,"
Juncker was quoted as saying in a pre-release of an interview with a
German newspaper. These are the sorts of things that happen in
recession. Survival is the first order of business and sometimes the
rules get trampled or slightly skirted along the road to survival. 
 

As the G-7 finance ministers meet in Italy there is concern
about protectionism. The US too has been warned by Japan. The Japanese
are worried about the &#8216;buy American&#8217; provisions in the US stimulus
package. No one wants a trade war. But everyone seems to being skating
close to the edge. 
 

Economies are weak and the manufacturing and export-based
economies have been hit the hardest. Note that among this growth of
counties the US Q4 result is second best; Germany and Italy have been
hit hardest. . The US, of course, has a large service sector and it is
a net importing nation. The short fall in US demand has activated one
of the automatic stabilizers in GDP, imports. Imports are weakened so
US GDP has been buffered in its decline, since imports subtract from
GDP growth. Weaker imports mean stronger GDP. But that has transmitted
more weakness overseas to the countries that export to the US. Still
the domestic weakness in the US is severe and it is so severe that
Japan&#8217;s Toyota is planning layoffs in its US operations. 
 

This decline in GDP puts everyone on notice for how bad things
are. GDP is one measure all can see and relate to, at least to some
extent. In the US, the labor market has been hit harder than in Europe
with the its broader social safety net and business practices that are
different and a little less quick on the lay-off trigger. There is
concern about how bad the second round effects will be in the US with
such severe labor market displacement. Mitigating that is the task of
the stimulus package. So far US GDP has not been hammered to the extent
expected. But if the US has a more severe second round you can expect
that it will get Europe&#8217;s attention too. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">E-Zone and main G-10 country GDP Results</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Quarter over quarter-Saar</td>
<td colspan="4">Year/Year</td>
</tr>
<tr>
<td class="firstcol">GDP</td>
<td>Q4-08</td>
<td>Q3-08</td>
<td>Q2-08</td>
<td>Q4-08</td>
<td>Q3-08</td>
<td>Q2-08</td>
<td>Q1-08</td>
</tr>
<tr>
<td class="firstcol">&nbsp; EMU-15</td>
<td>-6.1%</td>
<td>-0.7%</td>
<td>-0.7%</td>
<td>-1.2%</td>
<td>0.6%</td>
<td>1.4%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; France</td>
<td>-4.6%</td>
<td>0.4%</td>
<td>-1.2%</td>
<td>-1.0%</td>
<td>0.6%</td>
<td>1.2%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany</td>
<td>-8.2%</td>
<td>-2.1%</td>
<td>-2.0%</td>
<td>-1.7%</td>
<td>0.8%</td>
<td>2.0%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Italy</td>
<td>-7.1%</td>
<td>-2.2%</td>
<td>-2.5%</td>
<td>-2.6%</td>
<td>-1.1%</td>
<td>-0.4%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; The
Netherlands</td>
<td>-3.4%</td>
<td>-1.2%</td>
<td>-0.3%</td>
<td>-0.7%</td>
<td>1.7%</td>
<td>3.3%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; UK</td>
<td>-5.9%</td>
<td>-2.5%</td>
<td>0.0%</td>
<td>-1.8%</td>
<td>0.3%</td>
<td>1.7%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; US</td>
<td>-3.8%</td>
<td>-0.5%</td>
<td>2.8%</td>
<td>-0.2%</td>
<td>0.7%</td>
<td>2.1%</td>
<td>2.5%</td>
</tr>
</tbody>
</table>
</body></html>

GDP is declining in the e-Zone at a very rapid rate. The fourth quarter GDP declines in the zone have been larger than had been expected. Declines in Europe are now generally worse than the declines in the US. Germany has just adopted [...]

GDP In EMU Falls Hard In 2008-Q4

Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090213a.jpg" align="right" border="0" height="265" width="353">
The University of Michigan reported that its mid-February
reading of consumer sentiment fell sharply. The 8.2% month-to-month
decline to a level of 56.2 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 21% from last February and the reading fell
short of Consensus expectations for an unchanged level of 61.0.
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 15.1% 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 42.6% m/m to a new low for the series which dates back to
1947. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090213b.jpg" align="left" border="0" height="265" width="353">
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 ticked up 0.9% 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 17.1% from a year earlier. The view of current personal finances
also added very slightly to the large January gain but the index
remained down by roughly one-quarter from last February.
The opinion of government policy, which apparently influences
economic expectations, improved to the highest level since last April .
Ten 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.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090213c.jpg" align="left" border="0" height="265" width="353">
Inflation expectations for the the next year fell back to
2.0%. It was as high as 7.0% in May. The range of expectations is from
slight price deflation to a 5.0% increase in prices, though that latter
figure is half the year-ago expectation. The expected inflation rate
during the next five years also fell to 3.0%.
The University of Michigan survey 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.
Stabilizing the Housing Market: Next Steps
is the recent speech by Federal Reserve Board Governor Elizabeth A.
Duke and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/duke20090211a.htm">
here</a>.
Making Sense of the Subprime Crisis from
the Federal Reserve Bank of Boston is available <a href="http://www.bos.frb.org/economic/ppdp/2009/ppdp0901.pdf">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></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>56.2</td>
<td>61.2</td>
<td>60.1</td>
<td>-20.6%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>67.1</td>
<td>66.5</td>
<td>69.5</td>
<td>-19.9</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>49.1</td>
<td>57.8</td>
<td>54.0</td>
<td>-21.3</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 mid-February reading of consumer sentiment fell sharply. The 8.2% month-to-month decline to a level of 56.2 nearly reversed all of the gains of the prior two months and returned the index [...]

Michigan Consumer Sentiment Sinks to Its Lowest Since 1980

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090213a.jpg" align="right" border="0" height="265" width="353">
The University of Michigan reported that its mid-February
reading of consumer sentiment fell sharply. The 8.2% month-to-month
decline to a level of 56.2 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 21% from last February and the reading fell
short of Consensus expectations for an unchanged level of 61.0.
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 15.1% 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 42.6% m/m to a new low for the series which dates back to
1947. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090213b.jpg" align="right" border="0" height="265" width="353">
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 ticked up 0.9% 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 17.1% from a year earlier. The view of current personal finances
also added very slightly to the large January gain but the index
remained down by roughly one-quarter from last February.
The opinion of government policy, which apparently influences
economic expectations, improved to the highest level since last April .
Ten 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.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090213c.jpg" align="right" border="0" height="265" width="353">
Inflation expectations for the the next year fell back to
2.0%. It was as high as 7.0% in May. The range of expectations is from
slight price deflation to a 5.0% increase in prices, though that latter
figure is half the year-ago expectation. The expected inflation rate
during the next five years also fell to 3.0%.
The University of Michigan survey 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.
Stabilizing the Housing Market: Next Steps
is the recent speech by Federal Reserve Board Governor Elizabeth A.
Duke and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/duke20090211a.htm">
here</a>.
Making Sense of the Subprime Crisis from
the Federal Reserve Bank of Boston is available <a href="http://www.bos.frb.org/economic/ppdp/2009/ppdp0901.pdf">
here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></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>56.2</td>
<td>61.2</td>
<td>60.1</td>
<td>-20.6%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>67.1</td>
<td>66.5</td>
<td>69.5</td>
<td>-19.9</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>49.1</td>
<td>57.8</td>
<td>54.0</td>
<td>-21.3</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>
 GDP In EMU Falls Hard In 2008-Q4 
by <a href="/comment/Brusca.html">Robert
Brusca</a> February 13, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090213d.jpg" align="left" border="0" height="265" width="353">
GDP is declining in the e-Zone at a very rapid rate. The
fourth quarter GDP declines in the zone have been larger than had been
expected. Declines in Europe are now generally worse than the declines
in the US. Germany has just adopted a second stimulus package worth 50
billion euros over two years to buffer its sagging economy. Budgets in
EMU are beginning to strain or to shatter the EMU guidelines know as
the Maastricht Criteria. Italy and France have been warned by the
Chairman of e-Zone finance ministers, George Junker, about
protectionist policies. "The European Commission needs to examine very
intensively the details of the Italian and French stimulus programs,"
Juncker was quoted as saying in a pre-release of an interview with a
German newspaper. These are the sorts of things that happen in
recession. Survival is the first order of business and sometimes the
rules get trampled or slightly skirted along the road to survival. 
 

As the G-7 finance ministers meet in Italy there is concern
about protectionism. The US too has been warned by Japan. The Japanese
are worried about the &#8216;buy American&#8217; provisions in the US stimulus
package. No one wants a trade war. But everyone seems to being skating
close to the edge. 
 

Economies are weak and the manufacturing and export-based
economies have been hit the hardest. Note that among this growth of
counties the US Q4 result is second best; Germany and Italy have been
hit hardest. . The US, of course, has a large service sector and it is
a net importing nation. The short fall in US demand has activated one
of the automatic stabilizers in GDP, imports. Imports are weakened so
US GDP has been buffered in its decline, since imports subtract from
GDP growth. Weaker imports mean stronger GDP. But that has transmitted
more weakness overseas to the countries that export to the US. Still
the domestic weakness in the US is severe and it is so severe that
Japan&#8217;s Toyota is planning layoffs in its US operations. 
 

This decline in GDP puts everyone on notice for how bad things
are. GDP is one measure all can see and relate to, at least to some
extent. In the US, the labor market has been hit harder than in Europe
with the its broader social safety net and business practices that are
different and a little less quick on the lay-off trigger. There is
concern about how bad the second round effects will be in the US with
such severe labor market displacement. Mitigating that is the task of
the stimulus package. So far US GDP has not been hammered to the extent
expected. But if the US has a more severe second round you can expect
that it will get Europe&#8217;s attention too. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">E-Zone and
main G-10 country GDP Results</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Quarter over quarter-Saar</td>
<td colspan="4">Year/Year</td>
</tr>
<tr>
<td class="firstcol">GDP</td>
<td>Q4-08</td>
<td>Q3-08</td>
<td>Q2-08</td>
<td>Q4-08</td>
<td>Q3-08</td>
<td>Q2-08</td>
<td>Q1-08</td>
</tr>
<tr>
<td class="firstcol">&nbsp; EMU-15</td>
<td>-6.1%</td>
<td>-0.7%</td>
<td>-0.7%</td>
<td>-1.2%</td>
<td>0.6%</td>
<td>1.4%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; France</td>
<td>-4.6%</td>
<td>0.4%</td>
<td>-1.2%</td>
<td>-1.0%</td>
<td>0.6%</td>
<td>1.2%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany</td>
<td>-8.2%</td>
<td>-2.1%</td>
<td>-2.0%</td>
<td>-1.7%</td>
<td>0.8%</td>
<td>2.0%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Italy</td>
<td>-7.1%</td>
<td>-2.2%</td>
<td>-2.5%</td>
<td>-2.6%</td>
<td>-1.1%</td>
<td>-0.4%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; The
Netherlands</td>
<td>-3.4%</td>
<td>-1.2%</td>
<td>-0.3%</td>
<td>-0.7%</td>
<td>1.7%</td>
<td>3.3%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; UK</td>
<td>-5.9%</td>
<td>-2.5%</td>
<td>0.0%</td>
<td>-1.8%</td>
<td>0.3%</td>
<td>1.7%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; US</td>
<td>-3.8%</td>
<td>-0.5%</td>
<td>2.8%</td>
<td>-0.2%</td>
<td>0.7%</td>
<td>2.1%</td>
<td>2.5%</td>
</tr>
</tbody>
</table>
</body></html>

Michigan Consumer Sentiment Sinksto Its Lowest Since 1980

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090212f.jpg" align="right" border="0" height="265" width="353">
Total business inventories fell 1.3% during December after a
downwardly revised November decline.&nbsp; The latest drop was the
fourth in as many months and the rise of 0.9% year-to-year was the
weakest since early-2004. The recent cutback in inventory accumulation
reflects the 11.8% y/y drop in business sales. During the
last three months inventories have been cut at an 11.4% rate as sales
have fallen at a 40.9% annual rate.&nbsp; The mismatch
between inventory and sales growth caused the December inventory/sales
ratio to surge further to 1.44, its highest level since the recession
of 2001.&nbsp; What's more is that the increase in the ratio during
the last year is the swiftest since 1982. The rise ended a twenty-eight
year downtrend. Retailers cut inventories 1.0% in December and at an
11.7% rate during the last three months, the swiftest since
2001.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090212g.jpg" align="right" border="0" height="265" width="353">
Motor vehicle inventories continued to lead the
decumulation and fell at a 15.8% rate during the last three months.
Nevertheless, the inventory-to-sales ratio for automobiles remained
near its historic high at 2.59. So unless sales recover soon, expect
further production cuts to reduce the ratio.Outside of autos,
retailers continued with their reduction of unsold goods. Furniture,
home furnishings &amp; electronics inventories fell 1.2% in
December and they are off 5.5% during the past year.&nbsp; Apparel
retailers cut aggressively as well. The 0.6% December decline matched
the November inventory cutback and they're off 2.5% year-to-year.
General merchandise inventories fell 1.1% (-2.7% y/y) during December.
Overall, the inventory-to-sales ratio in the nonauto retail sector rose
during December to its highest level since 2003.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Business
Inventories (%)</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">October</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</td>
<td>-1.3</td>
<td>-1.1</td>
<td>-0.6</td>
<td>0.9</td>
<td>0.9</td>
<td>4.1</td>
<td>6.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>-1.0</td>
<td>-1.8</td>
<td>-0.2</td>
<td>-2.8</td>
<td>-2.8</td>
<td>2.9</td>
<td>3.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Retail excl. Auto</td>
<td>-1.0</td>
<td>-1.5</td>
<td>-0.1</td>
<td>-1.5</td>
<td>-1.5</td>
<td>2.9</td>
<td>4.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>-1.4</td>
<td>-0.9</td>
<td>-1.2</td>
<td>3.4</td>
<td>3.4</td>
<td>5.9</td>
<td>8.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-1.4</td>
<td>-0.5</td>
<td>-0.6</td>
<td>2.6</td>
<td>2.6</td>
<td>3.7</td>
<td>8.2</td>
</tr>
</tbody>
</table>
</body></html>

Total business inventories fell 1.3% during December after a downwardly revised November decline. The latest drop was the fourth in as many months and the rise of 0.9% year-to-year was the weakest since early-2004. The recent cutback [...]

U.S. Business Inventory Cutbacks Gained Steam

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090212d.jpg">
U.S. labor market conditions continued dismal as the Labor Department indicated that initial claims for unemployment insurance slipped just 8,000 to 623,000 after an upwardly revised 40,000 increase during the prior week. The latest level again surpassed Consensus expectations for 610,000 initial claims. Initial claims continue to be the highest since late during the sharp recession of 1981-82. During that recession, real GDP fell by 2.9% peak-to-trough.<img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090212e.jpg">
The Labor Department indicated that the largest increases in initial claims for the week ending January 31 were in California (+20,001), North Carolina (+8,663), Ohio (+4,738), Georgia (+4,392), and Kansas (+3,232), while the largest decreases were in Virginia (-1,937), New Jersey (-1,551), Missouri (-1,370), Oklahoma (-1,199), and Connecticut (-1,000).
Labor market stress was further indicated by an increase to 4,810,000 continuing claims for unemployment insurance. The latest was another record. The series dates back to 1966. The four-week average of continuing claims rose 73,800 to 4,745,250. Continuing claims provide some indication of workers&#39; ability to find employment and they lag the initial claims figures by one week.
Though the latest level of continuing claims was a record, the labor force has grown as well. Therefore, the insured rate of unemployment was not at a new high. It remained stable at 3.6% which was, however, the highest since 1983. The highest insured unemployment rates in the week ending January 24 were Michigan (7.4 percent), Oregon (6.9), Idaho (6.8), Wisconsin (6.1), Pennsylvania (5.9), Nevada (5.7), Montana (5.6), Indiana (5.5), Alaska (5.4), New Jersey (5.4), and Rhode Island (5.4).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">02/06/09</th>
<th scope="col">01/31/09</th>
<th scope="col">01/17/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>623</td>
<td>631</td>
<td>591</td>
<td>83.8%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,810</td>
<td>4,799</td>
<td>78.5%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
</tbody>
</table>
</body>
</html>

U.S. labor market conditions continued dismal as the Labor Department indicated that initial claims for unemployment insurance slipped just 8,000 to 623,000 after an upwardly revised 40,000 increase during the prior week. The latest [...]

U.S. Initial Claims For Unemployment Insurance Slipped From Recent High

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090212c.jpg" align="left" border="0" height="265" width="353">
Industrial production fell by a sharp 3% in December and is
having its sharpest fall since the Euro Area data series began. The
progressive growth rates show that GDP is getting weaker and weaker
over shorter periods. In the fourth quarter IP in the zone is down at a
20.7% annual rate. Consumer output is down by the least at a -6.4%
pace. Intermediate goods output is down at an outsized -30% annual pace
in Q4. Capital goods output is off at a -21.2% annual rate. The country
level data show year-over-year MFG IP declines are fairly uniform
across countries. We are looking to very weak GDP results for EMU and
its member nations. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col">Euro Area
MFG IP</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td>Dec 
08</td>
<td>Nov 
08</td>
<td>Dec 
08</td>
<td>Nov 
08</td>
<td>Dec 
08</td>
<td>Nov 
08</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">Euro Area Detail</td>
<td style="font-weight: bold;">Dec 
08</td>
<td style="font-weight: bold;">Nov 
08</td>
<td style="font-weight: bold;">Oct 
08</td>
<td style="font-weight: bold;">3Mo</td>
<td style="font-weight: bold;">3Mo</td>
<td style="font-weight: bold;">6mo</td>
<td style="font-weight: bold;">6mo</td>
<td style="font-weight: bold;">12mo</td>
<td style="font-weight: bold;">12mo</td>
<td style="font-weight: bold;">Q4</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>-3.1%</td>
<td>-2.4%</td>
<td>-1.8%</td>
<td>-25.6%</td>
<td>-22.5%</td>
<td>-17.8%</td>
<td>-13.3%</td>
<td>-12.2%</td>
<td>-8.3%</td>
<td>-20.7%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td>-0.7%</td>
<td>-0.7%</td>
<td>-0.2%</td>
<td>-6.5%</td>
<td>-6.5%</td>
<td>-6.0%</td>
<td>-3.7%</td>
<td>-4.8%</td>
<td>-3.9%</td>
<td>-6.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; C-Durables</td>
<td>-2.8%</td>
<td>-2.8%</td>
<td>-1.9%</td>
<td>-26.5%</td>
<td>-25.6%</td>
<td>-19.6%</td>
<td>-14.6%</td>
<td>-13.4%</td>
<td>-10.5%</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; C-Nondurables</td>
<td>-0.9%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>-4.1%</td>
<td>-3.7%</td>
<td>-4.8%</td>
<td>-1.8%</td>
<td>-3.9%</td>
<td>-2.6%</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Intermediate</td>
<td>-5.7%</td>
<td>-3.6%</td>
<td>-2.8%</td>
<td>-39.0%</td>
<td>-32.7%</td>
<td>-27.5%</td>
<td>-19.9%</td>
<td>-18.8%</td>
<td>-11.8%</td>
<td>-30.9%</td>
</tr>
<tr>
<td class="firstcol">Capital</td>
<td>-2.5%</td>
<td>-2.6%</td>
<td>-2.4%</td>
<td>-25.9%</td>
<td>-24.3%</td>
<td>-16.9%</td>
<td>-13.8%</td>
<td>-10.8%</td>
<td>-8.2%</td>
<td>-21.2%</td>
</tr>
<tr class="odd">
<td colspan="11" class="firstcol">Main E-zone Countries and
UK IP in MFG</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo</td>
<td>Dec 
08</td>
<td>Nov 
08</td>
<td>Dec 
08</td>
<td>Nov 
08</td>
<td>Dec 
08</td>
<td>Nov 
08</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">MFG Only</td>
<td style="font-weight: bold;">Dec 
08</td>
<td style="font-weight: bold;">Nov 
08</td>
<td style="font-weight: bold;">Oct 
08</td>
<td style="font-weight: bold;">3Mo</td>
<td style="font-weight: bold;">3Mo</td>
<td style="font-weight: bold;">6mo</td>
<td style="font-weight: bold;">6mo</td>
<td style="font-weight: bold;">12mo</td>
<td style="font-weight: bold;">12mo</td>
<td style="font-weight: bold;">Q-2- 
Date</td>
</tr>
<tr>
<td class="firstcol">Germany:</td>
<td>-5.3%</td>
<td>-3.8%</td>
<td>-2.1%</td>
<td>-36.5%</td>
<td>-32.1%</td>
<td>-23.8%</td>
<td>-14.1%</td>
<td>-13.1%</td>
<td>-7.2%</td>
<td>-26.9%</td>
</tr>
<tr>
<td class="firstcol">France: IP ex Construction</td>
<td>-1.8%</td>
<td>-2.8%</td>
<td>-3.8%</td>
<td>-28.8%</td>
<td>-25.6%</td>
<td>-15.1%</td>
<td>-13.4%</td>
<td>-11.1%</td>
<td>-9.1%</td>
<td>-24.1%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>-2.7%</td>
<td>-3.2%</td>
<td>-2.2%</td>
<td>-28.1%</td>
<td>-30.2%</td>
<td>-22.8%</td>
<td>-18.1%</td>
<td>-13.1%</td>
<td>-10.6%</td>
<td>-26.0%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>2.7%</td>
<td>-9.4%</td>
<td>-2.0%</td>
<td>-30.9%</td>
<td>-30.7%</td>
<td>-10.1%</td>
<td>-23.2%</td>
<td>-15.0%</td>
<td>-17.2%</td>
<td>-29.8%</td>
</tr>
<tr>
<td class="firstcol">UK: EU member</td>
<td>-2.2%</td>
<td>-3.0%</td>
<td>-1.6%</td>
<td>-24.1%</td>
<td>-20.3%</td>
<td>-16.6%</td>
<td>-14.0%</td>
<td>-10.2%</td>
<td>-8.4%</td>
<td>-19.1%</td>
</tr>
</tbody>
</table>
</body></html>

Industrial production fell by a sharp 3% in December and is having its sharpest fall since the Euro Area data series began. The progressive growth rates show that GDP is getting weaker and weaker over shorter periods. In the fourth [...]

IP Drops Sharply Across Sectors in the Euro Area

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

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

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Andrew Cates

**US trade with Europe** 
Geopolitical tensions surrounding Greenland have abruptly sharpened investor sensitivity to US trade and foreign-policy risk. What might once have been dismissed as rhetorical brinkmanship has taken on greater macro-financial relevance as Donald Trump has coupled renewed interest in Greenland’s strategic importance with explicit threats of higher tariffs on European imports. The first chart below highlights that the US is materially more exposed to EU goods than the EU is to US trade, making any escalation asymmetrically more costly for the US economy. Beyond the direct inflationary impact of higher tariffs, the more immediate risk lies in confidence effects and capital flows: early signs of capital reallocation away from US assets over the past 24 hours suggest that markets could be beginning to price a broader erosion of policy predictability. In this environment, tariffs risk functioning less as a targeted trade tool and more as a systemic confidence shock—tightening financial conditions, unsettling the dollar’s safe-haven status and increasing downside risks to US growth via weaker investment and higher risk premia.

260122Z1.jpg

**Japan’s JGB yields**
That said, recent capital outflows from US assets may owe as much to developments in Japan as to geopolitical and trade-related shocks. While tariff threats and policy unpredictability have clearly unsettled sentiment, an underappreciated driver of the sell-off in US Treasuries has been the sharp repricing in the Japanese government bond market. Renewed domestic political uncertainty and intensifying concerns over Japan’s debt dynamics have triggered a rapid rise in JGB yields, prompting portfolio rebalancing by Japanese investors and reducing the relative appeal of US duration. Given Japan’s role as one of the largest foreign holders of US Treasuries, yield gyrations at home can translate quickly into capital repatriation, hedging adjustments and reduced demand for US bonds. In this sense, recent moves in US yields may reflect less a direct reaction to geopolitical risk and more a globally transmitted capital-flow shock—originating in Japan but felt most acutely in US financial markets.

260122Z2.jpg

**Inflation expectations and oil prices**
Capital-flow dynamics may have also begun to spill over into how markets are pricing US inflation risk and monetary credibility. Historically, medium-term US inflation expectations have remained closely anchored to global energy prices, as illustrated by the strong co-movement between the 5-year forward inflation rate and Brent crude prices. More recently, however, that relationship has begun to fray: inflation expectations have proven notably resilient even as oil prices have softened, suggesting that markets are increasingly pricing political and policy risk rather than cost-push fundamentals alone. Renewed tariff threats under President Trump, combined with heightened geopolitical tensions involving Greenland and transatlantic relations, risk reinforcing concerns that future inflation outcomes could be shaped as much by political intervention as by macroeconomic conditions. Any perception that the Federal Reserve may face constraints on its operational independence would compound this shift—loosening inflation anchors, raising term premia and increasing the sensitivity of capital flows to US policy credibility.

260122Z3.jpg

**UK inflation** 
UK inflation data released this week show a small upside surprise in headline CPI at year-end. Headline CPI inflation specifically rose from 3.2% y/y in November to 3.4% in December, a little more than expected. The chart below shows that the pickup was driven by persistent underlying pressures—most notably in services. While a negative drag from energy prices has largely faded, services inflation continues to account for a disproportionate share of overall price growth, probably reflecting ongoing wage pressures and limited slack in parts of the domestic economy.

260122Z4.jpg

**Wage growth in the US and Europe** 
Labour-market data from the Indeed Hiring Lab reinforce the picture of persistent services-side pressure in the UK inflation mix. As the chart shows, UK posted wage growth remains elevated relative to both the euro area and the US, even though momentum has eased from its 2023 peak. At around the mid-5% range on a three-month moving average basis, UK wage growth is still running at a pace that is difficult to reconcile with a rapid return of services inflation to target. By contrast, posted wage growth in the euro area has slowed more decisively, while the US has seen a sharper deceleration from earlier extremes.

260122Z5.jpg

**China’s property market**
Finally, the Q4 GDP figures released in China this week sit uneasily alongside continued weakness in its domestic property sector, which remains a key drag on both investment and consumption. While Q4 growth of 4.5% y/y brought full-year GDP broadly in line with the authorities’ 5% target, the chart highlights how property-market adjustment is still running deep beneath the surface. Prices of existing homes across China’s 70 cities remain in year-on-year decline, while real estate investment continues to contract sharply, underscoring the scale and persistence of the sector’s retrenchment. This helps explain why fixed asset investment has softened further and why household demand remains subdued, despite more resilient industrial output.

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This week’s data and market moves have been framed by an abrupt escalation in geopolitical tensions surrounding Greenland, which has served as a catalyst for broader financial unease rather than a standalone shock. The episode has sharpened investor focus on US policy predictability, amplifying concerns already evident in the charts on EU–US trade exposure, where tariff threats risk feeding directly into confidence effects and capital flows. At the same time, recent turbulence in Japanese government bonds appears to have been an underappreciated driver of the sell-off in US Treasuries, highlighting how global capital reallocation—rather than geopolitics alone—has contributed to higher US yields. These forces intersect with growing questions around the durability of US monetary credibility, as inflation expectations have shown signs of decoupling from traditional oil-price anchors, raising the sensitivity of markets to any perceived constraints on the Federal Reserve. Beyond the US, UK data delivered a modest upside surprise in headline inflation, with persistent services and wage pressures reinforcing a cautious policy backdrop for the Bank of England. In China, meanwhile, Q4 GDP growth of 4.5% y/y kept full-year expansion aligned with the government’s target, but continued weakness in the property sector remains a significant drag on investment and household confidence. Taken together, the week’s developments point to a global outlook increasingly shaped by geopolitical risk, capital-flow dynamics and domestic  structural constraints, rather than by straightforward cyclical momentum alone.

Charts of the Week: Seeing Green

Sandy Batten

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Real GDP increased 4.4% q/q saar in the third quarter of 2025 in the final estimate, up marginally from 4.3% in the first release. The Action Economics Forecast Survey expected no revision. Growth from a year ago was unrevised at 2.3% y/y. Growth of corporate profits was revised up to 4.5% q/q not annualized from 4.2% in the previous report.

The revision to GDP mostly reflected slightly stronger nonresidential fixed investment, a larger increase in exports and a smaller decrease in inventory investment. Nonresidential fixed investment increased a revised 3.2% q/q saar versus a 2.8% gain in the previous release. This reflected a smaller decline in structures, a smaller increase in equipment and a larger increase in intellectual property products than previously estimated. Residential investment was revised weaker with a 7.1% quarterly decline versus -5.1% in the previous estimate.

Upon revision, exports rose 9.6% q/q in Q3 versus 8.8% in the first estimate. Consequently, the trade deficit narrowed a little more than in the first estimate, resulting in net exports adding 1.62%-points to overall growth, 0.03%-point more previously estimated. The decline in inventory investment in Q3 was smaller than previously estimated, reducing the drag from inventories by 0.1%-point versus the previous estimate. The decline in inventories subtracted 0.12%-point in Q3 on top of a 3.44%-point subtraction in Q2.

Domestic demand growth remained solid in Q3 but was revised down 0.1%-point. Final sales to domestic purchasers grew a revised 2.8% q/q saar in Q3 versus 2.9% in the first estimate. Final sales to private domestic purchasers increased 2.9% q/q, down slightly from 3.0% previously.

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The primary driver of overall growth continued to be personal consumption expenditures. They increased an unrevised 3.5% q/q saar in Q3, adding 2.34%-points to total GDP growth. This reflected a 3.0% increase in spending on goods versus 3.1% previously and a 3.6% gain in spending on services versus 3.7% previously. The rise in government spending was unrevised at 2.2% q/q. However, spending by the federal government was revised slightly slower to 2.7% from 2.9% while spending by state and local governments was revised up slightly to 2.0% from 1.8%.

Key measures of inflation were unrevised. Inflation as measured by the GDP price index remained at 3.8% q/q saar in Q3, but this was up markedly from 2.1% in Q2. Similarly, PCE inflation in Q3 was unrevised at 2.8% versus 2.1% in Q2. Core PCE inflation was also unrevised at 2.9% in Q3.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- Real GDP grew 4.4% q/q saar in Q3 2025, up slightly from 4.3% previously reported.
- The modest upward revision was due mostly to slightly stronger nonresidential fixed investment, a larger increase in exports and a smaller decrease in inventories.
- Growth of domestic demand remained solid in Q3 but was revised down 0.1%-point.
- GDP and PCE inflation were unrevised at 3.8% and 2.8%, respectively. Both are meaningful accelerations from Q2.

U.S. Q3 GDP Growth Revised Slightly Faster

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance edged up 1,000 to 200,000 in the week ending January 17, from 199,000 in the week ending January 10, revised from 198,000. The four-week moving average of initial claims was 201,500 in the January 17 week, down 3,750 from 205,250 in the January 10 week, revised from 205,000, and reaching the lowest level for this average since January 13, 2024, when it was 200,000.

Federal government employees initially filed 1010 (NSA) jobless insurance claims in the week ended January 10, after filing 646 (NSA) claims in the week ended January 3.

The total number of unemployment insurance beneficiaries – also known as “continuing claims” –decreased by 26,000 to 1.849 million in the week ended January 10 from 1.875 million in the week ending January 3, revised from 1.884 million. The four-week moving average was 1.871 million in the latest week, down from 1.887 million in the January 3 week, revised from 1.889 million. The insured unemployment rate remained at 1.2% in the week of January 10, unchanged from previous 6 weeks.

Federal government employees’ continuing benefits claims were 12,977 (NSA) in the week ending January 3, from 12,803 (NSA) in the week of December 27.

The insured unemployment rate varied greatly across individual states and territories. In the week ending January 3, the highest unemployment rates were in Rhode Island (3.27%), New Jersey (3.17%), Washington (2.85%), Minnesota (2.75%), Massachusetts (2.74%), Oregon (2.37%), Connecticut (2.31%), Montana (2.26%), California (2.21%), and Alaska (2.06%). The lowest rates were in Florida (0.29%), North Carolina (0.40%), and Louisiana (0.43%). Rates in other notable states include New York (2.28%), Pennsylvania (2.23%), Illinois (2.21%), and Texas (1.14%). 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.

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U.S. Initial Claims for Unemployment Insurance Edged Up in Latest Week

Winnie Tapasanun

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

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

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

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

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

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

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

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

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

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

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

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

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

Economy in Brief

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Data Confirm Worst Fears Of Rapid Decline In Japanese Economy

Data Confirm Worst Fears Of Rapid Decline In Japanese Economy

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Michigan Consumer Sentiment Sinksto Its Lowest Since 1980

U.S. Business Inventory Cutbacks Gained Steam

U.S. Initial Claims For Unemployment Insurance Slipped From Recent High

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