Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090217d.jpg" align="left" border="0" height="265" width="353">
Recession has hit the Euro Area trade flows hard as exports
already lower by 6.8% lower in November fell by another 0.9% in
December. But imports that fell by 4.8% on November fell by a
further-chilling 3.9% in December. The confluence of these trends
shrank the EMU trade deficit in December to Eur 257mln from Eur 4.0 Bln
in November. Yr/Yr exports are lower by 5.4% compared to imports which
are down by 6.6%. Over three months the annual rates of decline are
-35% for exports and -43% for imports. Over the last six months the
pace of decline has accelerated sharply. Yr/yr numbers do not begin to
show the depth of the problem. 
 

German finance minister Steinbrueck warned that Euro-region
countries may be forced to bail out other members of the 16-nation bloc
that face problems refinancing their debt. &#8220;Some countries are slowly
getting into difficulties with their payments,&#8221; Steinbrueck said late
yesterday in a speech in Dusseldorf. &#8220;The euro-region treaties don&#8217;t
foresee any help for insolvent countries, but in reality the other
states would have to rescue those running into difficulty.&#8221; This
underscores the degree of difficulty of economic times in Europe. Also
underlining that tough sledding is the warning by the rating agency
Moody&#8217;s today. Moody&#8217;s cautions that banks with substantial lending
exposure to Eastern Europe could be downgraded. Thus another class of
assets (Eastern European loans) has gone bad. Of course the banks with
the most of this type of lending are European. Emerging Europe is being
called the &#8216;sub-prime&#8217; of Europe. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="6" scope="col">Euro Area
13 - Trade trends for goods</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="2">m/m%</td>
<td colspan="3">% Saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Dec-08</td>
<td>Nov-08</td>
<td>3M</td>
<td>6M</td>
<td>12M</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance*</td>
<td>&#8364;&#8364; (257)</td>
<td>&#8364;&#8364; (4,005)</td>
<td>&#8364;&#8364; (1,922)</td>
<td>&#8364;&#8364; (3,760)</td>
<td>&#8364;&#8364; (2,235)</td>
</tr>
<tr class="even">
<td class="firstcol">Exports</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">All Exp</td>
<td>-0.9%</td>
<td>-6.8%</td>
<td>-35.3%</td>
<td>-17.1%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">Food and Drinks</td>
<td>--</td>
<td>-3.0%</td>
<td>-7.1%</td>
<td>-3.3%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Raw materials</td>
<td>--</td>
<td>-13.0%</td>
<td>-60.4%</td>
<td>-34.9%</td>
<td>-12.2%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>--</td>
<td>-4.0%</td>
<td>-24.7%</td>
<td>-10.8%</td>
<td>-6.6%</td>
</tr>
<tr class="even">
<td class="firstcol">Imports</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">All IMP</td>
<td>-3.9%</td>
<td>-4.8%</td>
<td>-43.4%</td>
<td>-21.0%</td>
<td>-6.6%</td>
</tr>
<tr>
<td class="firstcol">Food and Drinks</td>
<td>--</td>
<td>-2.9%</td>
<td>-15.1%</td>
<td>-7.8%</td>
<td>-3.7%</td>
</tr>
<tr>
<td class="firstcol">Raw materials</td>
<td>--</td>
<td>-0.4%</td>
<td>4.5%</td>
<td>4.8%</td>
<td>8.3%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>--</td>
<td>-0.5%</td>
<td>-8.2%</td>
<td>-1.8%</td>
<td>-1.3%</td>
</tr>
<tr>
<td colspan="6" class="firstcol">*Eur mlns; mo or period average;
Gray shaded areas lag one month</td>
</tr>
</tbody>
</table>
</body></html>

Recession has hit the Euro Area trade flows hard as exports already lower by 6.8% lower in November fell by another 0.9% in December. But imports that fell by 4.8% on November fell by a further-chilling 3.9% in December. The [...]

Exports and Imports Plunge in the Euro Area as Deficit Contracts

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090217a.jpg" width="353">
The February Empire State Index of manufacturing sector activity, reported by the Federal Reserve Bank of New York, fell to a new low for the series which dates back to 2001. The figure of -34.65 was down from -22.20 in January and it was lower than Consensus expectations for a reading of -24.0.
The figure is a diffusion index. Since the series&#39; inception in 2001 there has been a 68% correlation between its level and the three-month change in U.S. factory sector industrial production.
The index of pricing pressure improved slightly month-to-month but it too remained near the series&#39; low. Since inception in 2001, there has been a 77% correlation between the index of prices paid and the three-month change in the core intermediate materials PPI.
The new orders index fell sharply from January to a new series low of -30.51. That compares to last February&#39;s reading of -10.40.Fifty percent of survey participants reported lower levels of orders while only twenty percent reported higher orders.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090217b.jpg" width="353">
The employment index improved just slightly month-to-month but also remained near the series&#39; low. In the history of the NY employment index, there has been an 87% correlation between it and the three-month growth in overall U.S. factory sector employment as reported by the Labor Department.
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
The Empire State index of expected business conditions in six months fell to near the series&#39; low. The subseries for employment collapsed and new orders remained near the series&#39; low. The pricing index moved into negative territory.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090217c.jpg" width="353">
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">here</a>.
The Empire State data is available in Haver&#39;s SURVEYS database.
Stabilizing the Housing Market: Focus on Communities is yesterday&#39;s speech by Federal Reserve Governor Elizabeth A. Duke and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/duke20090216a.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a></th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">February &#39;08&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index, %)&nbsp;&nbsp;</td>
<td>-34.65</td>
<td>-22.20</td>
<td>-7.52</td>
<td>-10.10</td>
<td>17.23</td>
<td>20.24</td>
</tr>
<tr>
<td class="firstcol">Prices Paid</td>
<td>-13.79</td>
<td>-18.18</td>
<td>47.37</td>
<td>46.99</td>
<td>35.64</td>
<td>41.88</td>
</tr>
</tbody>
</table>


</html>

The February Empire State Index of manufacturing sector activity, reported by the Federal Reserve Bank of New York, fell to a new low for the series which dates back to 2001. The figure of -34.65 was down from -22.20 in January and it [...]

U.S. Empire State Index Fell To A New Low

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090217a.jpg" align="left" border="0" height="265" width="353">
The February Empire State Index of manufacturing sector
activity, reported by the Federal Reserve Bank of New York, fell to a
new low for the series which dates back to 2001. The figure of -34.65
was down from -22.20 in January and it was lower than Consensus
expectations for a reading of -24.0.
The figure is a diffusion index. Since the series' inception
in 2001 there has been a 68% correlation between its level and the
three-month change in U.S. factory sector industrial production.
The index of pricing pressure improved slightly month-to-month
but it too remained near the series' low. Since inception in 2001,
there has been a 77% correlation between the index of prices paid and
the three-month change in the core intermediate materials PPI.
The new orders index fell sharply from January to a new series
low of -30.51. That compares to last February's reading of -10.40.Fifty
percent of survey participants reported lower levels of orders while
only twenty percent reported higher orders.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090217b.jpg" align="right" border="0" height="265" width="353">
The employment index improved just slightly month-to-month but
also remained near the series' low. In the history of the NY employment
index, there has been an 87% correlation between it and the three-month
growth in overall U.S. factory sector employment as reported by the
Labor Department.
Like the Philadelphia Fed Index of General Business
Conditions, the Empire State Business Conditions Index reflects answers
to an independent survey question; it is not a weighted combination of
the components.
The Empire State index of expected business
conditions in six months fell to near the series' low. The
subseries for employment collapsed and new orders remained near the
series' low. The pricing index moved into negative territory.
The Empire State Manufacturing Survey is a monthly survey of
manufacturers in New York State conducted by the Federal Reserve Bank
of New York. Participants from across the state in a variety of
industries respond to a questionnaire and report the change in a
variety of indicators from the previous month. Respondents also state
the likely direction of these same indicators six months ahead. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090217c.jpg" align="left" border="0" height="265" width="353">
For more on the Empire State Manufacturing Survey, including
methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">here</a>.


The Empire State data is available in Haver's SURVEYS
database.



Stabilizing the Housing Market: Focus on
Communities is yesterday's speech by Federal Reserve Governor
Elizabeth A. Duke and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/duke20090216a.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire
State Manufacturing Survey</a></th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">February '08&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions
(diffusion index, %)&nbsp;&nbsp;</td>
<td>-34.65</td>
<td>-22.20</td>
<td>-7.52</td>
<td>-10.10</td>
<td>17.23</td>
<td>20.24</td>
</tr>
<tr>
<td class="firstcol">Prices Paid</td>
<td>-13.79</td>
<td>-18.18</td>
<td>47.37</td>
<td>46.99</td>
<td>35.64</td>
<td>41.88</td>
</tr>
</tbody>
</table>
 Exports and Imports Plunge in the
Euro Area as Deficit Contracts&nbsp; 
by <a href="/comment/Brusca.html">Robert
Brusca</a> February 17, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090217d.jpg" align="left" border="0" height="265" width="353">
Recession has hit the Euro Area trade flows hard as exports
already lower by 6.8% lower in November fell by another 0.9% in
December. But imports that fell by 4.8% on November fell by a
further-chilling 3.9% in December. The confluence of these trends
shrank the EMU trade deficit in December to Eur 257mln from Eur 4.0 Bln
in November. Yr/Yr exports are lower by 5.4% compared to imports which
are down by 6.6%. Over three months the annual rates of decline are
-35% for exports and -43% for imports. Over the last six months the
pace of decline has accelerated sharply. Yr/yr numbers do not begin to
show the depth of the problem. 
 

German finance minister Steinbrueck warned that Euro-region
countries may be forced to bail out other members of the 16-nation bloc
that face problems refinancing their debt. &#8220;Some countries are slowly
getting into difficulties with their payments,&#8221; Steinbrueck said late
yesterday in a speech in Dusseldorf. &#8220;The euro-region treaties don&#8217;t
foresee any help for insolvent countries, but in reality the other
states would have to rescue those running into difficulty.&#8221; This
underscores the degree of difficulty of economic times in Europe. Also
underlining that tough sledding is the warning by the rating agency
Moody&#8217;s today. Moody&#8217;s cautions that banks with substantial lending
exposure to Eastern Europe could be downgraded. Thus another class of
assets (Eastern European loans) has gone bad. Of course the banks with
the most of this type of lending are European. Emerging Europe is being
called the &#8216;sub-prime&#8217; of Europe. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="6" scope="col">Euro Area
13 - Trade trends for goods</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="2">m/m%</td>
<td colspan="3">% Saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Dec-08</td>
<td>Nov-08</td>
<td>3M</td>
<td>6M</td>
<td>12M</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance*</td>
<td>&#8364;&#8364; (257)</td>
<td>&#8364;&#8364; (4,005)</td>
<td>&#8364;&#8364; (1,922)</td>
<td>&#8364;&#8364; (3,760)</td>
<td>&#8364;&#8364; (2,235)</td>
</tr>
<tr class="even">
<td class="firstcol">Exports</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">All Exp</td>
<td>-0.9%</td>
<td>-6.8%</td>
<td>-35.3%</td>
<td>-17.1%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">Food and Drinks</td>
<td>--</td>
<td>-3.0%</td>
<td>-7.1%</td>
<td>-3.3%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Raw materials</td>
<td>--</td>
<td>-13.0%</td>
<td>-60.4%</td>
<td>-34.9%</td>
<td>-12.2%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>--</td>
<td>-4.0%</td>
<td>-24.7%</td>
<td>-10.8%</td>
<td>-6.6%</td>
</tr>
<tr class="even">
<td class="firstcol">Imports</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">All IMP</td>
<td>-3.9%</td>
<td>-4.8%</td>
<td>-43.4%</td>
<td>-21.0%</td>
<td>-6.6%</td>
</tr>
<tr>
<td class="firstcol">Food and Drinks</td>
<td>--</td>
<td>-2.9%</td>
<td>-15.1%</td>
<td>-7.8%</td>
<td>-3.7%</td>
</tr>
<tr>
<td class="firstcol">Raw materials</td>
<td>--</td>
<td>-0.4%</td>
<td>4.5%</td>
<td>4.8%</td>
<td>8.3%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>--</td>
<td>-0.5%</td>
<td>-8.2%</td>
<td>-1.8%</td>
<td>-1.3%</td>
</tr>
<tr>
<td colspan="6" class="firstcol">*Eur mlns;
mo or period average;
Gray shaded areas lag one month</td>
</tr>
</tbody>
</table>
 German Investors Begin To See A
Ray Of Hope For The Economy 
by <a href="/comment/Curley.html">Louise
Curley</a> February 17, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090217g.jpg" align="left" border="0" height="265" width="353">
While German investors continue to see current economic
conditions getting worse, they have begun to be less negative on the
outlook. The German government has approved an 80 billion euro ($102
billion) stimulus program to be spent over two years. The European
Central Bank, after reducing its key interest by 225 basis points since
October 2008, kept the rate at 2% in February but, in his press
conference on February 5, Jean-Claude Trichet, President of the Bank
stated that 2% was not considered by the Governing Council to be a
lower limit and that the situation would be examined at the next
meeting.
These developments may have influenced the institutional
investors and analysts who participated in the latest ZEW survey which
took place between February 2 and 16.The excess of pessimists over
optimists regarding economic conditions six months ahead fell from
31.0% to 5.8%. Although the decline in pessimists regarding the outlook
is encouraging, put in perspective, it is less reassuring. It is still
negative and well below the long term average of an excess of optimists
over pessimists of 26.4%. ZEW President, Wolfgang Franz, summarized the
results of the survey as "A ray of hope--no more, no less."<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090217h.jpg" align="right" border="0" height="265" width="353">
Although the investors were less negative about the prospects
six months ahead, they became even more negative about current
conditions. The excess of pessimist over optimists regarding current
economic conditions increased from 72.1% to 86.2%.
In line with their less negative view of the outlook, the
investors have become less negative about their profit expectations,
but they are still far from expecting anything but lower profits. The
highest expectations of profits in a -9.2% for Utilities. That is,
those expecting a decrease in profits outweigh those expecting an
increase by 9.2%. The worst is for Vehicles/Automobile where the excess
of those expecting a decrease in profits over those expecting an
increase is 75.3%. The outlook for profits in the Machinery industry is
only marginally better than that for Automobiles.The excess of those
expecting a decrease in profits over those expecting an increase is
74.6%. Profit expectations for the these industries are 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">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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">ZEW Survey&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Current Conditions (%
Balance)</td>
<td>-86.2</td>
<td>-72.1</td>
<td>-64.5</td>
<td>-50.4</td>
<td>-35.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Condition 6 Months
Ahead (% Balance)</td>
<td>-5.8</td>
<td>-31.0</td>
<td>-45.2</td>
<td>-53.5</td>
<td>-63.0</td>
</tr>
<tr>
<td class="firstcol">Profit
Expectation&nbsp; (% Increase-Decrease)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
Utilities&nbsp;</td>
<td>-9.2</td>
<td>-12.4</td>
<td>-11.2</td>
<td>-15.9</td>
<td>-22.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
Vehicles/Automobiles&nbsp;</td>
<td>-75.3</td>
<td>-90.3</td>
<td>-89.3</td>
<td>-94.6</td>
<td>-91.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
Machinery&nbsp;</td>
<td>-74.6</td>
<td>-80.1</td>
<td>-75.2</td>
<td>-74.8</td>
<td>-61.2</td>
</tr>
</tbody>
</table>
 U.S. Home Builders' Survey Ticked
Up Slightly 
by <a href="/comment/Moeller.html">Tom
Moeller</a> February 17, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090217i.jpg" align="left" border="0" height="265" width="353">
The Housing Market Index (HMI) from the National Association
of Home Builders ticked up this month after having reached the record
low in January. At nine the figure still was, however, less than half
the year-ago figure. The index is compiled from survey questions asking
builders to rate market conditions as &#8220;good&#8221;, &#8220;fair&#8221;, &#8220;poor&#8221; or &#8220;very
high&#8221; to &#8220;very low&#8221;. Numerical results over
50 indicate a predominance of &#8220;good&#8221; readings.
The Home Builders Association indicated that its sub-index of
present sales conditions also ticked higher to 7 from the record low
reached in January. The latest figure remained well below last year's
average level of 16, 2007's average of 27, 2006's average of 45 and
2005's average of 73.Since 1990, the year-to-year change in this index
has had an 85% correlation with the year-to-year percentage change in
new single-family home sales.
The index of builders&#8217; expectations for sales in six months
fell to a record low but the &#8220;traffic" of
prospective buyers ticked up slightly for the second consecutive month
from its record low.
Index readings ticked up slightly last month in each of the
country's regions except the Northeast where the index plumbed a new
low. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090217j.jpg" align="right" border="0" height="265" width="353">
Not only are builders disturbed by the market for new homes,
but the assessment of conditions for remodeling a home also reached a
record low during the fourth quarter. Expectations also fell to a
record low.
During the third quarter the Home Builders' Housing
Opportunity Index, which is the share of homes sold that could be
considered affordable to a family earning the median income, rose to
its highest level since early 2004. It was up by more than one-third
from the 2006 low due to lower home prices, lower interest rates and
higher income.
The NAHB has compiled the Housing Market Index
since 1985. The weights assigned to the
individual index components are .5920 for single family detached sales,
present time; .1358 for single family detached sales, next six months;
and .2722 for traffic of prospective buyers. The results, along with
other housing and remodeling indexes from NAHB Economics, are included
in Haver&#8217;s SURVEYS database.
Credit Easing: A Policy for a Time of Financial Crisis
from the Federal Reserve Bank of Cleveland is available <a href="http://www.clevelandfed.org/research/trends/2009/0209/02monpol.cfm">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/SURVEYS/@S4/@S4.HTM">Nat'l
Association of Home Builders</a></th>
<th scope="col">February</th>
<th scope="col">January
&nbsp;</th>
<th scope="col">&nbsp;February
'08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Housing Market Index
(All Good = 100)</td>
<td>9</td>
<td>8</td>
<td>20</td>
<td>16</td>
<td>27</td>
<td>42</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-Family Sales</td>
<td>7</td>
<td>6</td>
<td>20</td>
<td>16</td>
<td>27</td>
<td>45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales:
Next Six Months</td>
<td>15</td>
<td>17</td>
<td>27</td>
<td>25</td>
<td>37</td>
<td>51</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Traffic of
Prospective Buyers</td>
<td>11</td>
<td>8</td>
<td>19</td>
<td>14</td>
<td>21</td>
<td>30</td>
</tr>
</tbody>
</table>
</body></html>

U.S. Empire State Index Fell To ANew Low

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

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<body>
 



<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

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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

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.

260205Z1.jpg

**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.

260205Z2.jpg

**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.

260205Z4.jpg

**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.

260205Z5.jpg

**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.

260205Z6.jpg

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

260206E.jpg

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

260205X15.jpg

260205Y15.jpg

**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.

260205C15.jpg

260205D15.jpg

- 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

260205A2.jpg

260205B2.jpg

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

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

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

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

260205C2.jpg

260205D2.jpg

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

U.S. Initial Unemployment Claims Surged in Latest Week

260205E.jpg

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

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

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

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

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

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

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

Economy in Brief

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Michigan Consumer Sentiment Sinksto Its Lowest Since 1980