Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090115d.jpg" width="353">
Initial claims for unemployment insurance rose last week and recovered a piece of the decline in earlier weeks. The 54,000 week-to-week increase to 524,000 followed declines of 21,000 (slightly revised) and 98,000 during the prior two weeks. These latter declines were widely attributed to aberrant seasonal factors, although a problem near this magnitude has not been observed since 2001. The latest increase exceeded Consensus expectations for a rise to 501,000.
The Labor Department indicated that the largest increases in initial claims for the week ending January 3 were in New York (+24,465), North Carolina (+19,749), Georgia (+18,308), South Carolina (+14,905), and Virginia (+7,362), while the largest decreases were in California (-14,796), Kansas (-13,313), Michigan (-11,956), Illinois (-9,727), and Ohio (-7,499).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090115e.jpg" width="353">
Continuing claims for unemployment insurance during the week of January 3 fell 115,000 and that reversed roughly half of the prior week&#39;s increase. The four-week average of continuing claims rose 27,500 to 4,500,000. Continuing claims provide some indication of workers&#39; ability to find employment and they lag the initial claims figures by one week.
The insured rate of unemployment remained stable for the third week at this cycle&#39;s high of 3.4%. The highest insured unemployment rates in the week ending December 27 were in Oregon (7.4 percent), Michigan (6.6), Idaho (6.3), Wisconsin (6.0), South Carolina (5.4), Arkansas (5.3), Nevada (5.2), Pennsylvania (5.2), Indiana (5.1), and Montana (5.1).
Three Funerals and a Wedding from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/09/01/Bullard.pdf">here</a>.
The Current Recession: How Bad Is It? also from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/es/09/ES0904.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">01/10/09</th>
<th scope="col">01/03/09</th>
<th scope="col">12/27/08</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>524</td>
<td>470</td>
<td>491</td>
<td>66.3%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,497</td>
<td>4,612</td>
<td>64.5%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
</tbody>
</table>
</body>
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Initial claims for unemployment insurance rose last week and recovered a piece of the decline in earlier weeks. The 54,000 week-to-week increase to 524,000 followed declines of 21,000 (slightly revised) and 98,000 during the prior two [...]

U.S. Weekly Claims For Jobless Insurance Back Up

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090115a.jpg" align="right" border="0" height="265" width="353">U.S.
producer prices for finished goods fell 1.9% last month versus
expectations for a 2.0% drop. The decline was the fifth in as many
months. Nevertheless, 2008 was a year when price increases as a whole
were stronger than during 2007. The 6.3% increase in the overall
Producer Price Index compared to a 3.9% rise one year earlier and it
was the firmest since 1991.&nbsp; Several month-to-month increases,
which exceeded 1.0% early in 2008, were responsible for that lift.
Gains in energy prices were responsible for much of the acceleration in
the PPI last year. Though they fell 9.3% last month, down for the fifth
consecutive month, for all of 2008 they rose 14.0% and that was double
the 2007 increase. December-to-December energy prices fell 21.2%. That
decline was enough to lower the level of finished energy prices in
December to that of mid-2005.&nbsp; Therefore, much more sanguine
news on pricing is in the cards for this year. Finished consumer food
prices also eased during the last three months and in December they
fell 1.5%. That lowered the December-to-December increase to a moderate
3.8%. Nevertheless, for all of last year food prices rose a strong 6.9%
which was about the gain they posted in 2007.&nbsp; Large monthly
increases early in the year were responsible for that lift and they
were led by a 6.5% rise in meat prices, which was double the 2007 rise,
and a 34.5% rise in pasta product prices.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090115b.jpg" align="right" border="0" height="265" width="353">
Less food &amp; energy,
prices also firmed in 2008. First, the December increase of 0.2% was
double Consensus expectations. That gain followed a slim 0.1% increase
one month earlier but these followed four consecutive monthly increases
between 0.4% and 0.6%. The y/y rise in the core PPI of 4.3% was nearly
the strongest since late-1989. Prices of core finished consumer goods
rose 0.3% last month and that ended a year when they increased 4.5%
from December-to-December. The gain was the strongest since 1989.
Durable consumer goods prices jumped 0.5% last month and were up 3.2%
y/y. Appliance prices jumped 3.8% y/y, their strongest since 1989,
while core nondurable goods prices strengthened to a 5.6% y/y increase,
also the fastest rise since early 1999.&nbsp; In addition, prices
for capital equipment firmed and rose 4.0%, again the strongest since
1989. Lower prices for intermediate goods may portend easier price
gains in finished goods prices this year.&nbsp;<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090115c.jpg" align="right" border="0" height="265" width="353">
They fell 4.2% last
month and repeating their decline in November.&nbsp; Energy prices
dropped 9.5% (-20.4% y/y).&nbsp; Excluding food &amp; energy,
prices fell for the third consecutive month. The crude
materials PPI was down sharply for the fifth straight month. Energy
prices led the fall with a 6.0% (-33.4% y/y) drop and crude food prices
fell 5.3% (-13.9% y/y). Less food &amp; energy, crude prices fell
2.2% with the recent drop in commodity prices. The latest Beige
Book from the Federal Reserve which covers regional economic
conditions can be found <a href="http://www.federalreserve.gov/fomc/beigebook/2009/20090114/default.htm">here</a>.&nbsp;&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer
Price Index</a> (%)</th>
<th scope="col">December</th>
<th scope="col">November</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">Finished Goods</td>
<td>-1.9</td>
<td>-2.2</td>
<td>-1.2</td>
<td>6.3</td>
<td>3.9</td>
<td>3.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.2</td>
<td>0.1</td>
<td>4.3</td>
<td>3.4</td>
<td>1.9</td>
<td>1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-4.2</td>
<td>-4.3</td>
<td>-2.0</td>
<td>10.5</td>
<td>4.1</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-3.0</td>
<td>-2.3</td>
<td>3.2</td>
<td>7.6</td>
<td>2.8</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-5.3</td>
<td>-12.5</td>
<td>-24.8</td>
<td>21.5</td>
<td>12.1</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-2.2</td>
<td>-20.4</td>
<td>&nbsp;-24.5</td>
<td>15.2</td>
<td>15.6</td>
<td>20.8</td>
</tr>
</tbody>
</table>
</body></html>

U.S. producer prices for finished goods fell 1.9% last month versus expectations for a 2.0% drop. The decline was the fifth in as many months. Nevertheless, 2008 was a year when price increases as a whole were stronger than during [...]

U.S. December PPI Fell Again; 2008 Strength in Pricing Abruptly Ends

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090115a.jpg" align="right" border="0" height="265" width="353">U.S.
producer prices for finished goods fell 1.9% last month versus
expectations for a 2.0% drop. The decline was the fifth in as many
months. Nevertheless, 2008 was a year when price increases as a whole
were stronger than during 2007. The 6.3% increase in the overall
Producer Price Index compared to a 3.9% rise one year earlier and it
was the firmest since 1991.&nbsp; Several month-to-month increases,
which exceeded 1.0% early in 2008, were responsible for that lift.
Gains in energy prices were responsible for much of the
acceleration in
the PPI last year. Though they fell 9.3% last month, down for the fifth
consecutive month, for all of 2008 they rose 14.0% and that was double
the 2007 increase. December-to-December energy prices fell 21.2%. That
decline was enough to lower the level of finished energy prices in
December to that of mid-2005.&nbsp; Therefore, much more sanguine
news on pricing is in the cards for this year.
 Finished consumer food
prices also eased during the last three months and in December they
fell 1.5%. That lowered the December-to-December increase to a moderate
3.8%. Nevertheless, for all of last year food prices rose a strong 6.9%
which was about the gain they posted in 2007.&nbsp; Large monthly
increases early in the year were responsible for that lift and they
were led by a 6.5% rise in meat prices, which was double the 2007 rise,
and a 34.5% rise in pasta product prices.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090115b.jpg" align="right" border="0" height="265" width="353">Less food
&amp; energy,
prices also firmed in 2008. First, the December increase of 0.2% was
double Consensus expectations. That gain followed a slim 0.1% increase
one month earlier but these followed four consecutive monthly increases
between 0.4% and 0.6%. The y/y rise in the core PPI of 4.3% was nearly
the strongest since late-1989. Prices of core finished consumer goods
rose 0.3% last month and that ended a year when they increased 4.5%
from December-to-December. The gain was the strongest since 1989.
Durable consumer goods prices jumped 0.5% last month and were up 3.2%
y/y. Appliance prices jumped 3.8% y/y, their strongest since 1989,
while core nondurable goods prices strengthened to a 5.6% y/y increase,
also the fastest rise since early 1999.&nbsp; In addition, prices
for capital equipment firmed and rose 4.0%, again the strongest since
1989.
 Lower prices for intermediate goods may portend easier price
gains in finished goods prices this year.&nbsp;<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090115c.jpg" align="right" border="0" height="265" width="353">
They fell 4.2% last
month and repeating their decline in November.&nbsp; Energy prices
dropped 9.5% (-20.4% y/y).&nbsp; Excluding food &amp; energy,
prices fell for the third consecutive month.
 The crude
materials PPI was down sharply for the fifth straight month. Energy
prices led the fall with a 6.0% (-33.4% y/y) drop and crude food prices
fell 5.3% (-13.9% y/y). Less food &amp; energy, crude prices fell
2.2% with the recent drop in commodity prices.
 The latest Beige
Book from the Federal Reserve which covers regional economic
conditions can be found <a href="http://www.federalreserve.gov/fomc/beigebook/2009/20090114/default.htm">here</a>.&nbsp;&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer
Price Index</a> (%)</th>
<th scope="col">December</th>
<th scope="col">November</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">Finished Goods</td>
<td>-1.9</td>
<td>-2.2</td>
<td>-1.2</td>
<td>6.3</td>
<td>3.9</td>
<td>3.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.2</td>
<td>0.1</td>
<td>4.3</td>
<td>3.4</td>
<td>1.9</td>
<td>1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-4.2</td>
<td>-4.3</td>
<td>-2.0</td>
<td>10.5</td>
<td>4.1</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-3.0</td>
<td>-2.3</td>
<td>3.2</td>
<td>7.6</td>
<td>2.8</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-5.3</td>
<td>-12.5</td>
<td>-24.8</td>
<td>21.5</td>
<td>12.1</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-2.2</td>
<td>-20.4</td>
<td>&nbsp;-24.5</td>
<td>15.2</td>
<td>15.6</td>
<td>20.8</td>
</tr>
</tbody>
</table>

 U.S. Weekly Claims For Jobless
Insurance Back Up 
by <a href="/comment/Moeller.html">Tom
Moeller</a> January 15, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090115d.jpg" align="left" border="0" height="265" width="353">
Initial claims for unemployment insurance rose last week and
recovered a piece of the decline in earlier weeks. The 54,000
week-to-week increase to 524,000 followed declines of 21,000 (slightly
revised) and 98,000 during the prior two weeks. These latter declines
were widely attributed to aberrant seasonal factors, although a problem
near this magnitude has not been observed since 2001. The latest
increase exceeded Consensus expectations for a rise to 501,000.
The Labor Department indicated that the largest increases in
initial claims for the week ending January 3 were in New York
(+24,465), North Carolina (+19,749), Georgia (+18,308), South Carolina
(+14,905), and Virginia (+7,362), while the largest decreases were in
California (-14,796), Kansas (-13,313), Michigan (-11,956), Illinois
(-9,727), and Ohio (-7,499).<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090115e.jpg" align="right" border="0" height="265" width="353">
Continuing claims for unemployment insurance during the week
of January 3 fell 115,000 and that reversed roughly half of the prior
week's increase. The four-week average of continuing claims rose 27,500
to 4,500,000. Continuing claims provide some indication of workers'
ability to find employment and they lag the initial claims figures by
one week.
The insured rate of unemployment remained stable for the third
week at this cycle's high of 3.4%. The highest insured unemployment
rates in the week ending December 27 were in Oregon (7.4 percent),
Michigan (6.6), Idaho (6.3), Wisconsin (6.0), South Carolina (5.4),
Arkansas (5.3), Nevada (5.2), Pennsylvania (5.2), Indiana (5.1), and
Montana (5.1).
Three Funerals and a Wedding from the
Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/09/01/Bullard.pdf">here</a>.
The Current Recession: How Bad Is It? also
from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/es/09/ES0904.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a>&nbsp;</th>
<th scope="col">01/10/09</th>
<th scope="col">01/03/09</th>
<th scope="col">12/27/08</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>524</td>
<td>470</td>
<td>491</td>
<td>66.3%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>4,497</td>
<td>4,612</td>
<td>64.5%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
</tbody>
</table>
 Philadelphia Fed Index Improved
Slightly But Still Low 
by <a href="/comment/Moeller.html">Tom
Moeller</a> January 15, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090115f.jpg" align="left" border="0" height="265" width="353">
The Philadelphia Federal Reserve Bank indicated that its
January Index of General Business conditions in the manufacturing
sector rose slightly from the recent monthly lows. However, the index
at -24.3 this month was still only slightly better than the lows of the
prior two recessions. A weaker reading of -35 had been expected for
this month.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090115g.jpg" align="right" border="0" height="265" width="353">
During the last ten years there has been a 71% correlation
between the level of the Philadelphia Fed Business Conditions Index and
the three-month growth in factory sector industrial production. There
has been a 54% correlation with q/q growth in real GDP.
The Philadelphia Fed constructs a diffusion index for total
business activity and each of the sub-indexes. The business conditions
index reflects a separate survey question.
The employment index weakened sharply to the lowest level
since the recession of 1975. A record forty eight percent of
respondents expected to reduce employment levels while only nine
percent expected to raise them. During the last ten years there has
been a 79% correlation between the index level and the m/m change in
manufacturing sector payrolls.
The new orders index ticked up slightly to a reading of -22.3
and the shipments index also recovered all of its sharp December
decline.
The prices paid index fell, for the third month, to a record
low. During the last ten years there has been a 69% correlation between
the prices paid index and the three-month growth in the intermediate
goods PPI. There has been an 82% correlation with the change in core
intermediate goods prices. Just eleven percent of respondents increased
prices this month versus thirty eight percent that lowered them.
The separate index of expected business conditions in six
months rose slightly to its highest level since September. The
expectations index for new orders led the improvement but the
expectations index for employment fell to a record low.
The Philadelphia Fed figures can be found in Haver's SURVEYS
database.
The latest Business Outlook Survey from the Federal
Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2009/bos0109.pdf">here.</a>
The Fed, Liquidity, and Credit Allocation from
the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/09/01/Thornton.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Philadelphia
Fed (%)</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">January&nbsp; '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>-24.3</td>
<td>-36.1</td>
<td>-12.0</td>
<td>-21.3</td>
<td>5.0</td>
<td>8.0</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>-27.0</td>
<td>&nbsp;-25.5</td>
<td>&nbsp;49.8</td>
<td>36.4</td>
<td>26.3</td>
<td>36.7</td>
</tr>
</tbody>
</table>
 Core Inflation in the EMU and in
the US Falling Together...at Last 
by <a href="/comment/Brusca.html">Brusca
Robert</a> January 15, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090115h.jpg" align="left" border="0" height="265" width="353">
The EMU inflation picture was finalized with headline
inflation dropping by 0.3% in the month and up by 1.6% Yr/Yr as had
been reported in the flash release. With today&#8217;s report we get the
detail behind the headline. 
 

Inflation is falling sharply for goods as the progressive
growth rates show over shorter horizons the pace of declines getting
greater. That is not true of services, however, there inflation is
stuck and has even notched up over three-months. Still, for the overall
and core rates inflation is decelerating and for the key headline
series for which the ECB imposes a ceiling, the pace of inflation is
now below that ceiling for 3mo, 6-mo and 12-mo inflation calculations,
but most importantly for the 12-mo series that the ECB emphasizes. 
 

Still we present a graph above showing the core rate compared
with that same rate in the US. For Core inflation the two rates have
had different cycles for this two economic groups and some considerable
divergence in recent years. But now the core, which is as good a short
hand as we have for TREND inflation, is showing a sharp decline for
inflation in the US and well as in EMU. 
 

The most recent synchronous declines in inflation came in 2002
and 2003 with another minor episode in 2005. 
 

Since 2004 US and EMU inflation trends have been doing
different things. Over this period EMU inflation has accelerated until
the recent peaking and deceleration. In the US inflation has mostly
moved sideways during this period but with some considerable
volatility. US Core inflation rose from early through late 2006 before
oscillating in range- a range from which it is now declining. As a
result the current US core inflation rate is the lowest realm we have
seen since mid 2004. For EMU core inflation is only back to late 2007
levels. Even a casual look at the chart and the table above shows why
some ECB hawks have been reluctant to cut rates. EMU core inflation has
been much more in the mode of accelerating than has core inflation in
the US. Even as the headline rate plummets, EMU service sector
inflation is showing some unexpected - and sometimes unrecognized -
resilience. So despite the EMU rate cut we can only wonder how much
these trends will limit flexibility in the ECB monetary policymaking in
the months ahead.. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Trends in
HICP</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Dec-08</td>
<td>Nov-08</td>
<td>Oct-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU-13</td>
<td>-0.3%</td>
<td>-0.3%</td>
<td>0.0%</td>
<td>-2.6%</td>
<td>-0.9%</td>
<td>1.6%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.7%</td>
<td>1.8%</td>
<td>2.1%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>-0.8%</td>
<td>-0.8%</td>
<td>0.0%</td>
<td>-6.1%</td>
<td>-4.1%</td>
<td>0.9%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>0.8%</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>3.3%</td>
<td>2.6%</td>
<td>2.6%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">HICP</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>-0.5%</td>
<td>-0.1%</td>
<td>-0.3%</td>
<td>-3.3%</td>
<td>-0.9%</td>
<td>1.1%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>-0.3%</td>
<td>-0.4%</td>
<td>0.1%</td>
<td>-2.5%</td>
<td>-1.6%</td>
<td>1.2%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.0%</td>
<td>-0.5%</td>
<td>0.3%</td>
<td>-0.7%</td>
<td>0.2%</td>
<td>2.4%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>-0.4%</td>
<td>-0.4%</td>
<td>-0.3%</td>
<td>-4.2%</td>
<td>-1.5%</td>
<td>1.4%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">Core excl Food Energy
Alcohol</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.3%</td>
<td>0.1%</td>
<td>-0.1%</td>
<td>1.1%</td>
<td>1.7%</td>
<td>1.2%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.5%</td>
<td>3.0%</td>
<td>2.5%</td>
<td>2.8%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.0%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.3%</td>
<td>2.2%</td>
<td>2.4%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
</body></html>

U.S. December PPI Fell Again; 2008Strength in Pricing Abruptly Ends

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090114e.jpg" align="right" border="0" height="265" width="353">
Total business inventories fell 0.7% during November and it was the
third consecutive monthly decline. Inventories just aren't needed as
sales drop. The 6.6% annual rate of decline in inventories during the
last three months is the swiftest since early 2002. The sales decline
during that period, including the 5.1% November shortfall, was 37.4% at
an annual rate. That mismatch left the inventory/sales ratio surging
upward to 1.41. The November level was the highest since during the
recession of 2001 and the increase in the ratio during the last year is
the swiftest since 1982. The reversal ended a twenty eight year
downtrend.Tighter inventory management enabled retailers to buck the
uptrend so inventories fell 1.3% during November. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090114f.jpg" align="right" border="0" height="265" width="353">
That left the
three-month change at a negative 5.2%.&nbsp; Motor vehicle
inventories have led the decumulation. Down 1.7% during November, they
have fallen at a 9.7% annual rate during the last three months. But
they've got further to fall. The inventory-to-sales ratio for
automobiles has jumped to 2.57 which is by far a historic high. So
unless sales recover soon, expect further production cuts to reduce the
ratio.Outside of autos, retailers have been busy cutting inventory as
well. Furniture, home furnishings &amp; electronics inventories
fell all of 5.7% in November.&nbsp; <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090114g.jpg" align="right" border="0" height="265" width="353">
Apparel retailers were busy as
well, but less aggressive. Inventories here fell just 0.3% and they've
been flat for nearly two years. Unfortunately, given the weak
performance of sales the I/S ratio has risen sharply, to its highest
level since 2003.&nbsp; General merchandise inventories fell 0.6%
(-0.6% y/y) and that was been very much enough to keep the inventory
position in good shape.&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">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.7%</td>
<td>-0.6%</td>
<td>-0.4%</td>
<td>3.3%</td>
<td>3.8%</td>
<td>5.9%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>-1.3%</td>
<td>-0.2%</td>
<td>0.2%</td>
<td>-1.2%</td>
<td>2.6%</td>
<td>3.5%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Retail excl. Auto</td>
<td>-1.0%</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>0.6%</td>
<td>2.7%</td>
<td>4.9%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>-0.6%</td>
<td>-1.2%</td>
<td>-0.4%</td>
<td>6.3%</td>
<td>5.5%</td>
<td>8.3%</td>
<td>7.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-0.3%</td>
<td>-0.6%</td>
<td>-0.8%</td>
<td>5.1%</td>
<td>3.7%</td>
<td>6.4%</td>
<td>8.9%</td>
</tr>
</tbody>
</table>
</body></html>

Total business inventories fell 0.7% during November and it was the third consecutive monthly decline. Inventories just aren't needed as sales drop. The 6.6% annual rate of decline in inventories during the last three months is the [...]

U.S. Business Inventories Fell Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090114h.jpg" width="353">
During December, total U.S. import prices declined another 4.2% after the revised 7.0% November drop. The decline fell short of Consensus expectations for a 5.3% decline.
Petroleum prices continued down sharply last month by 21.4%. However, a recent turnaround has lifted imported oil prices by 9.0% versus the December average.
December import prices less petroleum were down for the fifth straight month. The 1.1% decline lowered them by 13.6% (AR) during the last three months versus the 12%-to-13% rates of positive growth this past spring.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090114i.jpg" width="353">
 December-to-December, the foreign exchange value of the dollar rose 9.3% and thus reduced the change in U.S. import prices. During the last ten years there has been an 83% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices.
Capital goods import prices fell another 0.3% and on a three-month basis prices fell at a 3.4% annual rate after a 5%-to-6% rate of increase earlier this year. Less the lower prices of computers, capital goods prices fell 0.2% and the three-month growth rate fell to 1.8% rate over the last three months after 9.0% growth earlier this year. Prices of computers, peripherals &amp; accessories were down at an 8.1% rate during the last three months.
Prices for nonauto consumer goods ticked up 0.1% last month but the three-month rate of change remained a negative 0.8% versus the 5.9% peak earlier this year. Durable goods prices overall fell at a 0.8% rate during the last three months versus a 6.2% rate of increase earlier this year.
Total export prices fell 2.3% due to another sharp decline in agricultural prices. Their 6.5% drop left them down at a 60.2% annual rate during the last three months. Nonagricultural export prices by 1.9% for the fifth consecutive monthly decline.
Troubled Asset Relief Program is yesterday&#39;s testimony by Fed Vice-Chairman Donald L. Kohn and it is available <a href="http://www.federalreserve.gov/newsevents/testimony/kohn20090113a.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA, %)</a></th>
<th scope="col">December</th>
<th scope="col">November</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">Import - All Commodities</td>
<td>-4.2</td>
<td>-7.0</td>
<td>-9.3</td>
<td>11.6</td>
<td>4.2</td>
<td>4.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-21.4</td>
<td>-28.5</td>
<td>-47.0</td>
<td>38.3</td>
<td>11.6</td>
<td>20.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonpetroleum</td>
<td>-1.1</td>
<td>-1.8</td>
<td>0.9</td>
<td>5.3</td>
<td>2.7</td>
<td>1.7</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>-2.3</td>
<td>-3.4</td>
<td>-3.2</td>
<td>6.0</td>
<td>4.9</td>
<td>3.6</td>
</tr>
</tbody>
</table>


</html>

During December, total U.S. import prices declined another 4.2% after the revised 7.0% November drop. The decline fell short of Consensus expectations for a 5.3% decline. Petroleum prices continued down sharply last month by 21.4%. [...]

U.S. Import Prices Down Sharply Again: Both Oil & Nonoil

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090114d.jpg" align="left" border="0">
Recession clearly has come to the Euro Area and to its member
countries. Industrial output is dropping at a horrendous pace. The
sequential growth rates in the table below show that IP has gone from a
Yr/Yr decline of 7.1% to declining over six months at a pace of 10.3%
and to a drop over three months at minus 19.1%. The unraveling in the
EMU is rapid. It is also widespread with consumer durables and consumer
nondurables intermediate goods and capital goods all being swept up in
the acceleration of the decline. The
bottom of the table demonstrates that all the main euro member
countries and the UK are greatly affected. The
far right column reflects the declines for the special quarter in
progress, at this time that is 2008-Q4. The negative impact on growth
for the quarter is intense and, again, very widespread.

<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="odd">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td>Nov 
08</td>
<td>Oct 
08</td>
<td>Nov 
08</td>
<td>Oct 
08</td>
<td>Nov 
08</td>
<td>Oct 
08</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area Detail</td>
<td>Nov 
08</td>
<td>Oct 
08</td>
<td>Sep 
08</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12 
mo</td>
<td>12 
mo</td>
<td>Q-4</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG</td>
<td>-1.7%</td>
<td>-1.7%</td>
<td>-1.9%</td>
<td>-19.1%</td>
<td>-11.5%</td>
<td>-10.3%</td>
<td>-10.4%</td>
<td>-7.1%</td>
<td>-5.6%</td>
<td>-16.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer</td>
<td>-0.3%</td>
<td>-0.3%</td>
<td>-0.7%</td>
<td>-4.9%</td>
<td>-5.9%</td>
<td>-2.7%</td>
<td>-6.0%</td>
<td>-3.3%</td>
<td>-3.7%</td>
<td>-5.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">C-Durables</td>
<td>-2.4%</td>
<td>-1.8%</td>
<td>-2.5%</td>
<td>-23.9%</td>
<td>-13.4%</td>
<td>-12.7%</td>
<td>-14.7%</td>
<td>-9.8%</td>
<td>-8.7%</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">C-Nondurables</td>
<td>0.1%</td>
<td>0.0%</td>
<td>-0.8%</td>
<td>-2.6%</td>
<td>-4.3%</td>
<td>-1.1%</td>
<td>-4.2%</td>
<td>-2.2%</td>
<td>-2.7%</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate</td>
<td>-2.8%</td>
<td>-2.4%</td>
<td>-3.1%</td>
<td>-28.5%</td>
<td>-16.5%</td>
<td>-15.6%</td>
<td>-13.9%</td>
<td>-10.3%</td>
<td>-7.7%</td>
<td>-23.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital</td>
<td>-1.8%</td>
<td>-2.3%</td>
<td>-1.9%</td>
<td>-21.8%</td>
<td>-11.5%</td>
<td>-11.4%</td>
<td>-12.4%</td>
<td>-7.2%</td>
<td>-5.1%</td>
<td>-18.1%</td>
</tr>
<tr>
<td style="font-weight: bold;" colspan="11" class="firstcol">Main
Euro Area Countries
and UK IP in MFG</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo</td>
<td>Nov 
08</td>
<td>Oct 
08</td>
<td>Nov 
08</td>
<td>Oct 
08</td>
<td>Nov 
08</td>
<td>Oct 
08</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">MFG Only</td>
<td>Nov 
08</td>
<td>Oct 
08</td>
<td>Sep 
08</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12 
mo</td>
<td>12 
mo</td>
<td>Q-2- 
Date</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany:</td>
<td>-3.5%</td>
<td>-2.1%</td>
<td>-3.7%</td>
<td>-31.4%</td>
<td>-9.8%</td>
<td>-13.6%</td>
<td>-10.7%</td>
<td>-6.9%</td>
<td>-3.7%</td>
<td>-22.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">France: IP ex
Construction</td>
<td>-2.4%</td>
<td>-3.7%</td>
<td>-0.7%</td>
<td>-24.1%</td>
<td>-18.1%</td>
<td>-13.0%</td>
<td>-14.2%</td>
<td>-9.0%</td>
<td>-8.0%</td>
<td>-23.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>-2.3%</td>
<td>-1.7%</td>
<td>-3.4%</td>
<td>-25.8%</td>
<td>-17.6%</td>
<td>-15.1%</td>
<td>-15.0%</td>
<td>-9.1%</td>
<td>-7.8%</td>
<td>-21.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>-11.5%</td>
<td>0.1%</td>
<td>2.9%</td>
<td>-30.9%</td>
<td>-26.4%</td>
<td>-23.9%</td>
<td>-29.6%</td>
<td>-17.2%</td>
<td>-11.2%</td>
<td>-30.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK: EU member</td>
<td>-2.9%</td>
<td>-1.4%</td>
<td>-1.0%</td>
<td>-19.2%</td>
<td>-11.2%</td>
<td>-12.7%</td>
<td>-8.4%</td>
<td>-7.4%</td>
<td>-5.0%</td>
<td>-16.3%</td>
</tr>
</tbody>
</table>
</body></html>

Recession clearly has come to the Euro Area and to its member countries. Industrial output is dropping at a horrendous pace. The sequential growth rates in the table below show that IP has gone from a Yr/Yr decline of 7.1% to [...]

EMU Industrial Production is Plunging

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090114a.jpg" width="353">
Retail sales in December fell for the sixth consecutive month. Worse yet, the 9.8% year-to-year decline was a postwar record. The 2.7% drop last month followed declines of 2.1% and 3.4% during November and October which were greater than reported initially. Consensus expectations had been for a December sales decline of 1.2%. The retail sales data are available in Haver&#39;s USECON database.
Again in December, lower vehicle sales and lower gasoline prices accounted for much of the overall decline in sales. However, even excluding these two areas, sales fell 1.5% and the 0.2% November decline was downwardly revised from the initial report of a slight uptick. Year-to-year, excluding autos and gasoline, sales fell 2.2% which also was a record.
Motor vehicle &amp; parts sales slipped just 0.7% last month but they have declined in all but one month since last November. Year-to-year, dollar sales are down by one quarter. However, that decline is less than the more than one third y/y drop in unit sales of motor vehicles.
Lower prices continued to pull sales at gasoline service stations lower. Last month they fell 15.9% (-35.5% y/y) after like declines during the prior two months. That momentum stalled this month as gasoline prices have ticked slightly higher versus the December average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090114b.jpg" width="353">
Hard-good sales were notably lower during December. Sales at furniture and electronics &amp; appliance stores took a 1.4% (-8.8% y/y) slide and the 0.4% November uptick was significantly lowered. Furniture store sales fell 1.8% (-13.2% y/y) for their seventh consecutive monthly decline. Sales of electronics &amp; appliances fell 1.0% (-4.2% y/y) after a downwardly revised 1.5% November increase.
In the soft goods area, apparel store sales dropped 2.5% for their fourth sharp monthly decline in the last five months. At general merchandise stores, the news wasn&#39;t much better as sales fell 1.3%; however, they posted a year-to-year decline of -0.4%.
Dining out became another casualty of the current recession. Restaurant &amp; drinking place sales fell 2.2% last month and the y/y decline of 0.5% compares to 5.2% growth during 2007. For all of 2008, restaurant sales rose a modest 3.5%.
Building materials sales continue to tumble with the drop off in housing. The 2.9% December drop was similar in size to the declines of the prior two months and it was the fifth consecutive large monthly shortfall.
Sales at nonstore (internet) retailers also have been hit hard. The 1.9% decline last month (-5.3% y/y) was the sixth in a row. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090114c.jpg" width="353">
The Mismeasured Personal Saving Rate Is Still Useful: Using Real-Time Data to Improve Forecasting from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2008/q4/brq408_mismeasured-personal-saving-rate.pdf">here</a>.
Commitment Versus Discretion in Monetary Policy, also from the Federal Reserve Bank of Philadelphia, is available <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2008/q4/brq408_commitment-vs-discretion.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</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"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a> (%)</td>
<td>-2.7</td>
<td>-2.1</td>
<td>-3.4</td>
<td>-9.8</td>
<td>-0.4</td>
<td>4.2</td>
<td>5.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>-3.1</td>
<td>-2.5</td>
<td>-2.9</td>
<td>-6.7</td>
<td>2.7</td>
<td>4.6</td>
<td>6.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Less Gasoline</td>
<td>-1.5</td>
<td>-0.2</td>
<td>-1.2</td>
<td>-2.2</td>
<td>1.8</td>
<td>4.2</td>
<td>6.2</td>
</tr>
</tbody>
</table>
</body>
</html>

Retail sales in December fell for the sixth consecutive month. Worse yet, the 9.8% year-to-year decline was a postwar record. The 2.7% drop last month followed declines of 2.1% and 3.4% during November and October which were greater [...]

The Dismal Christmas: U.S. Retail Sales Fell Sharply

The Dismal Christmas: U.S. RetailSales Fell Sharply

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

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Andrew Cates

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

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

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

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

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

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

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

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

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

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

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

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

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

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

260206.jpg

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

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

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

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

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

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

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

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

Sandy Batten

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

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

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

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

260205C2.jpg

260205D2.jpg

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

U.S. Initial Unemployment Claims Surged in Latest Week

260205E.jpg

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

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

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

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

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

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

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