Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081201f.jpg" width="353">
The October value of construction put in place fell 1.2% during October. The decline followed a slight September downtick which was revised to be shallower than the initial report. Consensus expectations had been for a 0.9%. Construction activity continued to decline 4.6% y/y.
Residential building activity again led the latest monthly decline with a 3.5% drop and activity remained off by a quarter from last year. Single-family construction activity fell 4.6%, off by two-thirds from its peak in early-2006. Building activity on multi-family units slipped 0.3% (-1.4 y/y), off roughly 20% from the early 2007 peak. Spending on improvements fell 3.2% m/m but still was up slightly versus last year.
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081201g.jpg" width="353">
The value of nonresidential building activity slipped 0.7% after a little-revised 1.1% September increase. Spending on office construction did rise 1.1% but the y/y gain of 4.4% is much reduced from the near 20% growth of the prior two years. Building in the multi-retail sector rose 7.5% but the y/y decline of 7.2% compares to a 17% gain last year. Spending on health care facilities reversed a September increase and fell 1.1% (+3.9% y/y).
Public construction reversed a September decline and rose 0.7%. The value of spending on educational facilities rose a firm 1.2% (10.1% y/y) but the value of construction spending on highways &amp; streets fell for the second month by 0.9% (+6.3% y/y). The value of construction on highways &amp; streets is roughly one-third of the value of total public construction spending.
The more detailed categories of construction represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002, and that constant-dollar data are no longer computed.

<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/@E9/@E907/@E907.HTM">Construction</a> (%)</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>-1.2</td>
<td>-0.0</td>
<td>-4.6</td>
<td>-2.7</td>
<td>6.3</td>
<td>11.2</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-2.0</td>
<td>0.4</td>
<td>-8.8</td>
<td>-6.9</td>
<td>5.5</td>
<td>12.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-3.5</td>
<td>-0.5</td>
<td>-24.2</td>
<td>-19.8</td>
<td>1.0</td>
<td>14.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.7</td>
<td>1.1</td>
<td>9.1</td>
<td>19.6</td>
<td>16.2</td>
<td>7.8</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>0.7</td>
<td>-0.9</td>
<td>7.4</td>
<td>12.3</td>
<td>9.3</td>
<td>6.2</td>
</tr>
</tbody>
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The October value of construction put in place fell 1.2% during October. The decline followed a slight September downtick which was revised to be shallower than the initial report. Consensus expectations had been for a 0.9%. [...]

U.S. Construction Spending Off Sharply Again

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081201e.jpg" align="left" border="0" height="265" width="353">
The NTC final indices are now out and are weaker than their
FLASH counterparts were. The percentile column on the far right seems
due for an &#8216;out of order&#8217; sign except that it is not out of order. The
overall index as well as the country components and the UK index are
all at lifetime lows- even for Germany an index that goes back to 1996
and for the UK that goes back to 1992. The drop off in MFG in Europe
has been very sharp and the authorities have been caught off guard.
They watched the troubles in the US unfold largely thinking that the
problems would not migrate over the ocean to such a great degree but of
course they have. 
 

Germany&#8217;s MFG index stood at 49.68 barely indicating any
contraction as recently as August, just three short months ago. At that
time the EMU index had slipped to 47.55. Over three months the EMU MFG
index has dropped by 11.97 points compared to a drop of 14.02 points
for Germany. Over six months the EMU index is lower by 15.02 points
compared to a drop of 17.91 for Germany. But over 12-months the EMU
drop at 17.22 is very similar to Germany&#8217;s drop of 18.08 points.
Spain&#8217;s index has dropped by 21.31 points over 12-months and the UK, an
EU member nation, has seen its MFG index drop by 20.23 points over that
period. 
 

In short, Europe is sliding very fast. The US PMI dropped by
11.5 points in 12 months though October compared to a drop of 10.42
points for EMU. So the US unravel has been a bit faster than Europe&#8217;s
&#8211;at least through October. The US MFG report for November will be out
later today. It would have to fall to 28.32 in order for the US MFG PMI
(ISM) to have the same point drop as the EMU index over the last
12-months (though November). To do that it would have to drop to a
level of 21.7. For now it appears that Europe has caught up to or
surpassed the US in the race to show which region&#8217;s MFG sector is
declining the most rapidly. 
 
A dubious distinction&#8230; 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> NTC/Markit MFG Indices</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Nov-08</td>
<td>Oct-08</td>
<td>Sep-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Percentile</td>
</tr>
<tr>
<td class="firstcol">Euro Area 13</td>
<td>35.58</td>
<td>41.10</td>
<td>44.97</td>
<td>40.55</td>
<td>44.29</td>
<td>48.07</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>35.66</td>
<td>42.88</td>
<td>47.36</td>
<td>41.97</td>
<td>46.51</td>
<td>50.31</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>37.28</td>
<td>40.59</td>
<td>42.97</td>
<td>40.28</td>
<td>43.82</td>
<td>48.25</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>34.95</td>
<td>39.67</td>
<td>44.42</td>
<td>39.68</td>
<td>43.06</td>
<td>46.35</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>29.42</td>
<td>34.60</td>
<td>38.32</td>
<td>34.11</td>
<td>37.43</td>
<td>42.16</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Austria</td>
<td>38.26</td>
<td>43.44</td>
<td>46.01</td>
<td>42.57</td>
<td>45.28</td>
<td>48.69</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Greece</td>
<td>42.25</td>
<td>48.14</td>
<td>50.81</td>
<td>47.07</td>
<td>49.85</td>
<td>51.37</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>37.10</td>
<td>39.69</td>
<td>43.70</td>
<td>40.16</td>
<td>42.25</td>
<td>44.59</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Netherlands</td>
<td>38.71</td>
<td>45.28</td>
<td>48.30</td>
<td>44.10</td>
<td>46.86</td>
<td>49.72</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">EU</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>34.36</td>
<td>40.70</td>
<td>40.80</td>
<td>38.62</td>
<td>41.78</td>
<td>46.23</td>
<td>0.0%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">percentile is over range since March
2000</td>
</tr>
</tbody>
</table>
</body></html>

The NTC final indices are now out and are weaker than their FLASH counterparts were. The percentile column on the far right seems due for an ‘out of order’ sign except that it is not out of order. The overall index as well as the [...]

Graceful but Painful Swan Dive in MFG PMI’s… Into an Empty Pool

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081201d.jpg" align="left" border="0" height="265" width="353">
No hunt for this red October&#8230; 
 

German retail sales were unexpectedly weak in October. The
&#8216;unexpectedly&#8217; part is just as important as the &#8217;weak&#8217; part since
Germans have been deluding themselves with a view of how this crisis is
going to pass them by. Chancellor Merkel is disdainful of what she
regards as competition over who can launch the largest stimulus plan
and has in contrast to much of the rest of the world continued to sit
on the sidelines and watch as Germany&#8217;s economy unravels. Retail sales
in Germany are steadily and progressively deteriorating. Real ex auto
sales are down at a 3.9% annual pace over three months compared to a
-2.2% pace over six months and -1.4% over 12-months. What is the
surprise there? Why should that sequence of growth rates, that is so
very well-behaved, be called &#8216;unexpected?&#8217; Sales had risen by a strong
2.1% in August and after a rise of 0.3% in July. But September and
October sales now tell a different story and one that is consistent
with the world surrounding the German economy as well. The progression
of growth rates shows the August &#8216;burst of strength&#8217; to have been a
false signal. Real and nominal series tell pretty clear stories if
anyone is watching. Now Germany&#8217;s auto sector is getting hit harder as
short hours are being planned. 
 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col">German Real and Nominal Retail Sales&nbsp; </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Oct-08</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr Ago</td>
<td>QTR Saar</td>
</tr>
<tr>
<td class="firstcol">Retaill excl Auto</td>
<td>-1.7%</td>
<td>-1.1%</td>
<td>2.1%</td>
<td>-3.0%</td>
<td>-0.2%</td>
<td>1.1%</td>
<td>-1.0%</td>
<td>-10.1%</td>
</tr>
<tr>
<td class="firstcol">Food Beverage &amp; Tobacco</td>
<td>-0.4%</td>
<td>-1.7%</td>
<td>3.4%</td>
<td>5.0%</td>
<td>0.4%</td>
<td>0.0%</td>
<td>2.6%</td>
<td>-2.6%</td>
</tr>
<tr>
<td class="firstcol">Clothing &amp; Footwear</td>
<td>-4.4%</td>
<td>4.1%</td>
<td>-0.1%</td>
<td>-2.5%</td>
<td>9.3%</td>
<td>1.6%</td>
<td>0.5%</td>
<td>-10.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Real</td>
<td>&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>
<td class="firstcol">Retail excl Auto</td>
<td>-1.6%</td>
<td>-1.0%</td>
<td>1.6%</td>
<td>-3.9%</td>
<td>-2.2%</td>
<td>-1.4%</td>
<td>-2.4%</td>
<td>-9.9%</td>
</tr>
</tbody>
</table>
</body></html>

No hunt for this red October… German retail sales were unexpectedly weak in October. The ‘unexpectedly’ part is just as important as the ’weak’ part since Germans have been deluding themselves with a view of how this crisis is going [...]

German Retail Sales Hit the Skids Again in October

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081201a.jpg" width="353">
The Institute for Supply Management (ISM) reported that its November Composite Index of Activity in the manufacturing sector came in at 36.2. The index fell 2.7 points from October and it was the fifth decline in as many months. The figure was again the lowest level since the 1981-82 recession and was lower than expectations for a reading of 37.5. The break-even level for this diffusion index of factory sector activity is 50.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three-month growth in factory sector industrial production.
It is appropriate to correlate the ISM index level with factory sector growth because the ISM index is a diffusion index. It measures growth by using all of the positive changes in activity added to one half of the zero change in activity measures.
Lower oil prices plunged the separate index of prices paid by another 11.5 points. It fell to 25.5 after the 16.5 point October drop. The latest was the lowest level since 1949. During the last twenty years there has been a 79% correlation between the price index and the three-month change in the PPI for intermediate goods.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081201c.jpg" width="353">
During the last three months the ISM index composite index fell by nearly fourteen points. A decline of that magnitude was exceeded only by the drop during the short &quot;credit crunch&quot; recession of 1980. Following that decline, the index bounced back smartly only then to fall again during the sharp recession of 1981-82. How severe was that economic downturn? During all of 1982 the average level of the ISM (then called the Nat&#39;l Association of Purchasing Management) index was 38.5 versus an average 52.5 during 1979. The index level signaled a 5.4% decline in factory sector industrial production during 1982 as reported by the Federal Reserve Board.
The new orders index during November again fell sharply to 27.9. The index is down over twenty points during the last three months, again the sharpest decline since 1980. Only 12% of survey participants reported higher orders while 59% reported lower orders. The export order index continued to reflect economic weakness outside of the U.S., though it was unchanged at 41.0, the lowest level in this index&#39;s short twenty year history. During the last ten years there has been a 53% correlation between the index and the q/q change in real exports of goods in the GDP accounts.
The production sub-series reflected the weakness in new orders and it fell 2.6 points to 31.5, off 20.6 points during the last three months. Following was the employment index which logged a slight m/m decline to 34.2, the lowest reading since early 1991. During the last twenty years there has been a 67% correlation between the level of the ISM employment index and the three-month growth in factory sector employment.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081201b.jpg" width="353">
The shedding of inventories continues. The index level of 39.1 was down from 44.3 in October and was at its lowest since the recession of 2001. The index gauging the speed of supplier deliveries fell further (indicating faster delivery) and order backlogs fell to the lowest level in the series&#39; history.
Too big to fail: the way forward from the Federal Reserve Bank of Minneapolis can be found <a href="http://www.minneapolisfed.org/news_events/pres/stern11-13-08.cfm">here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S2/@S201/@S201.HTM">ISM Mfg</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">November &#39;07</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">Composite Index</td>
<td>36.2</td>
<td>38.9</td>
<td>50.0</td>
<td>51.1</td>
<td>53.1</td>
<td>54.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>27.9</td>
<td>32.2</td>
<td>52.5</td>
<td>54.3</td>
<td>55.4</td>
<td>57.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>34.2</td>
<td>34.6</td>
<td>48.4</td>
<td>50.5</td>
<td>51.7</td>
<td>53.6</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>25.5</td>
<td>37.0</td>
<td>67.5</td>
<td>64.6</td>
<td>65.0</td>
<td>66.4</td>
</tr>
</tbody>
</table>
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The Institute for Supply Management (ISM) reported that its November Composite Index of Activity in the manufacturing sector came in at 36.2. The index fell 2.7 points from October and it was the fifth decline in as many months. The [...]

ISM Index the Lowest Since 1982 Recession; Pricing Power Evaporated

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081128d.jpg" width="353">
The Chicago Purchasing Manager&#39;s Association indicated that its November business barometer fell to 33.8 after the collapse during October. The latest figure was the lowest since early during the sharp recession of 1982. Consensus expectations had been for a reading of 37.3.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081128e.jpg" width="353">
During the last ten years there has been a 67% correlation between the business barometer and the three-month change in US factory sector industrial production. There has been an 85% correlation between the Chicago figure and the national ISM index (due for release tomorrow) and that is the highest correlation of all the regional series with the national ISM index.
The new orders sub-index fell to 27.2, the lowest since 1980, and the index level is off by roughly one-half during just the last two months. Order backlogs also fell sharply. The production series ticked slightly after having more-than halved during October.
The employment index, at 33.4, was near its lowest level since the last recession. During the last thirty years there has been a 72% correlation between the level of the employment index and the three-month change in nonfarm payrolls. 1
The prices paid index fell further after having declined sharply during October. The current index level of 50.7 is nearly half the July high. During the last ten years there has been a 55% correlation between the price index and the three-month change in the finished goods PPI.
The Mortgage Meltdown, Financial Markets, and the Economy from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-35-36.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">

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<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S2/@S203/@S203.htm">Chicago PMI</a></th>
<th scope="col">&nbsp;November</th>
<th scope="col">&nbsp; October</th>
<th scope="col">September</th>
<th scope="col">November &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Chicago PMI Business Barometer Index</td>
<td>33.8</td>
<td>37.8</td>
<td>56.7</td>
<td>53.6</td>
<td>54.4</td>
<td>56.8</td>
<td>60.4</td>
</tr>
</tbody>
</table>
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The Chicago Purchasing Manager's Association indicated that its November business barometer fell to 33.8 after the collapse during October. The latest figure was the lowest since early during the sharp recession of 1982. Consensus [...]

Chicago Purchasing Managers' Barometer Off Sharply

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</head>
<body>
 



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081128c.jpg" align="left" border="0" height="265" width="353">
The Euro Area reported a dramatically deflated CPI (HICP,
Harmonized index of consumer prices) for November. The index dropped
its rate of inflation back to 2.1% from 3.2%, a huge deceleration (in
one month!) for yr/yr inflation that owes to the plunge in world oil
and energy prices. With a self-imposed limit for headline consumer
inflation of 2% the ECB can now feel it is no longer in violation of
the spirit of its &#8216;guideline&#8217;. And with inflation falling so sharply a
forward-looking expectation of being inside the target would be prudent
and reasonable. 
 

Core inflation in the EMU is still not available. But the
history shows that that measure has been much better corralled overall.
Through October the three-month pace for core inflation was 2.4%
compared to 2.4% for Yr/Yr core inflation. 
 

Of course the ECB has long since jettisoned any such technical
concerns of being in violation of its ceiling, as it has joined other
central banks in a round of international rate-cutting. The ECB
recognizes the downside risks but still has had this issue with the
inflation rate being so far over its ceiling. The drop in the rate this
month may be all the more important as the Federal Reserve in the US is
pulling out even more stops to lend to banks and issue liquidity as
well as to target mortgage rate reductions with a panoply of moves that
have some Fed critics warning of inflation consequences even as the
economy faces what could be a quarter of -5% real growth (annualized). 
 

In such an environment the ECB at least has the comfort of
getting its inflation rate back close enough to target range that it
can again feel that it is making policy with some degree of comfort,
prudence and discretion. 
 

Still, there should be no sense that all is well. The drop in
headline inflation merely gives the ECB its appearance of propriety
back - not its &#8216;Mo-Jo.&#8217; The Federal Reserve in the US has made the most
moves of any central bank but part of its mix of policies has been to
provide swap facilities for dollars to aid central banks abroad.
Central banks are still &#8216;riding the tiger&#8217;. About a week ago US
Treasury Secretary Paulson dared to commit the &#8216;in-crisis&#8217; error of
saying that banks had been stabilized, only to find that that they had
not as Citigroup saw its stock drop and a new special action by the
Fed/treasury was required. Clearly the financial situation remains
fragile though it appears to be less degenerative than it was. Now
policymakers are turning attention more to the economy. At a time like
this with Europe looking weaker and the German economy set to import a
good deal of weakness from trade as its exports drop, the ECB can use
an extra-measure of flexibility. It is hard to say that this drop in
inflation came &#8216;just in time&#8217; but at least we can say &#8216;better late than
never&#8217;. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">Trends in EMU HICP; Flash Index </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Nov-08</td>
<td>Oct-08</td>
<td>Sep-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="grey3">
<td class="firstcol">EMU-13</td>
<td>-0.3%</td>
<td>0.0%</td>
<td>0.1%</td>
<td>-0.8%</td>
<td>0.7%</td>
<td>2.1%</td>
<td>3.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.4%</td>
<td>2.2%</td>
<td>2.4%</td>
<td>2.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Goods</td>
<td>#N/A</td>
<td>0.0%</td>
<td>0.8%</td>
<td>1.4%</td>
<td>1.4%</td>
<td>3.5%</td>
<td>2.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Services</td>
<td>#N/A</td>
<td>0.1%</td>
<td>-0.7%</td>
<td>-1.3%</td>
<td>2.5%</td>
<td>2.6%</td>
<td>2.5%</td>
</tr>
<tr class="grey2">
<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="grey3">
<td class="firstcol">Germany</td>
<td>0.0%</td>
<td>-0.3%</td>
<td>0.2%</td>
<td>-0.4%</td>
<td>1.1%</td>
<td>1.5%</td>
<td>3.3%</td>
</tr>
<tr class="grey3">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.0%</td>
<td>-0.7%</td>
<td>1.8%</td>
<td>3.0%</td>
<td>2.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Italy</td>
<td>-0.4%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>-0.4%</td>
<td>1.7%</td>
<td>2.8%</td>
<td>2.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK</td>
<td>#N/A</td>
<td>-0.4%</td>
<td>0.6%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>2.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>-0.3%</td>
<td>0.0%</td>
<td>-1.5%</td>
<td>2.6%</td>
<td>3.6%</td>
<td>3.7%</td>
</tr>
<tr class="grey2">
<td colspan="2">Core:xFE&amp;A</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">Germany</td>
<td>#N/A</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>1.7%</td>
<td>1.5%</td>
<td>2.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Italy</td>
<td>#N/A</td>
<td>0.5%</td>
<td>0.0%</td>
<td>4.6%</td>
<td>3.0%</td>
<td>3.0%</td>
<td>2.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK</td>
<td>#N/A</td>
<td>#N/A</td>
<td>0.0%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.8%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.4%</td>
<td>3.1%</td>
<td>2.9%</td>
<td>3.1%</td>
</tr>
<tr class="grey1">
<td colspan="8" class="firstcol">Blue shaded area data trail by one
month.</td>
</tr>
</tbody>
</table>
</body></html>

The Euro Area reported a dramatically deflated CPI (HICP, Harmonized index of consumer prices) for November. The index dropped its rate of inflation back to 2.1% from 3.2%, a huge deceleration (in one month!) for yr/yr inflation that [...]

EMU CPI in Near-Record Drop HICP is Barely Over the ECB Ceiling-Freeing Bank to Slash Rates

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081128a.jpg" width="353">
October new orders for durable goods collapsed 6.2% m/m in what was the third consecutive monthly drop. During that period new orders virtually dried up as their 11.5% cumulative decline was the largest since the &quot;credit crunch&quot; recession of 1980. Moreover, the level of new orders for durables last month was the lowest since April of 2005. The latest decline followed a revised 0.2% September downtick and a similar 5.5% August collapse. October&#39;s drop was roughly double the Consensus expectation for a 2.6% shortfall.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081128b.jpg" width="353">
An 11.1% m/m decline in transportation sector orders (-21.6% y/y) led the drop in total durable goods orders last month. Orders for motor vehicles (-23.1% y/y) and for aircraft (-18.1% y/y) both fell sharply.
The industry detail further highlights the recent severe weakness in bookings. Orders for primary metals orders fell 12.6% last month and they&#39;re down 29.2% just since July. Machinery orders fell 6.8% last month and they are off 13.0% over the last three periods while October electrical equipment bookings fell 5.3%, off 9.4% during the last three months.
New orders for computers &amp; electronic products also have fallen, but the decline has been not as severe. This total fell 2.4% last month and by 3.5% during the last three. Orders for just computers &amp; related products were quite weak and posted a 5.5% October drop, off 7.2% since July. New orders for communications equipment, however, rose 7.7% last month though that just made up for earlier weakness and they&#39;re off 5.0% since July.
The capital equipment sector has shown severe weakness. Orders for nondefense capital goods fell by 3.6% last month and they were off by 12.0% since July. Without aircraft, orders were about as weak as the total and they fell 4.0% last month, off by 9.3% during the last three months. This was the sharpest negative growth since the 2001 recession. During the last ten years there has been an 80% correlation between the y/y gain in nondefense capital goods orders and the rise in equipment &amp; software spending in the GDP accounts. The correlation of the GDP figure with capital goods shipments is, as one would expect, a larger 92%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081128f.jpg" width="353">
Reflecting past weakness in new orders, overall shipments of durable goods fell 2.4%. Their decline during the last three months totaled 6.7% after a 0.1% uptick last year. For comparison, industrial production of durable goods during the last three months fell 6.2%. During the last ten years there has been a 69% correlation between the three-month change in shipments of durable goods and the change in durables industrial production. Less transportation, shipments of durable goods fell 1.7% last month and by 5.4% during the last three months. 
Accumulation of inventories of manufactured products has yet to respond to a weaker shipments&#39; growth environment. Inventories of manufactured durables rose 0.4% in October after a 0.2% September increase. The latest gains left three-month growth at 1.5%; hardly a strong rate of increase. In fact it was lower than the recent high of 2.6%. Still, it clearly is too fast for an environment when shipments over the last three months have fallen 6.7%. Tight inventory management techniques today are fostering a fast reaction to changes in the demand environment. Or maybe not. The ratio of inventories-to-shipments rose last month to its highest level since 1996. Clearly, an unwinding of this unwanted inventory buildup has yet to provide downward pressure on factory output.
Monetary Policy and Asset Prices from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-34.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/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a> (%)</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">August</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">Durable Goods Orders</td>
<td>-6.2</td>
<td>-0.2</td>
<td>-5.5</td>
<td>-10.6</td>
<td>1.4</td>
<td>6.2</td>
<td>10.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>-4.4</td>
<td>-2.3</td>
<td>-4.2</td>
<td>-6.1</td>
<td>-0.3</td>
<td>9.1</td>
<td>9.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>-3.6</td>
<td>-1.0</td>
<td>-7.8</td>
<td>-9.5</td>
<td>3.5</td>
<td>9.4</td>
<td>17.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>-4.0</td>
<td>-3.3</td>
<td>-2.3</td>
<td>-3.3</td>
<td>-2.7</td>
<td>10.7</td>
<td>11.6</td>
</tr>
</tbody>
</table>
</body>
</html>

October new orders for durable goods collapsed 6.2% m/m in what was the third consecutive monthly drop. During that period new orders virtually dried up as their 11.5% cumulative decline was the largest since the "credit crunch" [...]

U.S. Durable Goods Orders Lowest Since 2005

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

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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.

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- 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

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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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