Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081103a.jpg" width="353">
The Composite Index of Manufacturing Sector Activity, reported by the Institute for Supply Management (ISM), fell during October to its lowest level since the end of the 1981-82 recession. The 4.6 point m/m decline to a level of 38.9 exceeded Consensus expectations for a decline to 41.5. The break-even level for this measure 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.
During the last two months, the ISM index composite index fell by eleven points. A decline of that degree 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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081103b.jpg" width="353">
The new orders index during November fell a sharp 6.6 points to 32.2. The decline followed a 9.5 point plunge during September and it was to the lowest level since 1981. Economic weakness outside of the U.S. was signaled by the new export orders sub-series. It fell eleven points to a less than break-even level of 41.0, its 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 fell another 6.7 points, to 34.1, after the sharp 11.3 point decline during September. This weakness was mirrored by a decline in the employment index which repeated its September performance and fell 7.2 points to 34.6, 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.
The shedding of inventories continued at its recent rate as indicated by a an index level of 44.3 which was up just slightly from September. The index gauging the speed of supplier deliveries fell, but just moderately, and order backlogs declined to their lowest level in the series&#39; history.
Prices paid plunged another 16.5 points to 37.0, the lowest level since late 2001 and that further reflected the decline in oil prices. 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="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081103c.jpg" width="353">
According to the National Association of Business Economists, 90% of the 102 members responding were more pessimistic about the economy than they were in July. A recession was viewed likely to continue at least through the end of next year, with 79% saying the economy will grow less than 1% and 38% saying the economy will shrink next year.
The Future of Mortgage Finance in the United States is Friday&#39;s speech by Fed Chairman Ben S. Bernanke and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20081031a.htm">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">October</th>
<th scope="col">September</th>
<th scope="col">October &#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>38.9</td>
<td>43.5</td>
<td>50.4</td>
<td>51.1</td>
<td>53.1</td>
<td>54.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>32.2</td>
<td>38.8</td>
<td>52.8</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>34.6</td>
<td>41.8</td>
<td>51.8</td>
<td>50.5</td>
<td>51.7</td>
<td>53.6</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>37.0</td>
<td>53.5</td>
<td>63.0</td>
<td>64.6</td>
<td>65.0</td>
<td>66.4</td>
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The Composite Index of Manufacturing Sector Activity, reported by the Institute for Supply Management (ISM), fell during October to its lowest level since the end of the 1981-82 recession. The 4.6 point m/m decline to a level of 38.9 [...]

ISM Index Lowest Since 1982 Recession

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031i.jpg" align="left" border="0" height="265" width="353">
The German consumer has kept a stiff upper lip according to
the November reading on the consumer from GfK. Still the consumer has
been stiffening more than just his and her lip. The old wallet seems to
have become a bit less pliable as Germans have tightened up on
spending. Retail sales plunged in September, dropping by 2.5% and
obliterating the 2.4% pop in August. The drop will still leave NOMINAL
German retail sales advancing in Q3 but real ex auto German sales are
shrinking in Q3 at a 0.5% annual rate.
The sequential growth rates on German nominal retail spending
are very flat. The real retail sales ex auto sequential growth rates
are similarly steady but at shallow negative rates of growth.
The good news for Germany is that the September drop in retail
sales can be called a plunge but it only offsets the spike in August.
There is nothing in the data or trends that suggest things are about to
get much worse. But that does not mean that they won&#8217;t either. 


<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead><tr><th colspan="8" scope="col"> German Real and Nominal Retail Sales </th>
<th scope="col">QTR</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAgo</td>
<td>Saar</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-2.5%</td>
<td>2.4%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>0.8%</td>
<td>0.4%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Food, Bev &amp; Tobacco</td>
<td>-1.6%</td>
<td>3.1%</td>
<td>-0.2%</td>
<td>5.0%</td>
<td>0.4%</td>
<td>0.9%</td>
<td>0.0%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>8.7%</td>
<td>-1.2%</td>
<td>4.1%</td>
<td>56.7%</td>
<td>30.0%</td>
<td>0.6%</td>
<td>18.5%</td>
<td>10.8%</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 Ex auto</td>
<td>-2.3%</td>
<td>1.9%</td>
<td>-0.1%</td>
<td>-2.0%</td>
<td>-1.4%</td>
<td>-2.1%</td>
<td>-0.6%</td>
<td>-0.5%</td>
</tr>
</tbody>
</table>
</body></html>

The German consumer has kept a stiff upper lip according to the November reading on the consumer from GfK. Still the consumer has been stiffening more than just his and her lip. The old wallet seems to have become a bit less pliable [...]

German Retail Sales Run Soft

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031f.jpg" width="353">
The University of Michigan&#39;s October reading of consumer sentiment collapsed by 18.1% from the September level, to 57.6. That was very much the same as reported at mid-month and the latest level was the lowest for the series since June which in turn was the lowest since early-1980. The drop was a record m/m decline for the index which dates back to the late 1970s. The full-month figure matched Consensus expectations.
During the last ten years there has been a 55% correlation between the level of sentiment and the three-month change in real consumer spending.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031g.jpg" width="353">
The opinion of government policy, which apparently influences economic expectations, fell sharply from September (-39.0% y/y) but it was slightly better than the mid-month read. Only five percent of respondents thought that a good job was being done by government while 55% thought a poor job was being done. That was the highest percentage on record.
As reported at mid-month, the current conditions index led the collapse with 22.1% decline. The view of current personal finances gave back all of a September improvement with a m/m decline of one-third. The index of buying conditions for large household goods fell 16.8% m/m to the lowest level since 1980, down 37.3% y/y.
The expectations component of consumer sentiment aided the m/m decline in the total with a 15.6% drop. Expectations for business conditions during the next years collapsed by 24.6%, as reported at mid-month. Expectations for conditions during the next five years fell 14.5% but they remained well up from their historic lows.The expected change in personal finances fell 11.7%. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031h.jpg" width="353">
The mean expected rate of inflation during the next year slipped to 4.3% with lower oil prices, down from the mid-month expectation. It was as high as 7.0% in May but the expectation was still above prior years. The expected inflation rate during the next five years fell to 3.1%, the lowest level since 2003.
The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver&#39;s USECON database, with details in the proprietary UMSCA database.
What Is Liquidity Risk? from the Federal Reserve Bank of San Francisco and it can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-33.pdf">here</a>.
Monetary Policy Transparency and Private Sector Forecasts: Evidence from Survey Data from the Federal Reserve Bank of Kansa City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/3q08Sellon.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">October</th>
<th scope="col">Mid-October</th>
<th scope="col">September</th>
<th scope="col">October 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">Consumer Sentiment</td>
<td>57.6</td>
<td>57.5</td>
<td>70.3</td>
<td>-28.8%</td>
<td>85.6</td>
<td>87.3</td>
<td>88.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>58.4</td>
<td>58.9</td>
<td>75.0</td>
<td>-40.2</td>
<td>101.2</td>
<td>105.1</td>
<td>105.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>57.0</td>
<td>56.7</td>
<td>67.2</td>
<td>-18.7</td>
<td>75.6</td>
<td>75.9</td>
<td>77.4</td>
</tr>
</tbody>
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The University of Michigan's October reading of consumer sentiment collapsed by 18.1% from the September level, to 57.6. That was very much the same as reported at mid-month and the latest level was the lowest for the series since [...]

Michigan Consumer Sentiment Collapsed With The Stock Market & The Opinion of Gov't

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031d.jpg" width="353">
The employment cost index for private industry workers increased by 0.6% last quarter. It was stable with 2Q and that was the weakest rate of gain since 1Q 2006. It also fell short of Consensus expectations for a 0.7% rise. The rise held roughly steady with the 3.0% y/y growth in compensation during the last three years.
During the last twenty years there has been a 54% correlation between the growth in employee compensation and the rise in the PCE price index. That level of correlation goes neither up or down, when either series is led or lagged the other. This suggests a self reinforcing effect between the two series.
Wage and salary growth again dipped slightly, last quarter to 0.6% versus 0.7% to 0.8% increases during the prior four quarters. Wages account for roughly 70% of the compensation index. Wages in the services industries grew 0.6% and the y/y gain of 2.8% was the slowest since 2006, down from 4.6% growth back in 2000. Wages in the goods producing industries rose 0.4% (2.7% y/y) and that y/y growth compares to a recent peak of 4.5% in 2004.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031e.jpg" width="353">
The rise in benefit costs picked up slightly to 0.6% but the 2.4% year-to-year rise was near the slowest since 1999. In the goods producing sector benefits ticked up 0.1% (2.2% y/y) and in services they rose 0.6% (2.5% y/y), the same as during the prior two quarters.
Health benefit costs rose 3.9% y/y and that was the slowest rate of growth since 1999.

<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/@EB/@EB08/@EB08.HTM">ECI - Private Industry Workers</a> (%)</th>
<th scope="col">3Q &#39;08</th>
<th scope="col">2Q &#39;08</th>
<th scope="col">1Q &#39;08</th>
<th scope="col">3Q 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">Compensation</td>
<td>0.6</td>
<td>0.6</td>
<td>0.8</td>
<td>2.8</td>
<td>3.1</td>
<td>2.9</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.6</td>
<td>0.7</td>
<td>0.8</td>
<td>2.9</td>
<td>3.4</td>
<td>2.9</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.6</td>
<td>0.5</td>
<td>0.6</td>
<td>2.4</td>
<td>2.4</td>
<td>2.9</td>
<td>4.6</td>
</tr>
</tbody>
</table>


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The employment cost index for private industry workers increased by 0.6% last quarter. It was stable with 2Q and that was the weakest rate of gain since 1Q 2006. It also fell short of Consensus expectations for a 0.7% rise. The rise [...]

U.S. Employment Cost Index Increase Stable During 3Q

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031a.jpg" width="353">
During September nominal personal income rose 0.2%, just half the revised 0.4% August increase. Moreover, a slowing growth trend was evident in the y/y gain of 3.9% which was down sharply from last year&#39;s 6.1% rise and the 7.1% increase during 2006. The September increase in personal income exceeded Consensus expectations for a 0.1% rise.
Disposable personal income rose 0.2% last month after 1.0%-to-1.8% declines during the prior three months. They occurred due to the absence of tax rebate checks. Weaker job gains have slowed trend growth to 4.2% y/y after last year&#39;s rise of 5.5% and 6.4% during 2006.
Weaker gains in wage &amp; salary income very much reflect the soft jobs environment. Wages rose 0.1% last month, up 3.4% y/y. Three month growth of 3.1% (AR) was considerably below the 9.8% rate of growth early last year. Factory sector wages fell 0.3% (+0.2% y/y) for the second consecutive monthly decline. On a three-month growth basis, wages fell at a 1.3% annual rate after 2.0% growth last year. Wages &amp; salaries in the private service-providing industries ticked up 0.1% (3.6% y/y) and, here again, the trend growth of 3.0% is well below a 2006 gain of 6.4%. Wages in the government sector rose 0.4% (5.1% y/y) and three-month growth of 5.1% was stable.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031c.jpg" width="353">
Proprietors&#39; income fell 0.3% (+1.8% y/y) after a 1.0% August decline. On a three-month basis, the 3.4% rate of negative growth very much reflects the weaker retail environment, after the 4.1% gain last year. Interest income rose 1.1% (-0.2% y/y) for the third straight month due to the recent rise in interest rates off their March lows. Dividend income fell 0.6% (+4.1% y/y) for the third consecutive month and prior months&#39; gains were revised away. Growth of 4.1% y/y compares to a 12.4% rise last year and a 21.7% rise during 2006.
Personal consumption expenditures fell 0.3% after the unrevised sideways movement in August. Adjusted for price inflation, real spending fell 0.4% (-0.4% y/y) last month for the third decline in the last four months. Three-month growth in real spending dropped to negative 3.9% (AR) after the 2.8% gain last year. Real spending on motor vehicles fell at a 23.5% annual rate during the last three months while furniture spending fell at a 10.9% rate following an 8.0% gain last year. Spending on clothing fell at a 14.6% rate during the last three months after a 4.7% rise last year.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031b.jpg" width="353">
The PCE chain price index rose just 0.1% as a 0.7% decline (+31.5% y/y) in gasoline prices was offset by a 0.7% rise in food prices. On a three-month basis, food prices were up at a 9.1% rate after a 3.8% rise last year. The core PCE price index rose 0.2% for the second consecutive month but the rise surpassed Consensus expectations for a 0.1% uptick. Three-month growth of 2.6% was up from a 2.2% during all of last year. Apparel prices have been rising at a 6.6% rate after a 0.8% decline last year and transportation costs have been rising at a 5.2% rate after 2.7% growth last year.
The personal savings rate recovered to 1.3% as spending fell.
The figures noted above are available in the Haver USECON and in the USNA databases.

<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/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a> (%)</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">Personal Income</td>
<td>0.2</td>
<td>0.4</td>
<td>3.9</td>
<td>6.1</td>
<td>7.1</td>
<td>5.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Disposable Personal Income</td>
<td>0.2</td>
<td>-1.0</td>
<td>4.2</td>
<td>5.5</td>
<td>6.4</td>
<td>4.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Consumption</td>
<td>-0.3</td>
<td>0.0</td>
<td>3.8</td>
<td>5.5</td>
<td>5.9</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">Saving Rate</td>
<td>1.3</td>
<td>0.8</td>
<td>0.6 (Sept. &#39;07)</td>
<td>0.5</td>
<td>0.7</td>
<td>0.3</td>
</tr>
<tr class="odd">
<td class="firstcol">PCE Chain Price Index</td>
<td>0.1</td>
<td>0.0</td>
<td>4.2</td>
<td>2.6</td>
<td>2.8</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2</td>
<td>0.2</td>
<td>2.4</td>
<td>2.2</td>
<td>2.3</td>
<td>2.1</td>
</tr>
</tbody>
</table>
</body>
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During September nominal personal income rose 0.2%, just half the revised 0.4% August increase. Moreover, a slowing growth trend was evident in the y/y gain of 3.9% which was down sharply from last year's 6.1% rise and the 7.1% [...]

U.S. September Income Rose, Spending Fell: Trend Growth of Both Down

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<body>
 



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031a.jpg" align="left" border="0" height="265" width="353">
During September nominal personal income rose
0.2%, just half the revised 0.4% August increase. Moreover, a slowing
growth trend was evident in the y/y gain of 3.9% which was down sharply
from last year's 6.1% rise and the 7.1% increase during 2006. The
September increase in personal income exceeded Consensus expectations
for a 0.1% rise.
Disposable personal income rose 0.2% last
month after 1.0%-to-1.8% declines during the prior three months. They
occurred due to the absence of tax rebate checks. Weaker job gains have
slowed trend growth to 4.2% y/y after last year's rise of 5.5% and 6.4%
during 2006.
Weaker gains in wage &amp; salary income very much reflect
the soft jobs environment. Wages rose 0.1% last month, up 3.4% y/y.
Three month growth of 3.1% (AR) was considerably below the 9.8% rate of
growth early last year. Factory sector wages fell 0.3% (+0.2% y/y) for
the second consecutive monthly decline. On a three-month growth basis,
wages fell at a 1.3% annual rate after 2.0% growth last year. Wages
&amp; salaries in the private service-providing industries ticked
up 0.1% (3.6% y/y) and, here again, the trend growth of 3.0% is well
below a 2006 gain of 6.4%. Wages in the government sector rose 0.4%
(5.1% y/y) and three-month growth of 5.1% was stable.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031c.jpg" align="right" border="0" height="265" width="353">
Proprietors' income fell 0.3% (+1.8% y/y) after a 1.0% August
decline. On a three-month basis, the 3.4% rate of negative growth very
much reflects the weaker retail environment, after the 4.1% gain last
year. Interest income rose 1.1% (-0.2% y/y) for the third straight
month due to the recent rise in interest rates off their March lows.
Dividend income fell 0.6% (+4.1% y/y) for the third consecutive month
and prior months' gains were revised away. Growth of 4.1% y/y compares
to a 12.4% rise last year and a 21.7% rise during 2006.
Personal consumption expenditures fell 0.3% after the
unrevised sideways movement in August. Adjusted for price inflation, real
spending fell 0.4% (-0.4% y/y) last month for the third
decline in the last four months. Three-month growth in real spending
dropped to negative 3.9% (AR) after the 2.8% gain last year. Real
spending on motor vehicles fell at a 23.5% annual rate during the last
three months while furniture spending fell at a 10.9% rate following an
8.0% gain last year. Spending on clothing fell at a 14.6% rate during
the last three months after a 4.7% rise last year.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031b.jpg" align="left" border="0" height="265" width="353">
The PCE chain price index rose just 0.1%
as a 0.7% decline (+31.5% y/y) in gasoline prices was offset by a 0.7%
rise in food prices. On a three-month basis, food prices were up at a
9.1% rate after a 3.8% rise last year. The core PCE price
index rose 0.2% for the second consecutive month but the rise
surpassed Consensus expectations for a 0.1% uptick. Three-month growth
of 2.6% was up from a 2.2% during all of last year. Apparel
prices have been rising at a 6.6% rate after a 0.8% decline last year
and transportation costs have been rising at a 5.2% rate after 2.7%
growth last year.
The personal savings rate recovered to 1.3% as spending fell.
The figures noted above are available in the Haver USECON
and in the USNA databases.

<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/@E7/@E711/@E71102/@E71102.HTM">Disposition
of Personal Income</a> (%)</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">Personal Income</td>
<td>0.2</td>
<td>0.4</td>
<td>3.9</td>
<td>6.1</td>
<td>7.1</td>
<td>5.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Disposable
Personal Income</td>
<td>0.2</td>
<td>-1.0</td>
<td>4.2</td>
<td>5.5</td>
<td>6.4</td>
<td>4.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Consumption</td>
<td>-0.3</td>
<td>0.0</td>
<td>3.8</td>
<td>5.5</td>
<td>5.9</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">Saving Rate</td>
<td>1.3</td>
<td>0.8</td>
<td>0.6 (Sept. '07)</td>
<td>0.5</td>
<td>0.7</td>
<td>0.3</td>
</tr>
<tr class="odd">
<td class="firstcol">PCE Chain Price Index</td>
<td>0.1</td>
<td>0.0</td>
<td>4.2</td>
<td>2.6</td>
<td>2.8</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less food
&amp; energy</td>
<td>0.2</td>
<td>0.2</td>
<td>2.4</td>
<td>2.2</td>
<td>2.3</td>
<td>2.1</td>
</tr>
</tbody>
</table>
Michigan Consumer Sentiment
Collapsed With The Stock Market &amp; The Opinion of Gov't 
by <a href="/comment/Moeller.html">Tom
Moeller</a> October 31 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031f.jpg" align="left" border="0" height="265" width="353">
The University of Michigan's October reading of consumer
sentiment collapsed by 18.1% from the September level, to 57.6. That
was very much the same as reported at mid-month and the latest level
was the lowest for the series since June which in turn was the lowest
since early-1980. The drop was a record m/m decline for the index which
dates back to the late 1970s. The full-month figure matched Consensus
expectations.
During the last ten years there has been a 55% correlation
between the level of sentiment and the three-month change in real
consumer spending.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031g.jpg" align="right" border="0" height="265" width="353">
The opinion of government policy, which apparently influences
economic expectations, fell sharply from September (-39.0% y/y) but it
was slightly better than the mid-month read. Only five
percent of respondents thought that a good job was being done by
government while 55% thought a poor job was being done. That
was the highest percentage on record.
As reported at mid-month, the current conditions index led the
collapse with 22.1% decline. The view of current personal finances gave
back all of a September improvement with a m/m decline of one-third.
The index of buying conditions for large household goods fell 16.8% m/m
to the lowest level since 1980, down 37.3% y/y.
The expectations component of consumer sentiment aided the m/m
decline in the total with a 15.6% drop. Expectations for business
conditions during the next years collapsed by 24.6%, as reported at
mid-month. Expectations for conditions during the next five years fell
14.5% but they remained well up from their historic lows.The expected
change in personal finances fell 11.7%. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031h.jpg" align="left" border="0" height="265" width="353">
The mean expected rate of inflation during the next year
slipped to 4.3% with lower oil prices, down from the mid-month
expectation. It was as high as 7.0% in May but the expectation was
still above prior years. The expected inflation rate during the next
five years fell to 3.1%, the lowest level since 2003.
The University of Michigan survey is not seasonally
adjusted.The reading is based on telephone interviews with about 500
households at month-end; the mid-month results are based on about 300
interviews. The summary indexes are in Haver's USECON database,
with details in the proprietary UMSCA database.
What Is Liquidity Risk? from the
Federal Reserve Bank of San Francisco and it can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-33.pdf">here</a>.
Monetary Policy Transparency and Private Sector
Forecasts: Evidence from Survey Data from the Federal
Reserve Bank of Kansa City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/3q08Sellon.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">October</th>
<th scope="col">Mid-October</th>
<th scope="col">September</th>
<th scope="col">October 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">Consumer Sentiment</td>
<td>57.6</td>
<td>57.5</td>
<td>70.3</td>
<td>-28.8%</td>
<td>85.6</td>
<td>87.3</td>
<td>88.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>58.4</td>
<td>58.9</td>
<td>75.0</td>
<td>-40.2</td>
<td>101.2</td>
<td>105.1</td>
<td>105.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>57.0</td>
<td>56.7</td>
<td>67.2</td>
<td>-18.7</td>
<td>75.6</td>
<td>75.9</td>
<td>77.4</td>
</tr>
</tbody>
</table>
U.S. Employment Cost Index
Increase Stable During 3Q 
by <a href="/comment/Moeller.html">Tom
Moeller</a> October 31, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031d.jpg" align="left" border="0" height="265" width="353">
The employment cost index for private industry workers
increased by 0.6% last quarter. It was stable with 2Q and that was the
weakest rate of gain since 1Q 2006. It also fell short of Consensus
expectations for a 0.7% rise. The rise held roughly steady with the
3.0% y/y growth in compensation during the last three years.
During the last twenty years there has been a 54% correlation
between the growth in employee compensation and the rise in the PCE
price index. That level of correlation goes neither up or down, when
either series is led or lagged the other. This suggests a self
reinforcing effect between the two series.
Wage and salary growth again dipped slightly, last quarter to
0.6% versus 0.7% to 0.8% increases during the prior four quarters.
Wages account for roughly 70% of the compensation index. Wages in the
services industries grew 0.6% and the y/y gain of 2.8% was the slowest
since 2006, down from 4.6% growth back in 2000. Wages in the goods
producing industries rose 0.4% (2.7% y/y) and that y/y growth compares
to a recent peak of 4.5% in 2004.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031e.jpg" align="right" border="0" height="265" width="353">
The rise in benefit costs picked up slightly to 0.6% but the
2.4% year-to-year rise was near the slowest since 1999. In the goods
producing sector benefits ticked up 0.1% (2.2% y/y) and in services
they rose 0.6% (2.5% y/y), the same as during the prior two quarters.
Health benefit costs rose 3.9% y/y and that was the slowest
rate of growth since 1999.


<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/@EB/@EB08/@EB08.HTM">ECI
- Private Industry Workers</a> (%)</th>
<th scope="col">3Q '08</th>
<th scope="col">2Q '08</th>
<th scope="col">1Q '08</th>
<th scope="col">3Q 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">Compensation</td>
<td>0.6</td>
<td>0.6</td>
<td>0.8</td>
<td>2.8</td>
<td>3.1</td>
<td>2.9</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp;
Salaries</td>
<td>0.6</td>
<td>0.7</td>
<td>0.8</td>
<td>2.9</td>
<td>3.4</td>
<td>2.9</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.6</td>
<td>0.5</td>
<td>0.6</td>
<td>2.4</td>
<td>2.4</td>
<td>2.9</td>
<td>4.6</td>
</tr>
</tbody>
</table>
German Retail Sales Run Soft 
by <a href="/comment/Brusca.html">Robert
Brusca</a> October 31 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031i.jpg" align="left" border="0" height="265" width="353">
The German consumer has kept a stiff upper lip according to
the November reading on the consumer from GfK. Still the consumer has
been stiffening more than just his and her lip. The old wallet seems to
have become a bit less pliable as Germans have tightened up on
spending. Retail sales plunged in September, dropping by 2.5% and
obliterating the 2.4% pop in August. The drop will still leave NOMINAL
German retail sales advancing in Q3 but real ex auto German sales are
shrinking in Q3 at a 0.5% annual rate.
The sequential growth rates on German nominal retail spending
are very flat. The real retail sales ex auto sequential growth rates
are similarly steady but at shallow negative rates of growth.
The good news for Germany is that the September drop in retail
sales can be called a plunge but it only offsets the spike in August.
There is nothing in the data or trends that suggest things are about to
get much worse. But that does not mean that they won&#8217;t either. 

<table border="0" cellspacing="0" width="100%"> <colgroup><col></colgroup>
<thead><tr>
<th colspan="8" scope="col"> German
Real and Nominal Retail Sales </th>
<th scope="col">QTR</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAgo</td>
<td>Saar</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-2.5%</td>
<td>2.4%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>0.8%</td>
<td>0.4%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Food, Bev &amp; Tobacco</td>
<td>-1.6%</td>
<td>3.1%</td>
<td>-0.2%</td>
<td>5.0%</td>
<td>0.4%</td>
<td>0.9%</td>
<td>0.0%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>8.7%</td>
<td>-1.2%</td>
<td>4.1%</td>
<td>56.7%</td>
<td>30.0%</td>
<td>0.6%</td>
<td>18.5%</td>
<td>10.8%</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 Ex auto</td>
<td>-2.3%</td>
<td>1.9%</td>
<td>-0.1%</td>
<td>-2.0%</td>
<td>-1.4%</td>
<td>-2.1%</td>
<td>-0.6%</td>
<td>-0.5%</td>
</tr>
</tbody>
</table>
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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030f.jpg" align="left" border="0" height="265" width="353">
The news this month for the EU/EMU region is bad. The EU
reading is in the bottom 10% of its range of value. The EMU reading is
a bit better, in the bottom 17% of its range. Both are quite weak. The
drop in the index is the largest since the data have been collected in
1991. All sectors made larger
falls in Oct compared to Sept. The
main EMU countries also saw large drops in their respective overall
sentiment indices.
By sector, services is relatively the hardest hit standing at
the lowest point of its range since that survey began. But that only
goes back to October of 1996 instead of 1991 as for the other surveys.
Still this result parallels the sort of readings we have been getting
in the US with a very weak service sector checking in.
Is this more than coincidence? You bet! This crisis is
hitting intrinsically domestic sectors harder like real estate and
finance. Typically banks populate every community; the same with real
estate businesses. These sectors are not like mining or autos or
textiles that may have a particular regional representation. The
troubled sectors in this cycle are spread everywhere and the troubled
asset class &#8216;housing&#8217; is everywhere, as well. It&#8217;s as true in Europe as
in the US.INDUSTRY 
 

Europe&#8217;s industry reading at -18 (EMU) is only in the 32nd
percentile of its range (bottom third of its range) and so is weak but
not desperately weak. Germany and France carry percentile positions for
their respective readings in the high thirty percentiles while Spain&#8217;s
is at the 33rd percentile and the UK is at the 27Th
percentile; Italy is looking desperate at the 17Th
percentile. These are weak readings but the most troubling for Italy.
The components of the industry index show that the production
trend is the weakest relative reading standing in the bottom 3% of its
historic range. Production
expectations are better but still weak in their 12th
percentile. For some reason Europeans think that a worse time lies
behind it not ahead of it. That explains a lot about the government
attitudes. Europe has been in and seem to remain in DENIAL. Order volumes are still relatively
firm in their 44th range percentile; export
orders are in about the same relative range position and that is also
where the expected selling price resides. Contrarily workers are more
exposed with employment expectations in the bottom 16 percentile of
their range. If worker readings are RIGHT then the rest of the readings
are too high.CONFIDENCE
By main countries confidence readings are all over the map
except that they are limited being to all over intrinsically weak
territory. The EU&#8217;s UK reading is in the bottom 2.9% of its all-time
range. Among large EMU nations Spain is weakest posting the lowest
confidence reading ever. It is followed by France with a bottom 5
percentile reading. Germany&#8217;s percentile reading at the 43% mark and is
similar to its industrial sector reading but at 37.5 Italy&#8217;s percentile
reading is way above its industry percentile. So, Italian consumer
confidence is more upbeat than it is for Italian industry.
As for the reason for this angst, ee find over all EMU
responses on &#8216;time to buy&#8217; are at the very worst for making major
purchases now or in the next 12 months. The economic situation in the
past 12-months is rated as the worst ever but looking ahead for the
next 12-months the out look is &#8216;only&#8217; a bottom 13% ordeal. Respondents
may want to rethink that one. The financial situation for this past and
this next 12-months each rate in their respective 12th
percentile. In short the readings really are weak. Unemployment
expectations are &#8216;only up to the 58th percentile
of their range &#8211; elevated, but not by much.RETAIL
The retail readings across EU countries are weakest in the UK,
residing in their bottom 3 range percentile followed by Spain (bottom
13%), Germany (bottom 26%), France (bottom 43%), and Italy (63rd
percentile &#8211; still above its range midpoint). Retailers are not as
downbeat as consumers and that could spell some troubles for them and
for their inventories. Retail orders are put in the bottom 14% of their
range. The expected business situation is only a bottom 38% rating
similar to the present business situation. And maybe the retailers are
just putting up a brave front since their orders are so weak. They may
be planning for something even weaker than what they say they expect&#8230; SERVICES
Service sector reading span the gamut form bad to worst. The
UK and Italy have the worst service sector readings ever. Spain&#8217;s
reading is in the bottom 6% of its range. German is a bottom 25%
reading; for France the reading is a bottom one-third of range reading.
All of theses are weak. For
EMU the overall reading is the worst ever. The business climate is a
bottom 7% affair, but expected demand is worse in the bottom 2% of its
range. Current demand is rated as in only the 16th percentile. Current
and expected employment readings are in the 20th
percentile of their respective ranges, and the reading is lower for
expected unemployment. Things will get worse. Maybe industry workers
are better protected by unions that service sector workers.CONSTRUCTION
The construction sector is the least impacted off all. For
overall sentiment, construction stands in the 49th
percentile of its range. Of course that implies a raw reading of -20.
One issue for construction it that its participants have considered it
sub-par all along. So now the outlook is being impacted construction
respondents are not looking for things to get that much worse. Spain is
an exception having had a boom its current reading; it is a bottom 19th
percentile reading. For the UK the residential property bubble busting
has helped to drag its reading to the 31st
percentile. France and Germany still carry mid range readings at or
above their expected range midpoints. Italy&#8217;s sector has a relatively
strong construction reading in the 60th
percentile.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="12" scope="col"> EU
Sectors and Country level Overall Sentiment</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EU</td>
<td>Oct 
08</td>
<td>Sep 
08</td>
<td>Aug 
08</td>
<td>Jul 
08</td>
<td>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
<td>R-SQ 
w/Overall</td>
</tr>
<tr class="even">
<td class="firstcol">Overall</td>
<td>77.5</td>
<td>84.9</td>
<td>86.7</td>
<td>88.8</td>
<td>9.8</td>
<td>209</td>
<td>116</td>
<td>73</td>
<td>43</td>
<td>99</td>
<td>1.00</td>
</tr>
<tr>
<td class="firstcol">Industrial</td>
<td>-19</td>
<td>-13</td>
<td>-10</td>
<td>-7</td>
<td>23.5</td>
<td>204</td>
<td>7</td>
<td>-27</td>
<td>34</td>
<td>-7</td>
<td>0.86</td>
</tr>
<tr>
<td class="firstcol">Consumer Confidence</td>
<td>-23</td>
<td>-19</td>
<td>-19</td>
<td>-20</td>
<td>13.8</td>
<td>205</td>
<td>2</td>
<td>-27</td>
<td>29</td>
<td>-11</td>
<td>0.83</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>-16</td>
<td>-13</td>
<td>-14</td>
<td>-11</td>
<td>18.5</td>
<td>214</td>
<td>6</td>
<td>-21</td>
<td>27</td>
<td>-6</td>
<td>0.51</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>-25</td>
<td>-20</td>
<td>-18</td>
<td>-17</td>
<td>37.8</td>
<td>150</td>
<td>3</td>
<td>-42</td>
<td>45</td>
<td>-17</td>
<td>0.41</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>-10</td>
<td>-4</td>
<td>-2</td>
<td>0</td>
<td>0.0</td>
<td>145</td>
<td>32</td>
<td>-10</td>
<td>42</td>
<td>16</td>
<td>0.81</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% m/m</td>
<td>
Oct 
08</td>
<td colspan="2">Based on Level</td>
<td colspan="4">Level</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">EMU</td>
<td>-8.1%</td>
<td>-1.1%</td>
<td>-1.1%</td>
<td>80.4</td>
<td>16.8</td>
<td>206</td>
<td>117</td>
<td>73</td>
<td>44</td>
<td>99</td>
<td>0.94</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>-5.1%</td>
<td>-1.4%</td>
<td>-2.7%</td>
<td>88.6</td>
<td>23.5</td>
<td>186</td>
<td>121</td>
<td>79</td>
<td>42</td>
<td>99</td>
<td>0.61</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>-7.0%</td>
<td>-0.6%</td>
<td>-0.1%</td>
<td>86.5</td>
<td>31.6</td>
<td>196</td>
<td>119</td>
<td>72</td>
<td>47</td>
<td>100</td>
<td>0.79</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>-6.9%</td>
<td>0.6%</td>
<td>2.7%</td>
<td>82.1</td>
<td>21.6</td>
<td>206</td>
<td>121</td>
<td>71</td>
<td>50</td>
<td>99</td>
<td>0.78</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>-5.0%</td>
<td>-2.0%</td>
<td>-4.3%</td>
<td>66.1</td>
<td>0.0</td>
<td>220</td>
<td>118</td>
<td>66</td>
<td>52</td>
<td>99</td>
<td>0.62</td>
</tr>
<tr>
<td class="firstcol">Memo: UK</td>
<td>-7.5%</td>
<td>-5.2%</td>
<td>-6.1%</td>
<td>70.4</td>
<td>3.4</td>
<td>219</td>
<td>118</td>
<td>69</td>
<td>50</td>
<td>100</td>
<td>0.42</td>
</tr>
<tr>
<td colspan="12" class="firstcol">Since 1990
except Services (Oct
1996) 247-Count; Services: 145-Count</td>
</tr>
<tr>
<td colspan="12" class="firstcol">Sentiment
is an index, sector
readings are net balance diffusion measures.</td>
</tr>
</tbody>
</table>
</body></html>

The news this month for the EU/EMU region is bad. The EU reading is in the bottom 10% of its range of value. The EMU reading is a bit better, in the bottom 17% of its range. Both are quite weak. The drop in the index is the largest [...]

EU Indices Are Scraping Low Levels: It Will Get Worse…

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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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.

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**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

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

Winnie Tapasanun

260205X15.jpg

260205Y15.jpg

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

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

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

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

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

260205C15.jpg

260205D15.jpg

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

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

Sandy Batten

260205A2.jpg

260205B2.jpg

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

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

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

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

260205C2.jpg

260205D2.jpg

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

U.S. Initial Unemployment Claims Surged in Latest Week

260205E.jpg

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

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

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

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

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

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

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

Economy in Brief

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ISM Index Lowest Since 1982 Recession

ISM Index Lowest Since 1982 Recession

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Michigan Consumer Sentiment Collapsed With The Stock Market & The Opinion of Gov't

U.S. Employment Cost Index Increase Stable During 3Q

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U.S. September Income Rose, Spending Fell: Trend Growth of Both Down

EU Indices Are Scraping Low Levels: It Will Get Worse…