Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090130h.jpg" align="left" border="0" height="265" width="353">
The drop off in Japan&#8217;s industrial production index is now
extraordinary as it has posted a month-to-month drop of nearly double
digits. Over three months Japan&#8217;s IP is plunging at a 58% annual rate.
It is also down by 22.5% Yr/Yr. Transportation output dropped by 14% in
November and its three-month annualized growth rate is -79%.
Intermediate goods are taking the most sever beating in December. But
consumer goods output is off by 7.9% in December. Investment goods
output is dropping by 4.8% in December. There is no safe haven. 
 

Japan has been sliding for some time. But the figures from
overnight are shocking with household spending off and housing stars
off and construction orders plunging. Unemployment has jumped and
Japan&#8217;s manufacturing PMI has dropped for eleven straight months and to
a record low. 
 

Germany, another export dependent country, heard its deputy
finance minister today warn that the hammer blow to exports was
continuing and the domestic economy was getting hit even harder as a
result. The lesson is to be wary of export oriented economies since the
export market is drying up fast, however you define it. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col"> Japan
Industrial Production Trends</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3"> m/m %</td>
<td colspan="3"> Saar %</td>
<td> Yr/Yr</td>
<td> Qtr-2-Date</td>
</tr>
<tr class="odd">
<td class="firstcol"> seas adjusted</td>
<td> Dec-08</td>
<td> Nov-08</td>
<td> Oct-08</td>
<td> 3-mo</td>
<td> 6-mo</td>
<td> 12-mo</td>
<td> Yr-Ago</td>
<td>% AR</td>
</tr>
<tr class="odd">
<td class="firstcol"> mining&amp;MFG</td>
<td> -9.6%</td>
<td> -8.5%</td>
<td> -3.1%</td>
<td> -58.8%</td>
<td> -37.4%</td>
<td> -22.5%</td>
<td>2.3%</td>
<td>-39.8%</td>
</tr>
<tr class="odd">
<td class="firstcol"> Total Industry</td>
<td> -9.2%</td>
<td> -7.9%</td>
<td> -3.4%</td>
<td> -57.4%</td>
<td> -36.2%</td>
<td> -21.7%</td>
<td>2.3%</td>
<td>-39.2%</td>
</tr>
<tr class="odd">
<td class="firstcol"> MFG</td>
<td> -9.6%</td>
<td> -8.5%</td>
<td> -3.2%</td>
<td> -59.0%</td>
<td> -37.5%</td>
<td> -22.5%</td>
<td>2.4%</td>
<td>-39.8%</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; Textiles</td>
<td> -4.4%</td>
<td> -1.5%</td>
<td> -0.2%</td>
<td> -22.3%</td>
<td> -18.7%</td>
<td> -15.7%</td>
<td> -4.3%</td>
<td>-12.7%</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; T-port</td>
<td> -14.3%</td>
<td> -14.3%</td>
<td> -7.4%</td>
<td> -78.6%</td>
<td> -55.3%</td>
<td> -33.9%</td>
<td>5.2%</td>
<td>-59.7%</td>
</tr>
<tr>
<td colspan="9" class="firstcol"> Product Group</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; Consumer
Gds</td>
<td> -7.9%</td>
<td> -6.2%</td>
<td> -2.2%</td>
<td> -49.1%</td>
<td> -28.6%</td>
<td> -16.8%</td>
<td>2.4%</td>
<td>-33.9%</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp;
Intermediate Gds</td>
<td> -12.5%</td>
<td> -8.6%</td>
<td> -4.7%</td>
<td> -66.4%</td>
<td> -44.0%</td>
<td> -26.7%</td>
<td>4.8%</td>
<td>-45.5%</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; Investment
Gds</td>
<td> -4.8%</td>
<td> -9.3%</td>
<td> -2.6%</td>
<td> -50.2%</td>
<td> -31.4%</td>
<td> -19.4%</td>
<td> -2.5%</td>
<td>-31.6%</td>
</tr>
<tr class="odd">
<td class="firstcol"> Miining</td>
<td> -1.4%</td>
<td>7.6%</td>
<td> -7.5%</td>
<td> -7.5%</td>
<td> -1.5%</td>
<td> -3.9%</td>
<td>4.3%</td>
<td>-20.9%</td>
</tr>
<tr class="odd">
<td class="firstcol"> Electric&amp;Gas</td>
<td> -3.8%</td>
<td>0.4%</td>
<td>1.4%</td>
<td> -8.3%</td>
<td> -3.5%</td>
<td> -4.5%</td>
<td>2.4%</td>
<td>-3.4%</td>
</tr>
</tbody>
</table>
</body></html>

The drop off in Japan’s industrial production index is now extraordinary as it has posted a month-to-month drop of nearly double digits. Over three months Japan’s IP is plunging at a 58% annual rate. It is also down by 22.5% Yr/Yr. [...]

Japan Hits The Skids Hard In December

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090130g.jpg" align="left" border="0" height="265" width="353">
The EU sentiment index has fallen to a record low. Most of its
sector readings are on lows as well. Construction, in the lower 13% of
its range, is the strongest sector in relative terms. The sentiment
indices for the major EMU nations and for the UK are on lows as well &#8211;
at the very bottom of their ranges. France is the relative strongest in
only the bottom 5% of its range. Europe is obviously getting clobbered
and the weakness runs across sectors and countries. The EMU overall
sentiment reading fell to 64.9 in Jan from 68.2 in December &#8211; a very
sharp fall at a reading level that is already so low. That is not a
good sign. The pace of the drop in sentiment is not slowing down.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" class="firstcol">EU
Sectors and Country level Overall Sentiment</th>
<th class="firstcol">R-SQ</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">EU</td>
<td>Jan 
09</td>
<td>Dec 
08</td>
<td>Nov 
08</td>
<td>Oct 
08</td>
<td>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
<td>w/ 
Overall</td>
</tr>
<tr class="odd">
<td class="firstcol">Overall</td>
<td>64.9</td>
<td>68.2</td>
<td>75.1</td>
<td>81.1</td>
<td>0.0</td>
<td>220</td>
<td>116</td>
<td>65</td>
<td>51</td>
<td>100</td>
<td>1.00</td>
</tr>
<tr class="odd">
<td class="firstcol">Industrial</td>
<td>-34</td>
<td>-32</td>
<td>-25</td>
<td>-19</td>
<td>0.0</td>
<td>220</td>
<td>7</td>
<td>-34</td>
<td>41</td>
<td>-8</td>
<td>0.85&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Confid</td>
<td>-31</td>
<td>-28</td>
<td>-24</td>
<td>-23</td>
<td>0.0</td>
<td>220</td>
<td>2</td>
<td>-31</td>
<td>33</td>
<td>-11</td>
<td>0.87</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail</td>
<td>-25</td>
<td>-25</td>
<td>-18</td>
<td>-16</td>
<td>0.0</td>
<td>219</td>
<td>6</td>
<td>-25</td>
<td>31</td>
<td>-6</td>
<td>0.61</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>-36</td>
<td>-32</td>
<td>-28</td>
<td>-25</td>
<td>13.3</td>
<td>203</td>
<td>3</td>
<td>-42</td>
<td>45</td>
<td>-17</td>
<td>0.48</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>-28</td>
<td>-23</td>
<td>-18</td>
<td>-10</td>
<td>0.0</td>
<td>145</td>
<td>33</td>
<td>-28</td>
<td>61</td>
<td>15</td>
<td>0.82</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">%m/m</td>
<td>Jan 
09</td>
<td colspan="2">Based on Level</td>
<td colspan="4">Level</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">EMU</td>
<td>-2.1%</td>
<td>-10.2%</td>
<td>-5.7%</td>
<td>68.9</td>
<td>0.0</td>
<td>220</td>
<td>118</td>
<td>69</td>
<td>49</td>
<td>99</td>
<td>0.96</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>-4.0%</td>
<td>-6.4%</td>
<td>-7.0%</td>
<td>74.4</td>
<td>0.0</td>
<td>220</td>
<td>121</td>
<td>74</td>
<td>46</td>
<td>99</td>
<td>0.61</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>-1.2%</td>
<td>-10.6%</td>
<td>-1.8%</td>
<td>74.4</td>
<td>5.2</td>
<td>219</td>
<td>119</td>
<td>72</td>
<td>47</td>
<td>100</td>
<td>0.81</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>-1.4%</td>
<td>-11.7%</td>
<td>-1.4%</td>
<td>71.9</td>
<td>0.0</td>
<td>220</td>
<td>121</td>
<td>72</td>
<td>50</td>
<td>100</td>
<td>0.79</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>3.7%</td>
<td>-7.2%</td>
<td>-3.4%</td>
<td>69.2</td>
<td>5.0</td>
<td>219</td>
<td>117</td>
<td>67</td>
<td>50</td>
<td>100</td>
<td>0.69</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo:UK</td>
<td>-10.9%</td>
<td>-0.6%</td>
<td>-9.9%</td>
<td>60.2</td>
<td>0.0</td>
<td>220</td>
<td>117</td>
<td>60</td>
<td>57</td>
<td>100</td>
<td>0.50</td>
</tr>
<tr class="even">
<td colspan="5" class="firstcol">Since
1990
except Services (Oct
1996)247</td>
<td>-Count</td>
<td>Services:</td>
<td>145</td>
<td>-Count</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</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 EU sentiment index has fallen to a record low. Most of its sector readings are on lows as well. Construction, in the lower 13% of its range, is the strongest sector in relative terms. The sentiment indices for the major EMU [...]

EU Index At Record Low

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090130e.jpg" width="353">
The January consumer sentiment index from the University of Michigan rose slightly for the second month. The 1.8% rise was slightly less than indicated in the mid-month report but it followed an 8.7% increase off the cycle&#39;s low in December. Nevertheless, at 61.2, the latest level was close to the lows for the series which occurred in the severe recessions of 1973-75 and 1980. Moreover, the figure remained down nearly one-quarter from last year. The latest reading about matched Consensus expectations for a reading of 61.9.
During the last ten years there has been a 58% correlation between the level of sentiment and the three-month change in real consumer spending.
The expectations component of consumer sentiment rose moderately. Still, the series was near its lowest since 1990 and close to the low of 1980. Expectations for business conditions during the next year rose somewhat and expectations for conditions during the next five years also ticked up. The expected change in personal finances rose to the highest level since September.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090130f.jpg" width="353">
The current economic conditions index fell after an initial reading that was unchanged from December. The buying conditions index for large household goods fell sharply but the view of current personal finances rose (surprisingly) to the highest level since September. The figure did, however, remain off sharply from the 2007 average.
The opinion of government policy, which apparently influences economic expectations, was about unchanged but off a sharp 28.2% during the last twelve months. Only seven percent of respondents thought that a good job was being done by government and a near-record fifty-one percent thought that a poor job was being done.
Inflation expectations ticked slightly higher to 2.5% during the next year but that remained near the series&#39; low. It was as high as 7.0% in May. The expected inflation rate during the next five years rose off the series&#39; low to 3.7%.
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.

<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">January</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">January y/y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>61.2</td>
<td>60.1</td>
<td>55.3</td>
<td>-21.9%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>66.5</td>
<td>69.5</td>
<td>57.5</td>
<td>-29.6</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>57.8</td>
<td>54.0</td>
<td>53.9</td>
<td>-15.1</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>
</body>
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The January consumer sentiment index from the University of Michigan rose slightly for the second month. The 1.8% rise was slightly less than indicated in the mid-month report but it followed an 8.7% increase off the cycle's low in [...]

Michigan Consumer Sentiment Up Slightly In January, Yet Still Near Series' Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090130c.jpg" width="353">
Weak job markets have held down compensation. For private industry workers, the employment cost index increased by 0.5% during 4Q. The rise eased slightly from the 0.6% 3Q increase and it left costs up 2.9% for the full year. That was down slightly from the 3.1% rise during 2007 and the quarterly gain fell short of Consensus expectations for a 0.7% rise. A notion of weakness in compensation growth was emphasized by the 4Q-to-4Q rate of increase of 2.4%. That was the weakest in the series&#39; history which extends back to 1980.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090130d.jpg" width="353">
The rise in benefit costs was the main cause of the slowdown in overall compensation costs. The quarterly increase slowed to 0.2%, the weakest since early last year. The 2.0% year-to-year rise was near the slowest since 1999. In the goods producing sector benefits ticked up 0.1% (1.5% y/y) and in services they nudged up just 0.2% (2.2% y/y) after a 0.6% 3Q gain.
Health benefit costs rose 3.5% y/y and that was the slowest rate of growth since 1998.
Wage and salary growth of 0.3% was half the rate of increase during 3Q. Wages account for roughly 70% of the compensation index. The 4Q-to-4Q gain of 2.6% clearly was restrained by the weak job market and it was the weakest increase since 2006. Wages in the services industries grew a modest 0.3% and the y/y gain of 2.6% also was the weakest since 2006. Wages in the goods producing industries rose 0.4% (2.8% y/y) and that y/y growth compares to a recent peak of 4.0% in 2000.

<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/@EB/@EB08/@EB08.HTM">ECI - Private Industry Workers</a> (%)</th>
<th scope="col">4Q &#39;08</th>
<th scope="col">3Q &#39;08</th>
<th scope="col">4Q Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Compensation</td>
<td>0.5</td>
<td>0.6</td>
<td>2.4</td>
<td>2.9</td>
<td>3.1</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.3</td>
<td>0.6</td>
<td>2.6</td>
<td>3.0</td>
<td>3.4</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.2</td>
<td>0.5</td>
<td>2.0</td>
<td>2.5</td>
<td>2.4</td>
<td>2.9</td>
</tr>
</tbody>
</table>


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Weak job markets have held down compensation. For private industry workers, the employment cost index increased by 0.5% during 4Q. The rise eased slightly from the 0.6% 3Q increase and it left costs up 2.9% for the full year. That was [...]

U.S. Employment Cost Index Increase Eased Slightly During 4Q; 2008 Gain A Record Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090130a.jpg" width="353">
The current recession in economic activity intensified last quarter. Real GDP contracted at a 3.8% annual rate. Although, the rate of decline was less than the generally expected 5.4%, it was the deepest quarterly drop since the last, sharp recession of 1982. Moreover, a run-up in inventories accounted for the upside surprise to growth and that will have limited staying power if demand remains under pressure.
Real U.S. final sales to domestic purchasers contracted at a 4.9% annual rate after the 2.2% 3Q drop. That was the worst decline since the notably sharp, &quot;credit crunch&quot; recession of 1980 when consumers pocketed their credit cards. Personal consumption expenditures fell a sharp 3.5% (AR) after a like decline during 3Q. Business fixed investment fell off a cliff at a 19.1% annual rate. Residential investment fell at a 23.6% rate. Combined, business plus residential investment declined for the tenth quarter out of the last eleven.
The sharpness of that decline in demand suggests that the strong rate of 4Q inventory accumulation was involuntary. Inventory accumulation added 1.3 percentage points to GDP growth which was the most for one quarter since 2005. The increase then was followed by three consecutive quarters of decumulation or modest accumulation as tight control methods kept inventories under wraps.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090130b.jpg" width="353">
An improved foreign trade deficit added just 0.1 percentage points to 4Q GDP growth, held down by an outsized 19.8% decline in exports. Imports fell at a 15.7% rate with the developing domestic recession.
The estimate of the GDP chain price index fell by 0.1% (AR), the first quarterly decline since 1954. It was a give-back from the a strong 3.9% gain during 3Q. The 4Q drop was led by lower oil prices which pulled down the PCE deflator at a 5.5% annual rate, reversing all of the 3Q increase. The residential investment chain price index fell at an 8.2% annual rate but the business fixed investment price index rose 5.0%, about as it did during 3Q.

<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/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">4Q &#39;08 (Advance)</th>
<th scope="col">3Q &#39;08</th>
<th scope="col">4Q Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>-3.8</td>
<td>-0.5</td>
<td>-0.2</td>
<td>1.3</td>
<td>2.0</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>1.3</td>
<td>0.8</td>
<td>0.1</td>
<td>0.1</td>
<td>-0.4</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-5.1</td>
<td>-1.3</td>
<td>-0.3</td>
<td>1.4</td>
<td>2.4</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">Foreign Trade Effect</td>
<td>0.1</td>
<td>1.1</td>
<td>1.4</td>
<td>1.4</td>
<td>0.6</td>
<td>0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>-4.9</td>
<td>-2.2</td>
<td>-1.5</td>
<td>0.0</td>
<td>1.8</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>-0.1</td>
<td>3.9</td>
<td>1.9</td>
<td>2.2</td>
<td>2.7</td>
<td>3.2</td>
</tr>
</tbody>
</table>


</html>

The current recession in economic activity intensified last quarter. Real GDP contracted at a 3.8% annual rate. Although, the rate of decline was less than the generally expected 5.4%, it was the deepest quarterly drop since the last, [...]

U.S. Recession Intensifies; 3.8% Drop in Real GDP Is Sharpest Since 1982

U.S. Recession Intensifies; 3.8%Drop in Real GDP Is Sharpest Since 1982

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090129e.jpg" width="353">
Last month, sales of new single-family homes fell to their lowest level in the series&#39; history which dates back to 1963. The 14.7% m/m December decline to 331,000 followed a downwardly revised November. December-to-December, new home sales were off by half and down by three-quarters from their peak during July 2005. They fell short of Consensus expectations for 400,000.
December-to-December sales fell hard around the country, down by one-third to one-half.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090129f.jpg" width="353">
The median price for a new single-family home continued to fall hard to $206,500 as homebuilders attempted to move inventory. In fact, that effort has been quite successful and the inventory of unsold homes is down by more than one-quarter during the last year to its lowest level since 2003. In each of the country&#39;s regions, the inventory is down by roughly one-quarter during the last year.
The month&#39;s supply of new homes for sale surged to 12.9, a record.
New Adjustable-Rate Mortgages and the Libor Surprise From the Federal Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/research/commentary/2009/012109.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">US New Homes</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y (%)</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Sales (SAAR, 000s)</td>
<td>331</td>
<td>388</td>
<td>-44.8</td>
<td>479</td>
<td>768</td>
<td>1,049</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Northeast</td>
<td>28</td>
<td>39</td>
<td>&nbsp;-50.0</td>
<td>35</td>
<td>64</td>
<td>64</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>51</td>
<td>54</td>
<td>-31.1</td>
<td>69</td>
<td>118</td>
<td>161</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; South</td>
<td>181</td>
<td>206</td>
<td>-46.0</td>
<td>264</td>
<td>408</td>
<td>559</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>71</td>
<td>89</td>
<td>-47.4</td>
<td>111</td>
<td>178</td>
<td>266</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA, $)</td>
<td>206,500</td>
<td>219,700</td>
<td>-9.3</td>
<td>228,350</td>
<td>243,742</td>
<td>243,067</td>
</tr>
</tbody>
</table>


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Last month, sales of new single-family homes fell to their lowest level in the series' history which dates back to 1963. The 14.7% m/m December decline to 331,000 followed a downwardly revised November. December-to-December, new home [...]

December U.S. New Home Sales Lowest Since 1963

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090129c.jpg" width="353">
The factory sector continued to be hard hit by recession last month. New orders for durable goods fell during December for the fourth month in the last five. The 2.6% drop followed declines of 3.7% in November and 8.5% during October. But since July new orders have plummeted 19.0%, the largest five-month drop since 1975. The December decline far exceeded Consensus expectations for a 2.0% shortfall.
Lower new orders for computers &amp; electronic products led last month&#39;s decline with a 7.2% drop (-10.0% y/y). Orders for just computers &amp; related products were quite weak, down 3.0% for the month and off 19.6% during the last twelve months. New orders for communications equipment also were down by a significant 4.9% (-9.9% y/y).
Severe weakness showed through in other industries. Orders for primary metals fell 6.9% last month and they&#39;re down 28.7% during the last twelve. Machinery orders fell hard for the fourth month in the last five and they are off 18.3% for the year. Electrical equipment bookings actually rose 9.4% last month but they&#39;re down by that amount December-to-December.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090129d.jpg" width="353">
Capital equipment orders fell just 1.1%, but the 23.8% y/y decline reflected a 27.0% y/y drop in orders for nondefense capital goods. That decline was due to the severe weakness in aircraft orders which nearly halved last year. Still, without aircraft, nondefense capital goods orders were down a sharp 11.2% y/y to their lowest level since 2005. During the last ten years there has been an 80% correlation between the y/y change in nondefense capital goods orders and the change 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%.
Reflecting this weakness in new orders was overall shipments of durable goods. They fell 0.7% last month and were down 9.5% for the year. For comparison, industrial production of durable goods fell 12.8% during 2008. During the last ten years there has been an 81% correlation between the twelve-month change in shipments of durable goods and the change in durables industrial production. Less transportation, shipments of durable goods fell 1.4% last month, off 7.0% for the year. 
Lower orders have led inventories to back up. Inventories of manufactured durables rose 0.4% in December and the 7.0% y/y rate of increase has been fairly stable since the summer. That has been accompanied by lower order backlogs which have fallen sharply during the last three months. The year-to-year rise of 3.9% is the weakest since 2005.

<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/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a> (%)</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>-2.6</td>
<td>-3.7</td>
<td>-21.1</td>
<td>-5.6</td>
<td>1.4</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>-3.6</td>
<td>-1.7</td>
<td>-14.0</td>
<td>-1.0</td>
<td>-0.3</td>
<td>9.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>-5.9</td>
<td>-4.6</td>
<td>-27.2</td>
<td>-6.4</td>
<td>3.5</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>-2.8</td>
<td>1.7</td>
<td>-11.2</td>
<td>0.1</td>
<td>-2.7</td>
<td>10.7</td>
</tr>
</tbody>
</table>
</body>
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The factory sector continued to be hard hit by recession last month. New orders for durable goods fell during December for the fourth month in the last five. The 2.6% drop followed declines of 3.7% in November and 8.5% during October. [...]

U.S. Durable Goods Orders Slumped Further

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

Resilient US economy is pushing up longer-term inflation expectations and interest rates

Positive US economic data surprises leading to upward adjustment of interest rate expectations

Recent aggressive policy easing in China has given a massive boost to equity prices

FOMC expects much more easing now than in June

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The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) edged 0.1% higher (-0.4% y/y) during the four weeks ended March 21, 2025. The rate of price improvement, however, slowed considerably from its 1.8% four-week high at the end of February. The level of the index stood at its highest point since the second week of October 2024.

Prices in the Metals group increased 4.3% (11.3% y/y) over the most recent four weeks. Tin prices rose 7.8% (26.5% y/y) in four weeks while lead prices increased 5.6% (0.5% y/y) in four weeks. Steel scrap costs rose 5.0% (-1.6% y/y) in four weeks and copper scrap costs increased 4.8% (10.7% y/y). Zinc prices improved 2.9% in four weeks (17.3% y/y), while aluminum costs edged 0.3% higher (21.0% y/y) in four weeks.

Miscellaneous group prices improved 0.1% during the last four weeks and rose 0.6% y/y. Framing lumber prices jumped 7.5% over the last four weeks and increased 9.1% y/y. The price of natural rubber eased 0.6% (-7.7% y/y) while tallow prices fell 8.3% (+17.9% y/y) in four weeks.

Textile group prices eased 0.4% (-3.7% y/y) during the last four weeks. Burlap costs slipped 0.3% but rose (+13.4% y/y). The cost of cotton fell 2.5% (-27.7% y/y) in the latest four weeks.

Prices in the Crude Oil & Benzene group declined 6.2% (-15.6% y/y) in four weeks. The cost of West Texas Intermediate crude oil slumped 6.2% to $67.37 per barrel and was 17.7% lower y/y. The cost of the petro-chemical benzene, used for making plastics & synthetic fibers, weakened 18.7% (-39.0% y/y) in the last four weeks. Excluding crude oil, the industrial commodity price index rose 0.5% (0.7% y/y) during the last four weeks.

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

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- Metals prices surge.
- Lumber prices strengthen.
- Crude oil costs decline.

FIBER: Industrial Commodity Prices Are Little Changed in Latest Four Weeks

250321E.jpg

The INSEE industry climate index settled lower in March at 95.9, down from 97.0 in February. The index is lower than its year-ago value of 102.1 and since 2001 it has been this low or lower only 7.5% of the time. Despite the sense of some stability in manufacturing in the tabular data for the last year, the chart (of data since 2014) and the table’s own presentation of the queue standing reveals manufacturing to be at a relative weak standing in March.

Manufacturing production expectations have a 34.4 percentile standing but did improve slightly from the February reading of -14.8. The recent trend of production weakens on the month to a lower quartile standing at its 23.7 percentile. The personal likely trend, which is the reading for each respondent gives to the prospects for his own industry, ticked higher in March to a 40.5 percentile standing. That is better than the percentile for industry over all but still below the level that marks the historic median – a standing at the 50th percentile.

Orders and demand as well as foreign orders and demand each weakened. They each have standing at or below their respective 20th percentile around the lower one-fifth of all historic readings. In addition, the March reading for orders and demand are substantially weaker than they were a year ago and the slippage has been worse for foreign orders.

In contrast, inventory level show few changes and are similar to their year-ago readings and close to their historic median.

Prices have moved to lower readings in recent months. However, price trends and level readings are higher than they were a year ago. In terms of rankings, the own likely price trend is at a 61.5 percentile standing, above its historic median while the manufacturing price level has a relatively weak 36.1 percentile standing.

250321.jpg

**INSEE on services**
The services climate readings show a very slight easing in recent months and more significant drop from a year ago. The smoothed data echo a modest ongoing slippage. All the rankings are in their respective lower one-third of historic observations.

The outlook improved to -6 in March from -8 in February. It is unchanged over 12 months. Its historic ranking is at this 44th percentile, modestly below its historic median.

Observed and expected services sales trend weakened in March; both are weaker on balance than one-year ago. And both are weak with historic queue standings that are in their bottom 25-percentiles.

Sales prices strengthened in March to zero. But these are weaker readings than one year ago and yet are queue percentile standings that rank above their historic medians, 66.3 percentile for the observed trend, and 54.6 percentile for the expected trend.

Employment strengthened both as observed and expected in March, but readings are still weaker than one-year ago. And they are below their historic means and medians. Employment ranks in its 28.2 percentile as observed and weaker in its 9.5 percentile as expected.

The chart at the top of this report shows the downtrend in place for both services and manufacturing. While services are stronger on balance and weakening less than manufacturing, both sectors are skidding.

However, European analysis requires some perspective since military spending is ramping up in the wake of the U.S. trying to put more of the burden for European defense on Europe. Germany is stepping up military spending and much of the rest of Europe should follow suit. That should also break European trends up to better performance and away from existing stagnant or deteriorating trends, making past trends less important as determinants of future results. We should begin to see wider separation in surveys like these that give results for the observed trend and the expected trend separately.

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France

INSEE Manufacturing and Services Steady-to-Weaker

Andrew Cates

**US equity markets**
Chart 1 below highlights how the US equity market has historically responded well to positive economic surprises but faltered when growth data disappointed, a trend that has resurfaced in early 2025. Investor concerns have intensified as the Trump administration's policies have raised fears of supply-side constraints and stagflation. The latest downturn in growth surprises suggests the US is losing momentum faster than anticipated, fuelling recession speculation just as policy uncertainty and still-tight monetary conditions weigh on corporate earnings.

250320Z1.jpg

**US capital flows**
Against this backdrop, the US dollar and foreign demand for US financial assets are also in focus. Chart 2 shows a clear (albeit, loose) relationship between movements in Haver’s calculation for the broad nominal effective US exchange rate and net private sales of U.S. domestic securities—with periods of dollar strength coinciding with increased foreign purchases of US assets. However, recent volatility suggests that global investors may be reassessing their appetite for US securities. A stronger dollar, often a symptom of risk aversion, has historically attracted capital inflows, but persistent trade frictions could lead to capital flight if investors begin to question the long-term implications for US economic stability.

250320Z2.jpg

**Global re-balancing**
The trends in chart 3 below highlight one of the fundamental tensions in the global economy: the persistent gap in savings rates between China, Germany, and the United States, which is one reason (alongside relative investment proclivities) for trade and capital flow imbalances. China’s exceptionally high savings rate—consistently above 40% of GDP—reflects its export-driven growth model, where low domestic consumption rates and state-led investment create large external surpluses. Similarly, Germany’s high savings rate, hovering around 30% of GDP, stems from policies that have arguably compressed domestic wages and reinforced a structural reliance on exports. In contrast, the US has maintained a much lower savings rate, historically around 15-20%, reflecting its dependence on domestic consumption and foreign capital inflows to sustain investment. This imbalance has long made the U.S. the "consumer of last resort," absorbing excess savings from surplus economies, a dynamic that President Trump has repeatedly attacked as unfair.

250320Z3.jpg

**Ageing and services**
Tariffs alone may not achieve the US administration’s goals, as they fail to address deeper structural drivers of global trade imbalances. While tariffs make imports more expensive, they do little to alter economic specialization shaped by demographics and domestic structures. The US has a disproportionately large service sector due to its consumption-driven economy, high healthcare spending, and dominant financial services, while China’s remains underdeveloped despite an ageing population, reflecting its investment-heavy model and weaker safety nets (chart 4). This divergence fuels trade imbalances, with the US absorbing demand from surplus economies like China, which prioritizes manufacturing over services. Efforts to rebalance trade through reshoring face resistance from these entrenched models—China’s shift toward a consumption-led economy will take decades, while the US remains dependent on foreign capital. Until these imbalances adjust, trade tensions will persist, with policy struggling to override structural economic forces.

250320Z4.jpg

**Wage inflation in the US and Europe**
According to the latest trackers from the Indeed hiring company wage growth is slowing across major economies, but differences between the US, UK, and Eurozone highlight lingering challenges for central banks and particularly the Bank of England. US wage growth, which peaked at nearly 9% in 2022 amid labour shortages and policy stimulus, has fallen to just around 3%. The Eurozone has followed a similar trend. In contrast, UK wage growth remains close to 6%, thanks to worker shortages, cost-of-living adjustments, and possibly some Brexit frictions, which are posing a greater inflation risk (chart 5).

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**China’s property market**
China’s property market is showing early signs of stabilization, with the Real Estate Climate Index beginning to recover and the pace of house price declines slowing. The price index for existing residential buildings across 70 cities, which had been in steady decline since 2021, is now deflating at a much slower rate, suggesting that policy support is gaining traction. The Real Estate Climate Index has also begun to edge higher, indicating a tentative improvement in market sentiment (chart 6). This turnaround follows a series of government interventions, including interest rate cuts, relaxed mortgage rules, and targeted support for developers. While challenges remain, particularly in restoring broader homebuyer confidence and sustaining demand, the latest data suggest that the worst of the downturn could be over. Whether this recovery can gain momentum will depend on the effectiveness of continued policy easing and whether China’s broader economic environment supports a sustained rebound in real estate investment.

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US equity markets have underperformed relative to global peers in recent weeks, as investor sentiment has deteriorated in response to weaker-than-expected growth data and growing concerns about the Trump administration’s economic policies (chart 1). The administration’s renewed push for tariffs, alongside fiscal expansion and tighter immigration policies, has fuelled stagflation fears, compounding the uncertainty surrounding the Fed’s next steps. This week, the Fed opted to keep its policy rate on hold but acknowledged rising downside risks by revising its GDP growth forecast lower, signalling caution about the economic outlook despite lingering inflation concerns. Foreign capital flows into US assets and their impact on the strong dollar are also showing signs of softening, as trade tensions and policy unpredictability raise questions about long-term US economic stability (chart 2). Meanwhile, global imbalances remain entrenched—China and Germany continue to run high savings rates, while the US remains structurally dependent on external capital to finance its deficits (chart 3). Trump’s efforts to rebalance trade through protectionist measures may struggle to overcome these deeper economic realities, particularly as demographic trends reinforce the service-oriented nature of the US economy and constrain China’s transition to a consumption-driven model (chart 4). Other central banks are also caught in this evolving landscape—wage growth is slowing in Europe, but lingering inflation risks suggest that rate-cutting cycles could remain uneven (chart 5). For China, where the property market downturn has been a major drag on growth, recent policy measures have offered signs of stabilization, but the road to recovery also remains uncertain (chart 6). With the US economy at risk of slowing more sharply than anticipated, central bank policies finely balanced, and China’s long-term growth trajectory still in question, the coming months could prove pivotal in determining whether global financial markets find their footing or remain mired in volatility.

<iframe style="border-radius:12px" src="https://open.spotify.com/embed/episode/5q9SqtKge2d5HnkyvzebNE?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

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Charts of the Week: Reversal of Fortunes

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Existing home sales increased 4.2% (-1.2% y/y) during February to 4.26 million (SAAR) and recovered a 4.7% January decline to a little-revised 4.09 million units, according to the National Association of Realtors (NAR). The Action Economics Forecast Survey expected 3.96 million unit sales. The February sales increase accompanied an easing in the effective 30-year mortgage interest rate to an average 6.84% in February from 6.96% in January. The sales figures are based on closings of sales signed over the past couple of months.

Existing single-family home sales in February rose 5.7% (-0.3% y/y) to 3.89 million units after a 5.2% decline to 3.68 million in January. Sales of condos and co-ops fell 9.8% both m/m and y/y to 370,000 following no change in January sales of 410,000.

Sales patterns varied regionally in February. Sales in the West recovered 13.3%, (unchanged y/y) to 850,000, reversing a 7.4% January decline. Sales in the South rose 4.4% (-4.0% y/y) to 1.91 million after a 6.2% January decline. Sales in the Northeast fell 2.0% (+4.2% y/y) to 500,000 following a 3.8% January decline. Sales in the Midwest were unchanged m/m (+1.0% y/y) at one million units in February where they’ve been for four straight months.

The median price averaged by all existing homes (NSA) rose 1.3% (3.8% y/y) to $398,400 in February after a 2.6% January decline. Prices remained below a high of $426,900 in June 2024. The median price of an existing single-family home rose 1.1% (3.7% y/y) to $402,500 in February and the median price of condos and co-ops increased 1.1% (3.5% y/y) to $355,100 last month. Prices fell 2.4% (+5.8% y/y) in the Midwest to $295,500. In the South, prices rose 2.2% (1.9% y/y) to $358,800. Prices in the Northeast prices declined 2.8% (+10.4% y/y) to $464,300 while in the West prices rose 0.9% (3.6% y/y) to $614,600.

The number of existing homes for sale (NSA) rose 5.1% (17.0% y/y) to 1.24 million units in February following a 3.5% January increase. The supply of homes on the market at the current selling rate (NSA) held steady at 3.5 months. A high of 4.2 months occurred in September 2024. The record low in supply of 1.6 months occurred in January 2022.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. Mortgage interest rates can be found in the **WEEKLY** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

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- Sales remain up from September low.
- Sales patterns vary from state-to-state.
- Median sales price recovers m/m.

U.S. Existing Home Sales Rebound in February

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The U.S. current account deficit narrowed in Q4’24 to $303.9 billion from a record $310.3 billion in Q3, revised from $310.9 billion. The series dates back to 1960. The Action Economics Forecast Survey expected the deficit to widen to $336.6 billion in Q4. The Q4 deficit was 4.1% of GDP versus 4.2% in Q3.

The goods trade deficit widened to $326.1 billion in Q4 from $309.6 billion in Q3. Goods exports declined 2.0% (1.0% y/y) after rising 2.6% in Q3, reflecting declines in capital goods, autos and nonauto consumer goods. Goods imports rose 0.7% (8.6% y/y), reflecting sharp increases in food & nonauto consumer goods. Imports of capital goods & autos declined.

The services surplus increased to $76.1 billion in Q4 from $73.2 billion in Q3. Exports of services increased 2.7% (9.0% y/y) after rising 2.6%, reflecting increases in transport services, travel and financial services. Imports of services rose 2.3% (9.5% y/y), reflecting higher transport, insurance and travel services.

The primary income balance returned to positive territory ($2.3 billion). Primary income receipts increased $18.6 billion while primary income payments rose $2.4 billion. Primary income includes investment income and compensation of employees. The secondary income deficit also shrank to $56.2 billion from $60.1 billion.

Balance of Payments data are in Haver’s **USINT** database, with summaries available in **USECON**. The expectations figure is in the **AS1REPNA** database.

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- Goods deficit widens to nearly largest in three years. Services surplus increases to largest in five years.
- Balance on primary income returns to positive territory.
- Secondary income balance turns slightly less negative.

Economy in Brief: January 2009

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