Robert Brusca

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Unemployment rates in April in the European Monetary Union continue to rise, as the overall EMU rate is moving up to 12.2% in April from 12.1% in March. The March rate was steady at the same pace as in February. Over three months the EMU unemployment rate is up by 0.2%; over six months it's up by 0.5%; over 12-months it's up by 1.0%. By comparison with the Economic Union which contains the same EMU countries plus some that are not part of the exchange rate mechanism, the increases in unemployment over those horizons were lower in each case.

Of the 11 European countries named in the table six saw increases in their unemployment rates month-to-month in April only one of them, Ireland saw a decrease. Over three months eight of these countries have net increases in their rates of unemployment, again, Ireland is an exception with a sizable drop of 0.3 percentage points. Over six months all European countries the table show unemployment rate increases except Germany which is flat and Ireland the unemployment rate is down by 1%. Over 12 months we see that familiar pattern with all countries having a higher unemployment rate except Ireland where the rate falls by 1.4% in Germany with the rate tics down by 0.1%. Ireland has been the exception with a declining unemployment rate over the last year on a consistent basis although its rate of unemployment is still high: it has the third highest unemployment rate in the table despite its recent dropping trend. During this period when the European unemployment rates have risen, Germany's rate has been for the most part flat with one small net decline over 12 months. 

When we compare the European countries in the table to the United States and Japan we see that the US rate has been falling rather consistently and even Japan has been able to reduce its rate which is extremely low by European standards. Moving to the bottom of the table, where the unemployment data lag for the UK and Greece, we see that Greek unemployment has continued to rise although data are only available through February. We also see that the UK, which is an EU member not in the EMU currency mechanism, has its unemployment rate net lower over six months and net lower by 0.5% over 12-months.

While European inflation has been modest and generally declining, in the current month there's been a slight increase in inflation for the European monetary zone as a whole. There is also evidence that bad weather may have been a factor at least in the German economy where retail sales have declined for the third consecutive month in the midst of extreme winter weather that has been unseasonably cold and rainy. Europe's growth indicator the euro coin index for May has dropped for the first time in nine months; it had last fallen in August 2012.

With Eurozone unemployment moving up to a new record we more easily understand why several European countries were the given a little bit more time to reach their austerity goals. And in data released today we see that Spain's current account has shifted into surplus in March on the back of imports which fell 13.5% and exports that backed off only slightly. So this is progress? A surplus is 'bought' at the cost of throttling growth? Economic activity in the Zone continues to be adversely impacted by austerity and when we compare the European Monetary Union countries to the Economic Union members who not currency union members, we see that the monetary union members having more trouble as they are burdened by the corset of the common currency. Also the US and Japan, that, of course, have different circumstances and independent monetary policies are doing generally much better than the European Monetary Union in their ability to reduce their unemployment rates.

Still unemployment is a thorny problem in this global economy where virtually all countries participated in the same world war are undergoing the same demographic developments. Technology that has brought labor saving methods to the market is adding its depressing effect to employment growth at the same time that the expansion of growth and export behavior in some key and very large developing economies has displaced labor in the developed countries of the West. 

It's a time that would normally call for more vigor and growth but instead policymakers in the West did not position themselves well for this shock and it hit them while they were in a position of excess of debt. The decision to try to reduce debt in the midst of these pressures rather than to try to string along growth is one of the main factors that's behind the ongoing grind and rise in unemployment rates around the world. Supply can simply be generated with much greater facility and with less labor in this modern economy at a time that demand has been forcibly restricted by policy. The work around which has been the keep fiscal policy tight while stimulating monetary policy has been a little bit like putting your foot on the brake at the same time you put the other on the accelerator there has been a whole lot of noise but not a lot happened, by excesses are building and you really don't want to keep doing this. So far there is not much evidence that that's changing.


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Unemployment rates in April in the European Monetary Union continue to rise, as the overall EMU rate is moving up to 12.2% in April from 12.1% in March. The March rate was steady at the same pace as in February. Over three months the [...]

EMU Unemployment Continues to Rise

Tom Moeller

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Consumers are feeling better about today's economy and its prospects. The
University of Michigan's Index of Consumer Sentiment for May improved to 84.5
(6.6% y/y), the highest level since July 2007. It compared to the consensus
forecast for 83.8 and a mid-month reading of 83.7. During the last ten years,
there has been a 60% correlation between the level of sentiment and the
three-month change in real personal consumption expenditures.
This month's reading of current economic conditions increased 9.0% (12.4%
y/y) to 98.0, the highest figure since July 2007. The consumer expectations
figure improved 11.8% (2.0% y/y) to 75.8.
The Reuters/University of Michigan survey data are not seasonally adjusted.
The readings are based on telephone interviews with over 300 households. Data
can be found in Haver's USECON database. The expectations figure is from
Action Economics and can be found in Haver's AS1REPNA database.
Piggy Banks from the Federal Reserve Bank of New York is available
<a href="http://libertystreeteconomics.newyorkfed.org/2013/05/piggy-banks.html">here</a>.


<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th class="firstcol" scope="col" >University of Michigan (Q1'66
 = 100)</th>
 <th scope="col" >May</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Mar</th>
 <th scope="col" >May'12</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Consumer Sentiment</td>
 <td >84.5</td>
 <td >76.4</td>
 <td >78.6</td>
 <td >79.3</td>
 <td >76.5</td>
 <td >67.3</td>
 <td >71.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Current Economic Conditions</td>
 <td >98.0</td>
 <td >89.9</td>
 <td >90.7</td>
 <td >87.2</td>
 <td >85.6</td>
 <td >79.1</td>
 <td >80.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Consumer Expectations</td>
 <td >75.8</td>
 <td >67.8</td>
 <td >70.8</td>
 <td >74.3</td>
 <td >70.7</td>
 <td >59.8</td>
 <td >66.0</td>
 </tr>
 </tbody>
</table>


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Consumers are feeling better about today's economy and its prospects. The University of Michigan's Index of Consumer Sentiment for May improved to 84.5 (6.6% y/y), the highest level since July 2007. It compared to the consensus [...]

U.S. Consumer Sentiment Continues To Improve

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 Personal income moved marginally lower during April (2.8% y/y) following
 a 0.3% March advance, initially reported as 0.2%. The income figure fell
 short of consensus expectations for a 0.2% increase. No change in wages
 and salaries (3.2% y/y) followed a 0.2% increase. Rental income ticked up
 0.1% (14.7% y/y) but proprietors income reversed earlier strength and fell
 0.7% (+6.2% y/y). Dividend income remained firm with a 1.0% rise (8.4%
 y/y). A 0.5% advance (-0.5% y/y) in interest income followed three
 consecutive months of 0.9% decline. Transfer receipts were off 0.6% (+2.7%
 y/y). Notable was the 3.0% drop (-30.8% y/y) in jobless insurance benefits.
 A 0.2% decline (+2.8% y/y) in personal consumption expenditures
 followed March's 0.1% uptick. No change in spending was expected. Lower
 prices prompted an 8.4% decline (-10.6% y/y) in spending on gasoline.
 Consumers took the money and spent it on clothing, up 1.0% (4.0% y/y), and
 furniture &amp; appliances, up 0.7% (4.6% y/y). Motor vehicle expenditures
 slipped marginally (+8.5% y/y), off for the third consecutive month.
 Services spending ticked up 0.1% (3.2% y/y), bolstered by a 0.9% jump (5.5%
 y/y) in outlays at restaurants &amp; hotels.
 The personal savings rate held stable at a low 2.5%. The level
 remained well below the 3.5% rate 12 months ago and the 4.0%-to-5.5%
 averages of the prior four years.
 The PCE chain price index declined 0.3% (+0.7% y/y) pulled lower
 by a 7.7% drop (-8.0% y/y) in gasoline &amp; energy prices. Elsewhere,
 durable goods prices fell 0.3% (-1.8% y/y) while apparel prices were off
 the same 0.3% (+0.3% y/y). Food prices ticked up another 0.1% (1.1% y/y)
 while services prices also inched up 0.1% (1.7% y/y). The price index
 excluding food &amp; energy was unchanged (1.1% y/y). &nbsp;
 Adjusted for price changes,&nbsp;disposable income during April ticked
 up 0.1% (1.0% y/y) while real spending also inched up 0.1% (2.1% y/y).
 The personal income &amp; consumption figures are available in Haver's USECON
 and USNA databases. The consensus expectation figure is in the AS1REPNA
 database.
 Estimating the Trend Rate of Economic Growth Using the CFNAI
 from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2013/cfljune2013_311.pdf">here</a>.

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 &nbsp;


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 <thead>
 <tr>
 <th class="firstcol" scope="col" >Personal Income &amp;
 Outlays (%)</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Mar</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Y/Y</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Personal Income</td>
 <td >-0.0</td>
 <td >0.3</td>
 <td >1.2</td>
 <td >2.8</td>
 <td >3.5</td>
 <td >5.1</td>
 <td >3.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Wages &amp; Salaries</td>
 <td >0.0</td>
 <td >0.2</td>
 <td >0.7</td>
 <td >3.2</td>
 <td >3.3</td>
 <td >4.0</td>
 <td >2.1</td>
 </tr>
 <tr>
 <td class="firstcol" >Disposable Personal Income</td>
 <td >-0.1</td>
 <td >0.2</td>
 <td >1.2</td>
 <td >1.7</td>
 <td >3.3</td>
 <td >3.8</td>
 <td >3.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Personal Consumption Expenditures</td>
 <td >-0.2</td>
 <td >0.1</td>
 <td >0.8</td>
 <td >2.8</td>
 <td >3.7</td>
 <td >5.0</td>
 <td >3.8</td>
 </tr>
 <tr>
 <td class="firstcol" >Personal Saving Rate</td>
 <td >2.5</td>
 <td >2.5</td>
 <td >2.4</td>
 <td >3.5 
 (Apr'12)</td>
 <td >3.9</td>
 <td >14.2</td>
 <td >5.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >PCE Chain Price Index</td>
 <td >-0.3</td>
 <td >-0.1</td>
 <td >0.4</td>
 <td >0.7</td>
 <td >1.7</td>
 <td >2.4</td>
 <td >1.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Less Food &amp; Energy</td>
 <td >0.0</td>
 <td >0.1</td>
 <td >0.1</td>
 <td >1.1</td>
 <td >1.7</td>
 <td >1.4</td>
 <td >1.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Real Disposable Income</td>
 <td >0.1</td>
 <td >0.3</td>
 <td >0.8</td>
 <td >1.0</td>
 <td >1.5</td>
 <td >1.3</td>
 <td >1.8</td>
 </tr>
 <tr>
 <td class="firstcol" >Real Personal Consumption
 Expenditures</td>
 <td >0.1</td>
 <td >0.2</td>
 <td >0.4</td>
 <td >2.1</td>
 <td >1.9</td>
 <td >2.5</td>
 <td >1.8</td>
 </tr>
 </tbody>
 </table>



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Personal income moved marginally lower during April (2.8% y/y) following a 0.3% March advance, initially reported as 0.2%. The income figure fell short of consensus expectations for a 0.2% increase. No change in wages and salaries [...]

U.S. Personal Income, Spending and Prices Fall; Savings Remain Lean

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 Progress, yes...but not much 
 
 
 
 

 
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The indices of sentiment and confidence in the EU area, for the Monetary Union sub-set, as well as for their key individual members, showed surprising resilience and strength in May. The overall EU index rose as the sentiment index for 10 of 11 key EU members improved month-to-month. This improvement followed a month in which seven of the same members reported month-to-month declines. In the previous month of March, 5 of them had reported declines.

Is it always good to remind people that one month does not determine a trend, however, the rebound of these sentiment indices for 10 out of 11 key countries as well as for the EU as a whole and for the Monetary Union is a good start to something better.

Still, once we evaluate where things sit, the answer is that the readings for the economic union the monetary union and these key 11 countries are still unfailingly week - even after the rebound in May. 

We evaluate the standing of the respective EU diffusion metrics in May by placing the current reading for each region or country in an ordered queue of its historic data then expressing that standing is a percentile positioning in the queue. For example, the EU index is in the 12 percentile of its queue. That means it is weaker historically than its current level only 12% of the time. The EMU metric for sentiment is in the 11.4 percentile of its queue, its weaker only 11.4% of the time. Of course, the ranking for the union is a weighted average of its various economies but with the overall index being weighted separately. Right now, for example, it appears that the EMU index is weaker than most of the members that carry the largest weight in the euro-Zone itself. How could that happen? The answer is that it's not just the weakness of the components in the EMU index that gives it its ranking but also the coincidence of all of that weakness happening together and it's the coincident occurrence of weakness that is responsible for the lower standing of the region than for most of its members

The weakest queue standing among these key 10 EMU members is from France which is in the 9.3 percentile of its queue followed by Spain in the 10.2 percentile of its queue. After those two relatively large EMU members the percentile standings move up to 12.9 for Belgium, to 14.1 for the Netherlands, to 15.0 for Portugal, and to 16.8 for Austria and so on. Germany, of course, is that the top of the food chain with the 35.6 percentile standing but note this is still pretty close to the bottom third of its range and it's the best of the lot and Germany is the largest economy in EMU.
The Industrial sector 
The industrial sector improved in the monetary union to a reading of -13 from reading of -14 (note that the values in the table by industry sector are for all of the EU not for the EMU). The queue standings for industry find Germany at the strongest reading at 40.7 percentile, Italy at the 13.8 percentile, France at the 18.6 percentile all expressed as percentile standings of their their respective queues. We also look at them in terms of changes of the last three months the German reading has deteriorated by four points, the French reading has deteriorated by three points, the Italian reading is unchanged, and the Spanish reading is down by one point. The overall EMU reading is weaker by two points. So the improvement that were seeing in industrial sector is mostly from very weak levels in April as we are still for the most part below the levels we saw in February. This is a common them for most categories this month...a minor one month bounce.
Consumer Confidence 
Consumer confidence in EMU continues to be uniformly low. In the EMU region it's in the bottom 15 percentile of its queue standing. There was no improvement in consumer confidence month-to-month, although April had showed improvement from March which was even with its value in February. Unemployment expectations have been steadily dropping they are still quite high in the top 22nd percent of their historic queue (expectations are higher only 22% of the time). And by country Germany continues to be the strongest with a decent consumer rating in the 64th percentile of its historic queue, nearly a top one-third reading. The EU's UK has a 20%-of-queue rating, while France's standing is in the bottom 12% of its queue and Spain is in the bottom 11.6% of its queue. 
Retailing: retail therapy? 
Retailing improved in the month in EMU to a -17 net reading from -18 reading in April but it is still below its -16 reading for February. The queue standing for the May reading of -17 is in the 17 percentile of its historic queue, a very weak standing. Germany has the highest queue standing on this metric in the 66.8 percentile or top one-third reading. the UK moves up to a more respectable 42nd percentile standing with Greece (Greece!) at a 34th percentile standing. Spain is at a 29th percentile and Italy at about 30th percentile all of these are relatively better than what we see for other components although clearly (except for the UK and Germany) all of these are still bottom one third of their queue standings which we have to regard as very weak. We do however see strong improvements from their February levels: Greece is at a -15 compared with a -33 raw-reading in February, Portugal which is at a -15 reading compared with a -20 raw reading in February, and even Italy, at a -22 compared with a -28 raw- reading in February. We are seeing improvement in retailing in the countries that have been the most hard-hit by austerity.
Services sector 
The services metric for EMU improved to -9 in May from -11 in April that -9 reading stands at its February level as well. There were month-to-month improvements in Germany, in Italy, and in Portugal; a sharp improvement in the UK and Greece. But the ranking of the services index for EMU in May is in the lower 12 percentile of its historic queue. Generally the services readings by country are slightly better than for other components, except for retailing. Interestingly, the UK has the highest percentile standing in the 33.5th percentile compared to Germany which is second at the 32nd percentile Greece is in the 29th percentile, Spain in the 20th percentile, Italy in the 13th percentile, Portugal in the 10th percentile and France, which was unchanged on the month stands in the lower 5th percentile of its historic queue, an extremely weak reading. 
Construction 
The construction sector in EMU ranks in the 17 percentile of its historic queue unlike the other measures it fell in May to a -34 reading to a -32 reading and it's below its February reading. By country Germany is exceptionally strong in the top 1% of its historic queue for the construction sector! Italy's reading is basically tied with the UK in the 37th percentile of their respective queues. France's reading stands in the 28th percentile of its queue. And Spain that has had an absolute construction disaster has fallen below 1% of its historic queue for the construction sector.
Employment expectations...generally 
Employment expectations up-and-down the Zone's sectors whether measured in the current environment or for expectations - cut and presented many different ways - are generally ranking from the 30th to the 13th percentile of their respective historic queues. The exception is for industry where employment expectations are in the 43rd percentile which is still not a good reading but it's by far the best of the lot. From the consumer sentiment report unemployment expectations are, as mentioned earlier, in the top 22% of their historic queue.
Summing up 
The picture for EMU this month is of a region that is slightly better than it was in the last month or two but still generally worse than it was three months ago. While, there is a rather broad-based bounce recorded in May, we need to be careful about getting too carried away about what that signal really means. It certainly is too soon to say we turned the corner and to try to extrapolate trends. If you look at the chart at the top and try to block out particular calculations for particular months, most of the lines on the chart appear to have moved up from their lowest points of this cycle. For some, like France, it's a one month move. For most of the rest it's a multi month move but on a very shallow gradient. That shallow gradient means that the signal is not strong. It also indicates ongoing vulnerability. 

Away from the sheer numbers we continue to hear divisive language out of leaders from the various countries in the monetary union. France, Spain, Poland, Portugal, the Netherlands and Slovenia are all being given more time to complete their austerity plans by the EU. We can be hopeful that the worst of this might be behind us, but it would be foolish to expect to see improvement at anything other than a very slow pace at least based on the momentum that we see in this report. 

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The indices of sentiment and confidence in the EU area, for the Monetary Union sub-set, as well as for their key individual members, showed surprising resilience and strength in May. The overall EU index rose as the sentiment index [...]

EU Indices largely improve in May.

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 According to the National Association of Realtors (NAR), pending sales
 of single-family homes during April ticked up 0.3% (10.3% y/y) after a
 1.5% gain during March. The latest level was the highest since April 2010.
 The sales rebound since the removal in 2010 of the home buyers tax credit
 has raised home sales by more than one-third from the low.
 Last month's sales gain again reflected mixed performance around the
 country. Sales in the Northeast rose 11.5% (17.7% y/y) to a three-year high.
 Sales in the Midwest gained 3.2% (15.0% y/y) to the highest level of the
 economic expansion. To the downside, sales in the West plummeted 7.6% (-2.7%
 y/y) while sales in the South were down 1.1% (+12.2% y/y).
 Pending home sales figures are analogous to the new home sales
 data from the Commerce Department in that they measure existing home sales
 when the sales contract is signed, not at the time the sale is closed. The
 series dates back to 2001 and the data are available in Haver's PREALTOR database.&nbsp;
 

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 &nbsp;


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	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th class="firstcol" scope="col" >Pending Home Sales
 (2001=100)</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Mar</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >106.0</td>
 <td >105.7</td>
 <td >104.1</td>
 <td >10.3</td>
 <td >100.3</td>
 <td >90.2</td>
 <td >89.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Northeast</td>
 <td >92.3</td>
 <td >82.8</td>
 <td >82.8</td>
 <td >17.7</td>
 <td >79.1</td>
 <td >67.9</td>
 <td >70.9</td>
 </tr>
 <tr>
 <td class="firstcol" >Midwest</td>
 <td >107.1</td>
 <td >103.8</td>
 <td >103.5</td>
 <td >15.0</td>
 <td >95.9</td>
 <td >81.5</td>
 <td >79.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >South</td>
 <td >119.2</td>
 <td >120.5</td>
 <td >116.9</td>
 <td >12.2</td>
 <td >110.7</td>
 <td >98.3</td>
 <td >97.0</td>
 </tr>
 <tr>
 <td class="firstcol" >West</td>
 <td >94.6</td>
 <td >102.4</td>
 <td >101.4</td>
 <td >-2.7</td>
 <td >105.0</td>
 <td >104.1</td>
 <td >100.7</td>
 </tr>
 </tbody>
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According to the National Association of Realtors (NAR), pending sales of single-family homes during April ticked up 0.3% (10.3% y/y) after a 1.5% gain during March. The latest level was the highest since April 2010. The sales rebound [...]

U.S. Pending Home Sales Reach a New High

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 Initial unemployment insurance claims increased to 354,000 (-7.3%
 y/y) during the week ended May 25 from a revised 344,000, initially
 reported as 340,000. Consensus expectations were for 340,000 claims. The
 four week moving average of claims rose to 347,250 from 340,500. During
 the last ten years, there has been a 74% correlation between the level
 of claims and the m/m change in nonfarm payrolls.
 Continuing claims for unemployment insurance in the week ended May 18
 increased to 2.986M (-9.0% y/y) from the low of 2.923M. The four week
 moving average of continuing claims fell to a cycle-low of&nbsp; 2.987M.
 The insured rate of unemployment held at 2.3% where it's been for six
 weeks. This particular count covers only &quot;regular&quot; programs
 and does not include all extended benefit and other specialized jobless
 insurance programs. In the week of May 11, the latest figure available,
 the grand total of all benefit recipients ticked up w/w to 4.579M, (-25.4%
 y/y. That compares to a cycle peak of 12.060M in January 2010. The
 number of individuals who are collecting emergency and extended payments
 fell to a new low of 1.727 million (-34.1% y/y).
 By state, the insured unemployment rate continued to vary
 greatly with Nebraska (1.04%), Louisiana (1.13%), Virginia (1.22%),
 Texas (1.48%), Florida (1.53%), Tennessee (1.55%), South Carolina (1.67%)
 and Ohio (1.77%) at the low end of the range. At the high end were
 Michigan (2.10%), Maryland (2.29%), New York (2.52%), Illinois (2.67%),
 Wisconsin (2.62%), (Nevada 2.85%), California (2.89%) and New Jersey
 (3.15%).
 Data on weekly unemployment insurance are contained in Haver's WEEKLY
 database and they are summarized monthly in USECON. Data for
 individual states are in REGIONW. The consensus estimates come
 from the Action Economics survey, carried in the AS1REPNA
 database.&nbsp;&nbsp;
 

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 &nbsp;


<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th class="firstcol" scope="col" >Unemployment
 Insurance (000s)</th>
 <th scope="col" >05/25/13</th>
 <th scope="col" >05/18/13</th>
 <th scope="col" >05/11/13</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Initial Claims</td>
 <td>354</td>
 <td>344</td>
 <td>363</td>
 <td>-7.3</td>
 <td>375</td>
 <td>409</td>
 <td>459</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Continuing Claims</td>
 <td>--</td>
 <td>2,986</td>
 <td>2,923</td>
 <td>-9.0</td>
 <td>3,318</td>
 <td>3,744</td>
 <td>4,544</td>
 </tr>
 <tr>
 <td class="firstcol" >Insured Unemployment Rate (%)</td>
 <td>--</td>
 <td>2.3</td>
 <td>2.3</td>
 <td>2.6 
 (5/12)</td>
 <td>2.6</td>
 <td>3.0</td>
 <td>3.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Total &quot;All Programs&quot;
 (NSA)</td>
 <td>--</td>
 <td>--</td>
 <td>4.579M</td>
 <td>-25.4</td>
 <td>6.047M</td>
 <td>7.750M</td>
 <td>9.850M</td>
 </tr>
 </tbody>
 </table>
 
</body>
</html>

Initial unemployment insurance claims increased to 354,000 (-7.3% y/y) during the week ended May 25 from a revised 344,000, initially reported as 340,000. Consensus expectations were for 340,000 claims. The four week moving average of [...]

U.S. Initial Claims for Unemployment Insurance Unexpectedly Notch Higher

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 Real GDP growth for last quarter was marginally
 revised to 2.4% (1.8% y/y) from the advance estimate of a 2.5% rise.
 Nevertheless, growth still improved from 0.4% at the end of the year.
 Expectations were for a 2.5% gain. Fewer military outlays and a smaller
 deterioration in the foreign trade account&nbsp; restrained growth last
 quarter. Inventory rebuilding, consumer spending and residential
 investment were firm. The increase in the GDP chain price index also was
 little-revised at a modest 1.1% (1.6% y/y).
 Posted for the first time, after tax corporate
 profits fell 2.0% (+4.0% y/y) following a 1.8% Q4 rise. The decline
 reflected weakness across sectors. Rest of world profits fell 7.3% (+4.1%
 y/y), domestic nonfinancial earnings were off 0.8% (+2.8% y/y) while
 earnings in the financial sector slipped 0.4% (+5.3% y/y).&nbsp;&nbsp; 
 The effect on GDP growth from inventory
 rebuilding was lessened to 0.6 percentage points from 1.0 points. This
 still did not recoup the 1.5 point subtraction during Q4. Trade deficit
 deterioration, however, lowered growth by a reduced 0.2 percentage points.
 It occurred as imports rose at an easier 1.9% rate (-0.1% y/y) while
 exports rose at a 0.8% rate (1.1% y/y), also lessened from the initial
 tally.

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 Final sales to domestic purchasers grew at an unrevised 1.9% rate (1.7%
 y/y). The advance continued to be held back by a 4.9% decline (-2.3% y/y)
 in government purchases. This drop reflected a 12.1% shortfall (-6.3% y/y)
 in national defense spending. It was accompanied by a deepened 2.4%
 decline (-1.2% y/y) in state &amp; local government outlays.&nbsp; 
 Growth in final sales to private domestic purchasers was unrevised at a
 firm 3.3% (2.6% y/y). That followed Q4's 3.6% increase. Consumer spending
 rose at a firmed 3.4% rate (2.1% y/y) led by a lessened 9.1% advance (7.3%
 y/y) in motor vehicle purchases. Consumption of home furnishings growth,
 however, was raised to 5.2% (3.6% y/y) while apparel consumption increased
 a little-changed 1.7% rate (0.1% y/y). Residential investment growth
 continued strong at a slightly-lessened 12.0% rate (12.8% y/y). Business
 fixed investment growth remained easier at 2.2% (4.1% y/y) following a
 13.1% rise during Q4.&nbsp;&nbsp;
 The GDP chain price index grew at a modest and marginally-changed 1.1%
 rate (1.6% y/y). That followed a 1.0% Q4 rise. This modest gain was
 largely influenced by a 1.0% increase (1.2% y/y) in the PCE price index,
 held back by lower energy prices. A firmed 6.7% rise (3.5% y/y) in the
 residential price index was countered by an unchanged 0.6% uptick (1.0%
 y/y) in the business fixed investment price index.&nbsp;
 The latest GDP figures can be found in Haver's USECON and USNA
 databases; USNA contains basically all of the Bureau of Economic
 Analysis' detail on the national accounts, including the new integrated
 economics accounts and the recently added GDP data for U.S. Territories.
 The Consensus estimates can be found in AS1REPNA.&nbsp;
 
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 <table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
	
	
 <thead>
 <tr>
 <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM" ;>Chained
 2005 $, %, AR</a></th>
 <th scope="col" >Q1'13 (2nd Estimate)</th>
 <th scope="col" >Q1'13 (Advance)</th>
 <th scope="col" >Q4'12</th>
 <th scope="col" >Q3'12</th>
 <th scope="col" >Q1 Y/Y</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Gross Domestic Product</td>
 <td >2.4</td>
 <td >2.5</td>
 <td >0.4</td>
 <td >3.1</td>
 <td >1.8</td>
 <td >2.2</td>
 <td >1.8</td>
 <td >2.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Inventory Effect</td>
 <td >0.6</td>
 <td >1.0</td>
 <td >-1.5</td>
 <td >0.7</td>
 <td >-0.1</td>
 <td >0.2</td>
 <td >-0.2</td>
 <td >1.5</td>
 </tr>
 <tr>
 <td class="firstcol" >Final Sales</td>
 <td >1.8</td>
 <td >1.5</td>
 <td >1.9</td>
 <td >2.4</td>
 <td >1.9</td>
 <td >2.1</td>
 <td >2.0</td>
 <td >0.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Foreign Trade Effect</td>
 <td >-0.2</td>
 <td >-0.5</td>
 <td >0.3</td>
 <td >0.4</td>
 <td >0.2</td>
 <td >0.1</td>
 <td >0.2</td>
 <td >-0.4</td>
 </tr>
 <tr>
 <td class="firstcol" >Domestic Final Sales</td>
 <td >1.9</td>
 <td >1.9</td>
 <td >1.5</td>
 <td >1.9</td>
 <td >1.7</td>
 <td >1.9</td>
 <td >1.8</td>
 <td >1.3</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colSpan="9" >Demand Components</td>
 </tr>
 <tr>
 <td class="firstcol" >Personal Consumption</td>
 <td >3.4</td>
 <td >3.2</td>
 <td >1.8</td>
 <td >1.6</td>
 <td >2.1</td>
 <td >1.9</td>
 <td >2.5</td>
 <td >1.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Business Fixed Investment</td>
 <td >2.2</td>
 <td >2.1</td>
 <td >13.1</td>
 <td >-1.8</td>
 <td >4.1</td>
 <td >8.0</td>
 <td >8.6</td>
 <td >0.7</td>
 </tr>
 <tr>
 <td class="firstcol" >Residential Investment</td>
 <td >12.0</td>
 <td >12.6</td>
 <td >17.5</td>
 <td >13.6</td>
 <td >12.8</td>
 <td >12.1</td>
 <td >-1.4</td>
 <td >-3.1</td>
 </tr>
 <tr>
 <td class="firstcol" >Government Spending</td>
 <td >-4.9</td>
 <td >-4.1</td>
 <td >-7.0</td>
 <td >3.9</td>
 <td >-2.3</td>
 <td >-1.7</td>
 <td >-3.1</td>
 <td >0.6</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colSpan="9" >Chain-Type Price
 Index</td>
 </tr>
 <tr>
 <td class="firstcol" >GDP</td>
 <td >1.1</td>
 <td >1.2</td>
 <td >1.0</td>
 <td >2.7</td>
 <td >1.6</td>
 <td >1.8</td>
 <td >2.1</td>
 <td >1.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Personal Consumption Expenditures</td>
 <td >1.0</td>
 <td >0.9</td>
 <td >1.6</td>
 <td >1.6</td>
 <td >1.2</td>
 <td >1.8</td>
 <td >2.4</td>
 <td >1.9</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; PCE less Food &amp;
 Energy</td>
 <td >1.2</td>
 <td >1.2</td>
 <td >1.0</td>
 <td >1.1</td>
 <td >1.3</td>
 <td >1.7</td>
 <td >1.4</td>
 <td >1.5</td>
 </tr>
 </tbody>
 </table>



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Real GDP growth for last quarter was marginally revised to 2.4% (1.8% y/y) from the advance estimate of a 2.5% rise. Nevertheless, growth still improved from 0.4% at the end of the year. Expectations were for a 2.5% gain. Fewer [...]

U.S. GDP Growth Remains Moderate but Profits Decline

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 Forward momentum in consumer spending was lost in May. The
 International Council of Shopping Centers and Goldman Sachs reported that
 chain store sales slumped 0.9% last week (2.8% y/y). That was enough to
 pull sales so far this month 2.2% below the April average which was a
 record high. During the last ten years there has been a 61% correlation
 between the y/y change in chain store sales and the change in retail sales
 at general merchandise stores. That correlation recently has declined.
 General merchandise store sales account for 15% of total retail sales.
 The ICSC-Goldman Sachs retail chain-store sales index is constructed using
 the same-store sales (stores open for one year) reported by 78 stores of
 seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears
 and Wal-Mart.
 
 The chain store figures can be found in Haver's SURVEYW
 database.&nbsp;
 
 <table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th class="firstcol" scope="col" >ICSC-Goldman Sachs (SA, 1977=100)</th>
 <th scope="col">05/25/13</th>
 <th scope="col">05/18/13</th>
 <th scope="col" >05/11/13</th>
 <th scope="col" >Y/Y</th>
 <th scope="col" >2012</th>
 <th scope="col" >2011</th>
 <th scope="col" >2010</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >Total Weekly Chain Store Sales</td>
 <td>543.1</td>
 <td>547.9</td>
 <td >546.9</td>
 <td >2.8%</td>
 <td >3.0%</td>
 <td >3.2%</td>
 <td >2.9%</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; W/W %</td>
 <td>-0.9</td>
 <td>0.2</td>
 <td >-2.0</td>
 <td >--</td>
 <td >--</td>
 <td >--</td>
 <td >--</td>
 </tr>
 </tbody>
 </table>


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Forward momentum in consumer spending was lost in May. The International Council of Shopping Centers and Goldman Sachs reported that chain store sales slumped 0.9% last week (2.8% y/y). That was enough to pull sales so far this month [...]

U.S. Chain Store Sales Remain Down Versus Last Month

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

US is clear world leader in business capital spending on artificial intelligence

Blue Chip forecasters expect US to lead aggressive policy rate cuts over coming year—apart from Japan

Ratio of job openings to the number unemployed in the US now below pre-pandemic level

U.S. layoffs not showing as much cooling in labor markets as unemployment rate

While goods prices have moderated, service price inflation remains elevated and sticky

Since Jan 2023, BCEI US outlook has improved, worsened for Japan and the euro area

Persistent negative US economic surprises leading to big rate-cut expectations

Germany is Euro area weakling

Flash PMIs show good start to Q3 in US; loss of momentum in the euro area

Chinese economy on downtrend could threaten global economy

Working age population labor force participation near all-time high as retirements increase

Blue Chip forecasters look for widespread policy rate cuts just ahead

Flash June PMIs point to a widespread slowdown apart from the US

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The Producer Price Index for final demand increased 0.4% (3.0% y/y) during November after rising 0.3% in October, revised from 0.2%, and 0.2% in September, according to the Bureau of Labor Statistics (BLS). It was the largest increase since June. The reading compared to a 0.3% rise expected in the Action Economics Forecast Survey. Producer prices excluding food, energy & trade services edged 0.1% higher (3.5% y/y) following an unrevised 0.3% October rise and 0.1% September uptick. The PPI excluding food & energy rose 0.2% (3.4% y/y) after increasing an unrevised 0.3% in October.

Final demand food prices surged 3.1% (5.1% y/y) and accounted for 80% of the rise in last month’s PPI gain, according to the BLS. Egg prices strengthened 55.6% (80.2% y/y) while vegetable costs rose 33.2% (34.3% y/y). Fruit & melon prices surged 21.8% (11.0% y/y) while beef & veal prices rose 2.8% (6.7% y/y). Dairy product prices fell 1.0% (+5.6% y/y).

Energy prices increased 0.2% in November (-6.2% y/y) after a 0.1% October gain. Gasoline costs rose 0.4% (-9.3% y/y) while home heating oil prices jumped 6.1% (-19.5% y/y). Electric power prices rose 0.5% (0.8% y/y) and natural gas costs gained 0.9% (1.9% y/y). These gains were offset by a 2.1% drop (-20.6% y/y) in diesel fuel prices.    

Final demand goods prices excluding food & energy rose 0.2% in November (2.2% y/y) for the sixth month in the last seven. Core finished consumer goods prices increased 0.3% (2.3% y/y) after rising 0.1%. The increase in core nondurable goods prices picked up to 0.4% last month (2.9% y/y) from 0.1% in October. Durable consumer goods prices improved 0.2% (1.4% y/y) after holding steady. Capital equipment prices rose 0.2% last month (2.7% y/y) following a 0.1% rise. Government-purchased goods prices edged 0.1% higher (2.1% y/y) after holding steady in October.

Final demand services prices rose 0.2% (3.9% y/y) in November, after increasing 0.3% in October. Trade services prices strengthened 0.8% (3.2% y/y) after rising 0.1%. Trade of finished goods prices increased 0.8% (3.0% y/y) after slipping 0.1% in October. Prices for final demand transportation and warehousing services fell 0.5% last month (+0.1% y/y) after a 0.7% gain. Services prices less these costs rose 0.1% in November (4.6% y/y) after rising 0.4% in October.

Construction costs held steady (+1.6% y/y) during November after falling 0.2% in October.

Prices for intermediate demand of processed goods were unchanged (-0.5% y/y) last month after rising 0.6% in October. Processed energy goods prices fell 1.2% following a 1.6% jump, while food prices rose 0.9% after a 0.1% increase.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver’s **USECON** database. Further detail is contained in **PPI** and **PPIR**. The expectations figures are available in the **AS1REPNA** database.


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- Overall index rise driven by food prices.
- Advance in core goods prices is steady.
- Services price increases moderate.


U.S. PPI Strengthens in November; Core Price Gain Eases

Sandy Batten

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Initial claims for unemployment insurance jumped 17,000 to 242,000, seasonally adjusted, in the week ended December 7, the highest weekly reading since the hurricane-augmented 242,000 reading in the week ended October 12. Claims in the previous week were revised up slightly to 225,000 from 224,000. The Action Economic Forecast Survey had expected claims to be 220,000. The 4-week moving average increased to 224,250 from 218,500. Weekly claims figures at this time of year can be distorted by the timing of Thanksgiving and the associated difficulty that presents to seasonally adjusting weekly data.

The total number of unemployment insurance beneficiaries increased to 1.886 million in the week ended November 30, up from an unrevised 1.871 million in the previous week. This total number of beneficiaries is also known as “continuing claims.” The 4-week moving average was 1.888 million in the week ended November 30, up from 1.884 million in the previous week. The insured unemployment rate, that is, the total number of beneficiaries as a percent of covered employment, was unchanged at 1.2% in the week ended November 30.

Unemployment rates vary markedly across states. The Labor Department reports that for the week ended November 23, the insured unemployment rate was highest in New Jersey at 2.21%, followed by 1.98% in Washington and Alaska, 1.84% in California and 1.79% in Rhode Island. The lowest rates were in Florida and South Dakota at 0.31%, followed by Virginia, 0.39%, Alabama, 0.42%, and Kentucky, 0.44%. Unemployment rates in other major states were 1.56% in New York, 1.49% in Pennsylvania, 1.18% in Michigan, 1.00% in Texas, and 0.84% in Ohio. These state rates are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor, 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. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.



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- The 242,000 increase was much larger than expectations.
- The outsized increase was likely impacted by late Thanksgiving.
- Still, on the margin, labor-market conditions appear to be cooling a bit.


U.S. Initial Unemployment Claims Jumped in Most Recent Week

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Inflation in Sweden rose by 0.6% in November after rising by 0.7% in October and gaining 0.2% in September. HICP inflation is on another strong streak in Sweden. But, year-over-year Swedish inflation is up by only 2%. There is a parallax view of price pressure from the domestic inflation gauge where the monthly gains are only about half the gains of the HICP monthly, and where year-on-year inflation is up by only 1.5%, slips to a 0.4% pace over 6-months then accelerates sharpy to a 3% pace over 3-months – quite different from the HICP pattern and inflation levels.  Both domestic and HICP inflation are well behaved over 12-months and while these readings differ a lot after that (over 3-Mo and 6-Mo) they both show inflation accelerating over 3-months compared to its 12-month pace. In neither case is inflation still falling.

In November inflation accelerated for food and non-alcoholic drinks, for health and medical care, for recreation, and for other goods and services. Inflation accelerated in 55.6% of the categories, the same as in October down slightly from 66.7% of the categories with accelerating inflation in September. 

The readings in the pattern for domestic inflation are clear and muted. But HICP inflation in Sweden may be becoming a problem as it stops falling too soon. It may be becoming a bigger problem as sequential inflation rates for 12-months, six-months, and three-months show a steady increase in inflation although that is not accompanied by a steady rise in diffusion. 

**Diffusion is derived from the domestic index**
Over 12-months inflation is decelerating in all categories compared to 12-months ago. This is the sense of progress that Sweden has made on past high inflation. But over six-months compared to 12-months inflation is accelerating in 55.6% of the categories. That occurs with the overall domestic inflation rate rising by to only 0.4% at an annual rate from its 1.5% pace over 12-months; given the decline in the pace of inflation the increase in diffusion is surprising. Over three months the diffusion rating decelerates logging a reading of 33.3%, down from 55.6% over 6-months. The diffusion calculation compares 3-month inflation to the six-month inflation rate across categories. The headline domestic pace, of course, accelerated to 3.0% over 3-months from 0.4% over 6-months – still, diffusion narrowed. Inflation and diffusion are out of step.

**Two inflation measures, quite different inflation**
What we see here is a substantial difference between the national CPI and inflation as measured according to the HICP. The national CPI shows 12-month inflation at 1.5% dropping down to 0.4% at an annual rate over six months and then re-accelerating the 3% over 3-months, while the HICP shows a steady acceleration in Swedish inflation. The national index shows the step down from 12-months to six-months and then a significant step up over three months, although the step up is to a pace that's only half of the pace that's measured by the HICP. Even so, there is a step up in inflation over 3-months the same as for the HICP. According to the national CPI, there's an increase in prices over 3-months in housing costs to 5.7% from -7.7% and transportation costs that only fall by 2% after falling by 14% over 6-months. But those two readings are enough to accelerate the headline in the national index to 3.0% from 0.4%. 

**Inflation rankings**
The rankings on inflation orders each category on its 12-month price gain historically. This ranking shows the HICP has a 69-percentile rank meaning it has been higher only 31% of the time. On the other hand, the national index has only a 47-percentile rank, which says that it is below the 50% mark, indicating that inflation is below its historic median and that refers to the year-over-year rate of 1.5%. As such, it's below its median and thar is true of all categories of domestic inflation except clothing and footwear, education, healthcare, Recreation, and other goods and services. Costs have become weak by historic standards (below median).

**Inflation is no longer falling**
Whether we use the domestic gauge or the HICP gauge Sweden's inflation is becoming more of a problem based on momentum. The monthly diffusion numbers have been above 50, indicating there is more acceleration than deceleration for the last three months. However, the national CPI numbers have been persistently below and approximately half the gain being registered by the HICP. The HICP is the kind of index that is used across Europe and by the European Central Bank to assess inflation in the European Monetary Union. All this leaves us with a bit more of a complicated view of inflation in Sweden but at the very least the bottom line is that inflation is no longer falling and that's a trend that's been noted across many countries. Even countries like Sweden that have made tremendous progress over where inflation was a year a year and a half ago have seen progress stall. All of a sudden inflation has become stuck and generally stuck at a level that's higher than where the target is. Sweden has its year-over-year numbers in place, but its shorter tenor numbers are showing more pressure, making the outlook more uncertain. But because of the current pace of inflation being stuck here, it is not so uncomfortable as it is being stuck at current inflation rates elsewhere in the world.


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Sweden

Swedish Inflation Is Stubborn…and no longer falling 

Andrew Cates

Tian Yong Woon

**A Soft-Landing Consensus**
Surveys of economic forecasters presently suggest that the world economy will enjoy a soft landing in 2025. GDP growth is forecast to slow in the US and China to respective rates of 2.1% and 4.3%, after 2.7% and 4.8% in 2024. GDP growth in the euro area, in contrast, is expected to quicken to 1.0% next year, albeit from a weak base of just 0.8% this year. As for CPI inflation, headline rates are expected to decline to average rates of respectively 2.4% and 1.9% in 2025 in the US and the euro area. China’s inflation rate is expected to climb but from a lower starting point and toward an arguably still uncomfortable rate of 1.1% in 2025. 

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**Supply side challenges and uncertainty**
The risks to that consensus outlook stem from a number of factors, including the potential shift toward more protectionist US trade policy together with other more familiar forces that threaten to destabilise economic activity. The latter include climate change, the energy transition, and geopolitical instability together with high levels of debt. These factors are, in combination, conspiring to generate a very high level of uncertainty about the economic and policy outlook. As chart 2 below suggests, a gauge of policy uncertainty in Europe has lately jumped to a level that’s close to a multi-decade high. US policy uncertainty has bolted sharply higher in recent weeks as well. 

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**Potential US policy conflict**
While trade policy shifts threaten global economic stability, other focal points of policy under a new US administration also potentially invite conflict. As chart 3 below suggests, US financial imbalances – a persistent current account deficit, matched by a high fiscal deficit and a high private sector savings surplus – have been hallmarks of the US economic scene for many years. On the external front they reflect structural forces such as excess savings in other major economies that have been readily absorbed by deep, flexible and liquid US financial markets. On the private sector side, they also reflect an ageing population, a higher proclivity of households and companies to save, as well as a structural pivot toward a services-led economy. And on the fiscal side, they reflect heavy government spending on areas such as healthcare. Against this backdrop, President-elect Trump’s purported desire for a US trade surplus, for lower corporate taxation, for some de-regulation of the financial sector, as well as for a weaker US dollar and lower interest rates will – in combination with one another – may be hard, if not impossible, to achieve.

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**The energy trilemma**
At a broader global level, the energy transition – the shift from fossil fuels to renewables – is also arguably likely to generate more scrutiny in the year ahead. While a necessity for delivering on climate change objectives, it is equally proving to be a big source of macroeconomic and political disruption, particularly in Europe, as we discuss further below. The so-called energy trilemma—balancing energy security, affordability, and sustainability—has now become a central axis for understanding the global economy’s current supply-side vulnerabilities. The trilemma underscores that achieving one objective often compromises another. Transitioning to renewable energy too quickly, while enhancing sustainability, may nevertheless undermine affordability and, in the short term, energy security, if fossil fuel dependencies are unwound too quickly. 

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**Europe’s lack of energy**
The political instability that has engulfed several European economics in recent weeks, and Germany in particular, can arguably be traced in part to this energy trilemma. Chart 5 below suggests that while Germany, France, Italy and the UK, have achieved significant shares of low-carbon electricity generation, they also experience relatively high electricity prices and relative low rates of per capita electricity generation. Germany's reliance on renewable energy subsidies and grid costs contribute to these elevated prices. This, in turn, has been a key source of economic instability in these economies and amplified political instability as well. 

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**Trade, tariffs and Asia**
We turn next to Asia, which is expected to experience some significant challenges with US President-elect Trump set to take office in January. A key focus is China, as Trump has threatened to revoke its Most Favoured Nation (MFN) status. Doing so would allow the US to impose targeted tariffs on China without being obligated to provide the preferential trade terms that come with MFN status. While this could hurt China’s export-driven growth by reducing demand due to higher tariffs, it could also negatively impact the US, as much of its inputs are still sourced from China. More broadly, such a move could disrupt global supply chains and prompt a rerouting of trade flows to circumvent potential US tariffs on China. Currently, nearly all of the US’s trading partners benefit from MFN status, and as of 2023, the US's MFN trade-weighted average duty stood at a low 2.2%, similar to Japan’s, but lower than developing Asian economies like China and India (see chart below).

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**China’s debt challenges**
Another potential source of instability concerns China’s debt challenges. The country’s effort to shift away from debt-fuelled growth remains difficult, especially in the current challenging economic environment. China finds itself between a rock and a hard place: on the one hand, large-scale stimulus—seen by many as a quick fix for near-term growth—would invite criticism for its continuing reliance on debt. On the other hand, China’s relatively restrained approach to fiscal stimulus has disappointed markets, as evidenced by recent equity market sell-offs. Ultimately, China must find alternative ways to stimulate economic recovery, a daunting task, while also addressing the broader issue of ballooning local government debt and off-balance sheet liabilities. Despite these challenges, it may be a case of “better late than never,” as continuing to allow local governments to freely accumulate debt could soon lead to a situation where more revenue is spent on interest payments and less on other critical areas (see chart 7 below). Additionally, any trade actions by the US could further dampen China’s already fragile growth prospects.

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**Japan’s monetary policy normalisation**
Japan will also be closely watched next year for how its monetary policy normalization unfolds. This year marked a historic shift, with the Bank of Japan (BoJ) having delivered its first interest rate hike in 17 years. However, the BoJ’s path to full normalization is expected by many to remain gradual, with only a few additional rate hikes anticipated next year. That said, expectations can change quickly and dramatically, with much depending on Japan’s economic performance in 2025. One key area of focus will be Japan’s Spring wage negotiations ("Shunto") in Q1, as the fiscal year-end for many Japanese corporations draws to a close. As in previous years, wage growth will be a critical factor influencing the BoJ’s monetary policy decisions. While nominal wage growth remains strong, real wage growth continues to be restrained by inflation. A longer-term concern for the BoJ is its massive balance sheet, predominantly consisting of government securities (see chart below), which remains significantly higher than a decade ago. In this context, observers will be interested in whether the BoJ considers further reductions in its bond purchases to accelerate balance sheet normalization. Such a move could limit the Japanese government’s ability to sell bonds to its largest buyer: the BoJ.

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**Demographics, healthcare, and fiscal policy**
Turning to long-term issues, we next address global demographic challenges and their implications for healthcare and fiscal policy. As shown in the chart below, high-income economies around the world have experienced a significant rise in their dependency ratios over the past decade, largely due to the rapid ageing of populations in several of these economies. This trend is particularly pronounced in developed Asian countries, such as South Korea, where the fertility rate has fallen below 1. This trend extends to other developed economies, though not always to the same extent, as seen in the US and the UK, which are also experiencing ageing populations. However, unlike South Korea, the US and the UK benefit from mitigating factors, such as strong immigration rates, which help supplement the workforce. In contrast, countries without such offsets will face a shrinking labour force, struggling to support a growing elderly population, leading to higher healthcare and social benefit costs, and increasing pressure on government budgets. This increased fiscal pressure could either erode fiscal surpluses or widen fiscal deficits, worsening overall debt levels. In contrast, economies with stable or improving fertility rates are less likely to face these demographic challenges.

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**Geopolitical stress**
Next, we address the ongoing latent risk of further geopolitical flare-ups, which are likely to persist into at least early next year. As we've seen in the past, geopolitical tensions can escalate rapidly, as demonstrated by Russia’s invasion of Ukraine in 2022 and the more recent Israel-Hamas conflict in 2023. As shown in the chart below, surges in global geopolitical risk, as measured by the newspaper-based Geopolitical Risk Index, have typically been driven by events in specific regions. These tensions have largely remained contained within specific parties and have not yet expanded into broader regional conflicts. Nevertheless, such flare-ups will continue to be closely monitored. They have the potential to disrupt global supply chains and affect the supply and prices of commodities produced in or passing through the affected regions. 

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**Artificial Intelligence and productivity**
As 2025 approaches, the question of whether artificial intelligence will finally deliver a long-awaited productivity surge remains another uncertainty. On the one hand, the major economies are buzzing with AI-driven innovations, from generative models reshaping content creation to advanced algorithms optimizing logistics and supply chains. Early adopters boast of efficiency gains and reduced costs, but scaling these benefits across industries is proving uneven. Much like electricity in its infancy, AI's transformative potential may take years to embed itself fully into workflows. For now, the boost to global productivity feels more like a slow burn than an explosive leap, with structural challenges—ranging from workforce reskilling to regulatory hurdles—dampening its immediate impact.

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**Global travel**
Our final destination is the travel sector, which continues to experience varying degrees of post-pandemic recovery across different economies. On the whole, however, it appears that global tourism has finally regained its footing, with the UN forecasting a full recovery in international tourism by the end of the year. Notably, tourism spending is growing faster than arrivals. Looking ahead, tourism performance will likely remain influenced in part by currency fluctuations. For example, Japan's weakened yen this year has spurred increased tourism, as it made the goods and services in the country relatively cheaper for foreign visitors. However, it remains to be seen whether other economies, such as South Korea—where recent political instability has led to a weaker domestic currency—will experience similar boosts to their tourism arrivals. Additionally, vulnerabilities persist. Currency effects are not the only drivers of tourism performance. For instance, energy prices, influenced by geopolitical factors, could discourage global travel if they surge due to tensions in oil-critical regions. Geopolitical events can also affect international travel patterns, steering tourists toward or away from certain destinations.

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In our penultimate Charts of the Week publication for 2024, we turn our attention to the upcoming year and highlight several themes that are poised to mould the economic and financial market landscape. Although a soft-landing consensus for the world economy is presently implicit in most economic forecasts for next year (chart 1) that view is not without challenges. Uncertainty about the economic outlook has bolted sharply higher in recent weeks (chart 2) partly because of the likely major - and potentially disruptive - policy changes from a new US administration (chart 3). Lingering supply-side challenges, such as climate change and the energy transition, are also generating a great deal of economic and political instability at present, most notably in Europe (charts 4 and 5). In the meantime, many Asian economies face additional challenges, including the potential for higher tariffs on trade (chart 6) and lingering debt-related problems in China (chart 7). Generating sufficient domestic growth momentum to mitigate those problems is also proving to be tough for a number of countries, not least in Japan (chart 8). As Japan’s policymakers are all too aware a key reason for weak domestic demand momentum is ageing demographics, a structural problem that will likely remain in vogue in 2025, not least in the realm of healthcare provision and fiscal policy (chart 9). Geopolitical risks will also likely remain elevated even if there is some progress next year in mitigating those risks in Eastern Europe and the Middle East (chart 10). Finally, and ending on a more positive note, there are some offsets to these downside risks, not least via the productivity-enhancing potential of AI technology (chart 11). The rebound that has been unfolding in the travel and tourism sector in recent months is also noteworthy, and a push back against the trend toward a de-globalisation of the world economy in recent years (chart 12). 

Charts of the Week: The Year Ahead

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The Consumer Price Index increased 0.3% during November, up from four consecutive months of 0.2% gain. Expectations had been for a 0.2% rise in the Action Economics Forecast Survey. The y/y increase picked up to 2.7% from 2.6% in October and was the quickest rise in four months. The three-month increase rose to 3.0% (AR) from 2.5% but remained below the 4.6% high in April of this year. Prices excluding food & energy rose an expected 0.3% for the fourth consecutive month. Core consumer prices increased 3.7% (AR) during the last three months, up from 1.6% in July, and 3.3% y/y. Food prices rose 0.4% last month (2.4% y/y) after a 0.2% gain while energy prices rose 0.2% (-3.2% y/y) after holding steady in October.

The CPI less food, energy and shelter, another measure of core pricing power, rose 0.3% after a 0.2% gain. The 2.2% y/y rise was increased from a July low of 1.7% but remained below the 7.6% y/y peak in February 2022. It compared to a low of 0.3% y/y in May 2020.

Services costs less energy rose a steady 0.3% in November (4.6% y/y). Shelter costs rose 0.3% following a 0.4% rise in October. Its 4.7% y/y rise compares to an 8.2% peak in March 2023. Owners’ equivalent rent of primary residences increased 0.2% (4.9% y/y), following a 0.4% rise and was the weakest increase since April 2021. Rents of primary residences rose a similarly depressed 0.2% (4.4% y/y) after two consecutive months of 0.3% rise, but the cost of lodging away from home surged 3.2% (3.7% y/y) following a 0.4% October gain. Transportation service prices held steady last month (+7.1% y/y) after rising 0.4% in October, as public transportation prices also were unchanged (2.9% y/y) after a 2.4% October surge. Medical care service costs rose 0.4% (3.7% y/y) the same as in October. Education & communication prices eased 0.2% (+1.8% y/y) for the second straight month. Recreation services prices rose 0.7% (3.5% y/y), the same as in October.

During November, the CPI for goods less food & energy increased 0.3% (-0.6% y/y) after holding steady in October. Home furnishings prices rose 0.7% (-1.0% y/y), as appliance costs also rose 0.7% (-1.0% y/y).  Apparel costs rose 0.2% (1.1% y/y) after a 1.5% decline. Education & communication product costs fell 1.1% (-5.4% y/y) the same as in October while medical care product prices declined 0.1% (NSA, +0.4% y/y) in November. Prices for recreation products weakened 0.5% (-1.5% y/y), the fourth decline in five months. Transportation product prices rose 0.9% (-1.4% y/y) after improving 0.8%. New vehicle prices rose 0.6% (-0.7% y/y) after holding steady while used car & truck prices strengthened 2.0% (-3.4% y/y) after a 2.7% rise.

Food prices rose 0.4% (2.4% y/y) in November following a 0.2% October increase. Egg prices rebounded 8.2% (37.5% y/y) after a 6.4% decline. Meat, poultry & fish prices rebounded 1.1% (1.5% y/y) after falling 0.8% while cereal & bakery product prices weakened 1.1% (-0.5% y/y) after a 1.0% rise. Fruit & vegetable prices rose 0.2% (1.1	% y/y) after increasing 0.4%, while dairy prices eased 0.1% (+1.2% y/y) after rising 1.0% in October. Nonalcoholic beverage prices rose 1.5% (2.8% y/y) after a 0.4% October rise.

Energy prices rose 0.2% (-3.2% y/y) in November after holding steady in October. Gasoline prices rose 0.6	% (-8.1% y/y) after three straight monthly declines. Amongst other energy products, fuel oil & propane prices rose 0.4% (-10.7% y/y) after declining 2.2%. Electricity prices eased 0.4% (3.1% y/y) after a 1.2% gain, while natural gas prices jumped 1.0% (1.8% y/y) following a 0.3% October gain.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Food prices pick up.
- Services price gains remain steady.
- Core goods prices pick up.

Economy in Brief: May 2013

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