Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080905a.jpg" align="left" border="0" height="265" width="353">
Last month, nonfarm payrolls fell 84,000,
according to the Bureau of Labor Statistics. The latest decline was
slightly greater than expectations for a 75,000 drop but it was
accompanied by downward revisions to prior months' data. Payrolls have
declined in each month of this year and it amounts to 605,000 jobs lost.
During the last three months payrolls fell at a 0.7% annual
rate. That compared to a rate of decline in excess of 2.0% by the end
of the last recession.
The unemployment rate jumped to 6.1% last
month versus expectations for just a slight increase to 5.7%. That was
the highest level since September of 2003.
Household sector employment fell 342,000 (-0.2% y/y) after a
72,000 worker decline during July. It was the sixth monthly decline
this year. The level of the unemployed rose 592,000 (31.4% y/y) after a
285,000 increase in July.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080905c.jpg" align="right" border="0" height="265" width="353">
The labor force rose another 250,000 (1.3% y/y) last month and
the labor force participation rate held at 66.1% for the third straight
month. It was 66.0% during all of last year and 66.2% in 2006. The
participation rate amongst adult men was 75.8%, about the same as
averaged last year, and amongst adult women it was 61.1% versus 60.6%
averaged during 2007.
The average duration of unemployment increased to 17.4 weeks
and that was still up from 16.9 weeks averaged during the last two
years. The number of those unemployed for more than 27 weeks rose by
nearly one half versus one year ago.
From the establishment survey, hiring in the private service
sector industries was notably weak. Jobs fell 44,000 but the 18,000
July decline was less than the 76,000 decline reported initially. Prior
months' job losses also were revised shallower. Nevertheless, August
was the seventh decline in the last eight months and the three-month
rate of decline during that period was 0.3%.
A decline of 53,000 (-0.7% y/y) jobs was reported for the
professional &amp; business service industries. That was led by a
61,600 (-3.6% y/y) drop in hiring in the management &amp; technical
support services area. Temporary help services job also were quite weak
as they fell 36,900 (-9.1% y/y). Retail sector jobs fell 19,900 and
they're down at a 1.2% rate during the last three months. That rate of
decline, however, remained less than the 3.0% rate of this past April.
Motor vehicle &amp; parts dealers employment led that drop with a
14,100 August decline and they're down at a 7.3% rate over the last
three months. Jobs in the information sector fell 3,000 last month and
at a 2.2% rate during the last three. Financial sector jobs fell 3,000
and at a 0.9% rate over the last three months.
These declines have been offset by 11.3% three-month growth in
the number of jobs in education and by 2.7% growth health care jobs.
The number of finance sector jobs fell 3,000 last month and they're
down at a 0.9% rate during the last three. Real estate sector jobs
slipped 1,400 and they have been falling at a moderate 0.6% annual rate
during the last three months which is an improvement from the 3% to 4%
rates of job loss late last year and early this year.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080905b.jpg" align="left" border="0" height="265" width="353">
Factory sector jobs fell 61,000 which was the largest monthly
decline since mid-2003. Payrolls were down at a 4.1% rate over the last
three months though that was slower than the 10% rate of decline by the
end of the 2001 recession. The motor vehicle &amp; parts sector
shed 39,000 (-12.9% y/y) jobs while jobs in the furniture industry fell
6,800 (-8.4% y/y).
Construction sector employment slipped just 8,000 last month
after a little-revised 20,000 drop during July. They fell at a 4.2%
annual rate during the last three months versus a 7.8% rate of decline
as of June.
Government sector jobs continued to rise and they posted a
17,000 August increase. They've increased at a 0.6% rate during the
last three months. Federal government hiring rose at a 1.0% rate during
the last three months while state as well as local government hiring
rose at a 1.3% and a 0.2% rate, respectively. These rates of growth are
down from their recent peaks.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080905d.jpg" align="right" border="0" height="265" width="353">
The one month diffusion index, which
measures the breadth of job gain or loss (50 is the break-even level),
improved to a near-break even 48.9%. The three-month index improved
just slightly to 40.1% from the cycle low of 38.3% reached last month.
The three-month figure for the factory sector was even weaker at 25.6%.
That's up slightly from July but near the lowest since 2003.
Average hourly earnings increased 0.4%, the
same as during as during an upwardly revised July. The three-month
growth rate rose to 4.3%, its highest since early last year. Factory
sector earnings fell 0.2% during August and rose at a 2.3% rate during
the last three months, which was near the weakest since late last year.
Private service sector earnings rose 0.4% and at an elevated 4.1% rate
during the last three months.
China and India:
Two Paths to Economic Power from the Federal Reserve Bank of
Dallas can be found <a href="http://dallasfed.org/research/eclett/2008/el0808.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment:
000s</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>-84</td>
<td>-60</td>
<td>-100</td>
<td>-0.2%</td>
<td>1.1%</td>
<td>1.8%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Previous</td>
<td>--</td>
<td>-51</td>
<td>-51</td>
<td>--</td>
<td>1.3%</td>
<td>1.9%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-61</td>
<td>-38</td>
<td>-44</td>
<td>-3.0%</td>
<td>-1.9%</td>
<td>-0.5%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>-8</td>
<td>-20</td>
<td>-50</td>
<td>-5.7%</td>
<td>-1.0%</td>
<td>4.9%</td>
<td>5.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.7</td>
<td>33.7</td>
<td>33.7</td>
<td>33.8 (August '07)</td>
<td>33.8</td>
<td>33.9</td>
<td>33.8</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.4%</td>
<td>0.4%</td>
<td>0.3%</td>
<td>3.6%</td>
<td>4.0%</td>
<td>3.9%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>6.1%</td>
<td>5.7%</td>
<td>5.5%</td>
<td>4.7% (August '07)</td>
<td>4.6%</td>
<td>4.6%</td>
<td>5.1%</td>
</tr>
</tbody>
</table>
German Sector Trends are Clear and
Weak 
by <a href="/comment/Brusca.html">Robert
Brusca</a> September 5, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080905e.jpg" align="left" border="0" height="265" width="353">
German statistics have been weakening and the weakness in
orders reported yesterday was a shock to some. Today the process of
being shocked continues with stark and unexpected weakness in German
industrial output. Output is off for the second time in two months and
by a severe 1.8% m/m. Yr/Yr the drop is -0.6%. MFG IP is off by 2% in
the month. Sequential growth rates generally show that the weakness is
still cumulating (construction and consumer spending are exceptions of
sorts). In the new quarter to date (Q3) output is falling at a 13.3%
annual rate, led by weakness in capital goods. While the drop in
consumer goods output is the most severe on a Yr/Yr basis, the
deceleration is the greatest for capital goods where output seems to
stay so high for so long. This it turns out was mirage like Wiley
Coyote standing on thin air waving to the Road Runner before gravity
took hold. German capital goods output too seemed to defy the gravity
and domestic weakness and the overly strong euro. But now that
resilience is a thing of the past.
German authorities have tried to argue that the weakness is
partly due to the start of the school year. But they hasten to add the
trends are going to be lower. There should be fewer denials of
encroaching weakness in Germany since the bottom fell out of orders and
IP and that has happened just over the past two days.
Things change. And they did not elect either Obama or McCain.
Still the ECB has decided to tighten up its collateral
acceptance parameters, and that action will impair liquidity in the
Zone and at a time when economic weakness seems to be taking greater
hold. In the US two speeches, one by Reserve Bank president Yellen, the
other by Reserve Bank president Fisher, talked in less than glowing
terms about the US economy. Fisher worries more about inflation
prospects while Yellen reports that the next move by the Fed is more
likely to be up than down but she reiterated Fed fallibility. Central
bankers clearly are not plugged into the news that reveals accelerating
weakness. Even the Bush Administration today took the opportunity to
say that a new stimulus program was not needed.
While the economic data are worsening central banks seem to be
taking the opportunity to let weaker growth drag inflation lower,
rather than to move to offset the weakness. This is done by ignoring
the weakening (Trichet), denying it (Germany, at least so far) or by
making inflation the greater threat (Richard Fisher, and others).

<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead><tr>
</tr>
</thead><thead><tr>
<th colspan="8" scope="col"> Total
German IP</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar exept m/m</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>May-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Quarter-to -Date</td>
</tr>
<tr>
<td class="firstcol">IP total</td>
<td>-1.8%</td>
<td>0.1%</td>
<td>-1.8%</td>
<td>-13.3%</td>
<td>-8.0%</td>
<td>-0.6%</td>
<td>-13.3%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td>-1.7%</td>
<td>0.4%</td>
<td>-0.3%</td>
<td>-6.2%</td>
<td>-8.6%</td>
<td>-2.1%</td>
<td>-8.8%</td>
</tr>
<tr>
<td class="firstcol">Capital</td>
<td>-3.7%</td>
<td>1.7%</td>
<td>-3.7%</td>
<td>-21.0%</td>
<td>-11.7%</td>
<td>-0.1%</td>
<td>-21.2%</td>
</tr>
<tr>
<td class="firstcol">Intermediate</td>
<td>-0.6%</td>
<td>-0.5%</td>
<td>-1.0%</td>
<td>-8.2%</td>
<td>-3.4%</td>
<td>0.4%</td>
<td>-7.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>-2.0%</td>
<td>-2.4%</td>
<td>2.4%</td>
<td>-8.2%</td>
<td>-23.1%</td>
<td>-2.8%</td>
<td>-15.8%</td>
</tr>
<tr>
<td class="firstcol">MFG IP</td>
<td>-2.0%</td>
<td>0.5%</td>
<td>-1.9%</td>
<td>-13.1%</td>
<td>-7.8%</td>
<td>-0.2%</td>
<td>-13.3%</td>
</tr>
<tr>
<td class="firstcol">MFG Orders</td>
<td>-1.7%</td>
<td>-2.6%</td>
<td>-1.3%</td>
<td>-20.0%</td>
<td>-15.2%</td>
<td>-4.1%</td>
<td>-20.7%</td>
</tr>
</tbody>
</table> 
OECD LEIs Continue to Sag as Japan
Bucks Trend 
by <a href="/comment/Brusca.html">Robert
Brusca</a> September 5, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080905f.jpg" align="left" border="0" height="265" width="353">
OECD Trends. The OECD
trend-adjusted LEIs show clear ongoing declines. The OECD declines are
getting progressively weaker for the entire area as well as for the
OECD seven and for the OECD four. In the US, however, the OECD LEI is
still declining but is dropping at a decelerating pace. The US LEI grew
at the strongest pace one year ago and now its Yr/Yr pace is only in
line with other OECD measures while its 3-month and 6-month pace is
stronger than the other comparable OECD measures.
The OECD says. The OECD
characterizes the G7 reading as consistent with a still-weakening
climate. The OECD reports that the growth cycle outlook is for a
slowdown in the OECD area, G7 area and Japan, while for the Euro area a
strong slowdown is anticipated. "OECD composite leading indicators for
July 2008 indicate a continued weakening outlook for all the major
seven economies," the OECD said in its monthly release. "The latest
data for major non-OECD member economies tentatively point to expansion
in China, Brazil and Russia and a downturn in India," it said.
Selected Countries. Italy's
composite indicator fell the sharpest of all the G7 countries, off 1.9
points on the month. The German and Canadian indicators dropped 1.5
points. Japan's indicator fell 0.5 point and the United States saw a
0.2 point fall.
Comparison with past US turning
point. The US indicator is weak but did not get as weak as
it did in or before the last economic downturn. It is now rising from
its current cycle low. In Japan the index reach a spike low as weak as
it was in the last recession but it did not stay impacted for as long
as it did last time. The Japanese index is now rising.
The index for the Euro-Zone economies is much weaker than
it was at the time of the last US recession and it is still dropping at
an increasing speed.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup><thead><tr>
<th colspan="5" scope="col"> OECD
Trend-Restored Leading Indicators</th>
</tr>
<tr>
<th colspan="5" scope="col">Growth
progression-SAAR</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>3Mos</td>
<td>6Mos</td>
<td>12mos</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">OECD</td>
<td>-4.6%</td>
<td>-3.6%</td>
<td>-3.3%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">OECD 7</td>
<td>-3.8%</td>
<td>-3.4%</td>
<td>-3.9%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">OECD Europe</td>
<td>-9.0%</td>
<td>-6.8%</td>
<td>-4.5%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">OECD Japan</td>
<td>0.9%</td>
<td>-0.4%</td>
<td>-0.9%</td>
<td>-1.2%</td>
</tr>
<tr>
<td class="firstcol">OECD US</td>
<td>-0.5%</td>
<td>-1.8%</td>
<td>-3.8%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td colspan="5" class="firstcol">Six
month readings at
6-month intervals:</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Recent six</td>
<td>6Mo Ago</td>
<td>12Mo Ago</td>
<td>18MO Ago</td>
</tr>
<tr>
<td class="firstcol">OECD</td>
<td>-3.6%</td>
<td>-2.9%</td>
<td>1.7%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">OECD 7</td>
<td>-3.4%</td>
<td>-4.3%</td>
<td>1.4%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">OECD Europe</td>
<td>-6.8%</td>
<td>-2.2%</td>
<td>0.6%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">OECD Japan</td>
<td>-0.4%</td>
<td>-1.5%</td>
<td>-3.7%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">OECD US</td>
<td>-1.8%</td>
<td>-5.7%</td>
<td>3.5%</td>
<td>1.5%</td>
</tr>
<tr>
<td colspan="5" class="firstcol">Slowdowns
indicated by BOLD RED.</td>
</tr>
</tbody>
</table>
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Last month, nonfarm payrolls fell 84,000, according to the Bureau of Labor Statistics. The latest decline was slightly greater than expectations for a 75,000 drop but it was accompanied by downward revisions to prior months' data. [...]

U.S. Payrolls Down Again, Jobless Rate Up Further

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080904h.jpg" align="left" border="0" height="265" width="353">
German orders are clearly falling. Orders are dropping from
domestic sources as well as from foreign sources. The degree of decline
is accelerating both domestically and from overseas; the degree of the
drop is substantial.
The new quarter is quite new, but one month into it, the
degree of decline is severe for orders and sales.
Orders are weak enough and have been weak enough for long
enough that real sales are starting to show adverse trends. Over three
months all major sales categories are showing significant volume
declines.
In comment today Nout Wellink of the Dutch central bank warned
that the credit crisis would linger for several years.
European Economic and Monetary Affairs Commissioner
Joaquin Almunia said that, "We're experiencing a serious economic
downturn&#8230;&#8217; he attributes the slip to several causes but adds that fears
of recession are exaggerated. Still, the notion of recession is
haunting Europe as it has haunted the US. Former BOE governor Eddie
George said, "My impression is that most forecasters now expect little
growth if any at all across the industrial world as a whole over the
next year or so ahead, and certainly technical recession cannot be
ruled out."
In Germany there seem to be a difference of opinion on the
subject. Up until now most pronouncements have been upbeat
hold-the-line sort of things. But yesterday, Deputy Economy Minister
Walther Otremba said in an interview that, "Economic
indicators and surveys are clearly pointing down and we must expect a
slump." He added, "The crisis won't be over quickly; whether or not
things will pick up next year is doubtful." Still,
yesterday German Finance Minister Peer Steinbrueck also said, "It is completely irresponsible for
some pessimists to proclaim, on the basis of just one single quarter of
slightly negative growth, that the specter of recession is looming,"
Europe&#8217;s data are weak enough to talk of slumps and
recessions; the talk is not all on the back of one quarter of declining
GDP. Europe&#8217;s policymakers
(at least the ones in office) do not want to entertain that notion,
however. That reluctance
suggests either that they are unrealistic or plan to do nothing to
avert the growing weakness.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col"> German
Orders and Sales By Sector and Origin</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Real and SA</td>
<td colspan="3">% M/M</td>
<td colspan="5">% Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>May-08</td>
<td>3-MO</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>YrAgo</td>
<td>QTR-2-Date</td>
</tr>
<tr>
<td class="firstcol">Total Orders</td>
<td>-1.7%</td>
<td>-2.6%</td>
<td>-1.3%</td>
<td>-20.0%</td>
<td>-10.6%</td>
<td>-4.1%</td>
<td>7.2%</td>
<td>-20.7%</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>0.3%</td>
<td>-4.5%</td>
<td>0.1%</td>
<td>-15.3%</td>
<td>-8.0%</td>
<td>-3.4%</td>
<td>7.0%</td>
<td>-15.2%</td>
</tr>
<tr>
<td class="firstcol">Domestic</td>
<td>-3.6%</td>
<td>-0.5%</td>
<td>-2.9%</td>
<td>-24.7%</td>
<td>-13.2%</td>
<td>-4.8%</td>
<td>7.5%</td>
<td>-25.8%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Real Sector Sales</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">MFG/Mining</td>
<td>-2.3%</td>
<td>-0.2%</td>
<td>-0.7%</td>
<td>-12.2%</td>
<td>-6.3%</td>
<td>-0.7%</td>
<td>5.8%</td>
<td>-15.0%</td>
</tr>
<tr>
<td class="firstcol">Consumer</td>
<td>-0.4%</td>
<td>-1.4%</td>
<td>-0.1%</td>
<td>-7.2%</td>
<td>-3.7%</td>
<td>-2.5%</td>
<td>1.6%</td>
<td>-7.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Durables</td>
<td>-3.4%</td>
<td>1.7%</td>
<td>-3.2%</td>
<td>-18.1%</td>
<td>-9.5%</td>
<td>-4.7%</td>
<td>2.9%</td>
<td>-18.6%&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Nondurables</td>
<td>0.2%</td>
<td>-1.9%</td>
<td>0.6%</td>
<td>-4.6%</td>
<td>-2.3%</td>
<td>-2.1%</td>
<td>1.4%</td>
<td>-5.3%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>-4.4%</td>
<td>0.9%</td>
<td>-2.5%</td>
<td>-21.9%</td>
<td>-11.6%</td>
<td>-1.0%</td>
<td>7.8%</td>
<td>-24.9%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Gds</td>
<td>-1.0%</td>
<td>-1.0%</td>
<td>1.5%</td>
<td>-2.3%</td>
<td>-1.1%</td>
<td>0.4%</td>
<td>6.4%</td>
<td>-6.9%</td>
</tr>
<tr>
<td class="firstcol">All MFG-Sales</td>
<td>-2.1%</td>
<td>-0.3%</td>
<td>-0.7%</td>
<td>-12.1%</td>
<td>-6.3%</td>
<td>-0.8%</td>
<td>5.5%</td>
<td>-14.6%</td>
</tr>
</tbody>
</table>
</body></html>

German orders are clearly falling. Orders are dropping from domestic sources as well as from foreign sources. The degree of decline is accelerating both domestically and from overseas; the degree of the drop is substantial. The new [...]

German Orders so Long Resistant to Weakness Have Fully Succumbed

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080904i.jpg" width="353">
Labor productivity in the nonfarm business sector rose a revised 4.3% last quarter. The increase was larger than expected growth of 3.4% and it was double the preliminary estimate of a 2.2% increase.
The upward revision was due to a near-doubling of output growth to 3.4% and a slightly larger 0.8% decline in hours worked.
Growth in compensation per hour was little-changed at 3.7% and that about equaled the 1Q increase.
Unit labor cost growth was revised to show a slight 0.5% decline rather than the 1.3% increase estimated earlier. Year-to-year that left costs up just 0.6% from one year earlier.
In the factory sector productivity growth was revised down and it showed a 2.2% decline (+2.4% y/y). Productivity rose 3.4% last year. Unit labor cost growth surged a little-revised 6.2% (1.4% y/y) as compensation rose 3.9% (3.8% y/y).
In the nonfinancial corporate sector, productivity surged 5.6% and the y/y gain rose to 2.3% after a 1.9% increase last year.Compensation in the corporate sector rose 3.7% (3.8% y/y), a gain which left unit labor costs to decline 1.8% (+1.5% y/y).

<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/@EC/@EC02/@EC02.HTM">Nonfarm Business Sector</a> (SAAR, %)</th>
<th scope="col">2Q &#39;08</th>
<th scope="col">1Q &#39;08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>4.3</td>
<td>2.6</td>
<td>3.4</td>
<td>1.4</td>
<td>1.0</td>
<td>1.8</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>3.7</td>
<td>3.8</td>
<td>4.0</td>
<td>4.1</td>
<td>3.8</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>-0.5</td>
<td>1.2</td>
<td>0.6</td>
<td>2.7</td>
<td>2.8</td>
<td>2.2</td>
</tr>
</tbody>
</table>
</body>
</html>

Labor productivity in the nonfarm business sector rose a revised 4.3% last quarter. The increase was larger than expected growth of 3.4% and it was double the preliminary estimate of a 2.2% increase. The upward revision was due to a [...]

U.S. Productivity Growth Revised Up; Unit Labor Costs Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080904f.jpg" width="353">
Initial claims for unemployment insurance rose unexpectedly last week to 444,000 from 429,000 during the prior week. The latest level was the highest in four weeks.
The four-week moving average dipped again w/w to 438,000 (34.7% y/y), still the highest level since near the end of the 2001 recession 2001. During July claims averaged 393,000.
A program to locate people eligible for jobless benefits may have continued to play a role in last week&#39;s elevated level of claims. Congress approved the extra benefits in June.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080904g.jpg" width="353">
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last ten years there has been a (negative) 76% correlation between the level of initial claims and the m/m change in nonfarm payroll employment. Over the longer period of time, the level of claims for jobless insurance has not trended higher with the size of the labor force due to a higher proportion of self-employed workers who are not eligible for benefits.
Continuing claims for unemployment insurance during the latest week ticked up another 6,000 after an upwardly revised 70,000 jump during the prior week. The four-week moving average of continuing claims rose to 3,400,250, the highest level since late-2003.
Continuing claims provide some indication of workers&#39; ability to find employment and they lag the initial claims figures by one week.
The insured rate of unemployment was stable at 2.6%, the highest level since late-2003.

<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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">08/30/08</th>
<th scope="col">08/23/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;444</td>
<td>429</td>
<td>38.7%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,435</td>
<td>32.7%</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance rose unexpectedly last week to 444,000 from 429,000 during the prior week. The latest level was the highest in four weeks. The four-week moving average dipped again w/w to 438,000 (34.7% y/y), [...]

U.S. Initial Claims for Jobless Insurance Highest in Four Weeks

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080904d.jpg" width="353">
The Composite Index for the nonmanufacturing sector, from the Institute for Supply Management, again ticked up. For August it rose to 50.6 from an unrevised 49.5 during July. The latest was the highest level since May. Consensus expectations had been for a slightly lower August reading of 49.5.
Beginning with the January 2008 Nonmanufacturing <cite>Report On Business</cite>&reg;, a composite index is now calculated as an indicator of the overall economic condition for the non-manufacturing sector. It is a composite index based on the diffusion indexes for four of the indicators (business activity, new orders, employment and supplier deliveries) with equal weights. The latest report from the ISM can be found <a href="http://www.ism.ws/ISMReport/NonMfgROB.cfm">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080904e.jpg" width="353">
The nonmanufacturing business activity sub-index rose to 51.6 from 49.6 in July and the latest level equaled the 2Q average. Since the series&#39; inception in 1997 there has been a 48% correlation between the level of the business activity index for the nonmanufacturing sector and the Q/Q change in real GDP for the services and the construction sectors.
The new orders sub-index also made up the prior month&#39;s decline and rose to 49.7, the highest level since May.
The employment index, conversely, fell m/m to 45.4 and reversed half of its July improvement. Since the series&#39; inception in 1997 there has been a 56% correlation between the level of the ISM nonmanufacturing employment index and the m/m change in payroll employment in the service-producing plus the construction industries.
Pricing power fell sharply to 72.9 which was its lowest level since May. Since inception ten years ago, there has been a 60% correlation between the price index and the q/q change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The nonmanufacturing survey dates back to July 1997.

<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/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>50.6</td>
<td>49.5</td>
<td>52.8</td>
<td>53.5</td>
<td>55.7</td>
<td>58.0</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>72.9</td>
<td>80.8</td>
<td>60.1</td>
<td>63.8</td>
<td>65.3</td>
<td>68.0</td>
</tr>
</tbody>
</table>


</html>

The Composite Index for the nonmanufacturing sector, from the Institute for Supply Management, again ticked up. For August it rose to 50.6 from an unrevised 49.5 during July. The latest was the highest level since May. Consensus [...]

U.S. ISM Nonmanufacturing Index Up, Prices Down

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080904c.jpg" align="left" border="0" height="265" width="353">
The ADP National Employment Report, from the payroll
processor, indicated that August private nonfarm payrolls fell 33,000
after a downwardly revised uptick of 1,000 during July. The decline
about matched expectations for an August drop of 30,000.
The U.S. Bureau of Labor Statistics will report on August
payroll employment tomorrow. Last
month, the 1,000 worker rise in ADP's measure of private nonfarm
payrolls was accompanied by a 76,000 worker decline in the BLS measure
of private sector payrolls.
According to ADP and Macro Advisers, the correlation between
the monthly percentage change in the ADP estimate and that in the BLS
data is 0.90.
Goods producing payrolls fell by 78,000 (-2.6% y/y) and the
monthly declines were spread fairly evenly between large (-4.6% y/y),
medium (-2.8% y/y) and small (-1.3% y/y) payrolls.
Employment in the service producing industry rose by 45,000
(1.1% y/y). Small payrolls rose 36,000 (1.6% y/y) while medium sized
payrolls inched up 8,000 (1.1% y/y). Large service producing payrolls
ticked up by an even smaller 1,000 (-0.3% y/y).
ADP compiled the estimate from its database of individual
companies' payroll information. Macroeconomic Advisers, LLC, the St.
Louis economic consulting firm, developed the methodology for
transforming the raw data into an economic indicator.
The ADP National Employment Report data is maintained in
Haver's 
USECON database;
historical data go back to December 2000. The figures in this report
cover only private sector jobs and exclude employment in the public
sector, which rose an average 11,083 during the last twelve months.
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/pdf/final_report_august_08.pdf" title="blocked::http://www.adpemploymentreport.com/PDF/FINAL_Report_june_09.pdf">here</a>,
and the ADP methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf" title="blocked::http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf">here</a>.

The Fed's latest Beige Book can be found <a href="http://www.federalreserve.gov/fomc/beigebook/2008/20080903/fullreport20080903.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"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Nonfarm Private Payroll
Employment (m/m Chg.)</td>
<td>-33,000</td>
<td>1,000</td>
<td>0.4%</td>
<td>1.1%</td>
<td>1.7%</td>
<td>1.8%</td>
</tr>
</tbody>
</table>
</body></html>

The ADP National Employment Report, from the payroll processor, indicated that August private nonfarm payrolls fell 33,000 after a downwardly revised uptick of 1,000 during July. The decline about matched expectations for an August [...]

ADP Report: Payroll Employment Fell 33,000 in August

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080904a.jpg" width="353">
U.S. sales of light vehicles in August recovered their decline during July and rose 9.3%, according to the Autodata Corporation. The latest sales level of 13.72M units, nevertheless, left sales for the year so far averaging 14.32M. That&#39;s down 11.6% from the 16.20M averaged during the first eight months of last year. The level of August vehicle sales was higher than Consensus expectations for sales of 13.0M.
Sales of domestically made light vehicles recovered the declines of the prior two months. They rose 15.2% to 10.30M. Nevertheless, sales remained down 13.7% YTD.
Aggressive discounting lifted sales of domestically made light trucks to their highest level since March. The 28.1% jump from July still left sales down 20.2% YTD.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080904b.jpg" width="353">
Sales of U.S. made cars rose just 1.5% after two months of sharp decline. Nevertheless and continuing drivers&#39; shift to purchases of relatively fuel efficient vehicles, car sales were down only 4.5% YTD.
Sales of imported light vehicles showed further the effect of weakness in consumer spending on durable goods. They fell by 5.3% to 3.42 million units which was their lowest level since early 2006.
Sales of imported autos repeated their July drop and declined by 8.4% to 2.33M units. Year-to-date sales, however, were flat with the first eight months of 2007.
Imported light truck sales ticked up just 1.8% (-22.0% y/y) after four months of sharp decline. They too have felt the effect of higher fuel costs and were down 14.2% YTD.
Import&#39;s share of the U.S. light vehicle market fell to 24.9%, the lowest since this past February. (Imported vehicles are those produced outside the U.S. and does not include vehicles with the nameplate of a foreign manufacturer produced within the U.S.).

<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/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>13.72</td>
<td>12.55</td>
<td>-15.8%</td>
<td>16.17</td>
<td>16.54</td>
<td>16.96</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>6.74</td>
<td>6.88</td>
<td>-9.1</td>
<td>7.58</td>
<td>7.77</td>
<td>7.65</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>4.41</td>
<td>4.35</td>
<td>-12.7</td>
<td>5.07</td>
<td>5.31</td>
<td>5.40</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>2.33</td>
<td>2.54</td>
<td>-1.4</td>
<td>2.51</td>
<td>2.45</td>
<td>2.25</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>6.98</td>
<td>5.67</td>
<td>-21.5</td>
<td>8.60</td>
<td>8.78</td>
<td>9.32</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>5.89</td>
<td>4.59</td>
<td>-21.4</td>
<td>7.12</td>
<td>7.42</td>
<td>8.12</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imported</td>
<td>1.09</td>
<td>1.07</td>
<td>-22.0</td>
<td>1.48</td>
<td>1.37</td>
<td>1.20</td>
</tr>
</tbody>
</table>


</html>

U.S. sales of light vehicles in August recovered their decline during July and rose 9.3%, according to the Autodata Corporation. The latest sales level of 13.72M units, nevertheless, left sales for the year so far averaging 14.32M. [...]

U.S. August Light Vehicle Sales Recovered Modestly

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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Sandy Batten

260210J2.jpg

260210K2.jpg

The Bureau of Labor Statistics did not publish a report on export and import prices for October because of the government shutdown, and BLS was unable to construct statistics for October. Therefore, the charts here have a gap for October between the September and the November and December values.

Import prices rose 0.1% m/m (unchanged y/y) in December from November, in line with the expectations of the Action Economics Forecast Survey. Since there was no value for October value, a monthly change for November could not be calculated. Import prices fell 0.1% y/y in November. Export prices rose 0.3% m/m in December. Again, a monthly change for November could not be calculated. The Action Economics Forecast Survey expected a 0.1% monthly increase in December. The y/y reading fell to 3.1% in December from 3.2% in November.

Note that these indexes are not directly affected by tariffs because they measure the price of goods before taxes. Tariffs are considered taxes and thus are excluded from these calculations.

For imports, a 3.3% monthly decline in prices of imported petroleum and petroleum products restrained the rise in overall prices. Prices of nonpetroleum imports rose 0.4% m/m (1.0% y/y). Prices of imported food increased 0.5% m/m while prices of imported industrial supplies rose 0.4% m/m even with a 0.8% monthly decline in prices of fuels and lubricants. Prices of the remaining end-use categories were little changed in December. Given the recent weakness of the foreign exchange value of the dollar, there could be further upward pressure on nonpetroleum import prices in coming months.

For exports, prices of agricultural products 0.2% m/m (2.1% y/y) in December following a 0.9% m/m jump in November. Prices of nonagricultural exports increased 0.3% m/m in December. A monthly change could not be calculated for November. The y/y rate slowed to 3.1% in December from 3.3%. Exported food prices rose 0.4% m/m, down from a 1.1% monthly jump in November. Prices of exported industrial supplies also increased 0.4% m/m in December. Prices of exported consumer goods excluding autos jumped 0.8% m/m in December, their largest monthly increase since January 2023.

These import and export price series are not seasonally adjusted; they can be found in Haver’s **USECON** database. Detailed figures are available in the **USINT** database. The expectations figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

260210L2.jpg

260210M2.jpg

- Import prices rose 0.1% m/m in December, in line with expectations.
- The December increase reflected a 0.2% monthly gain in non-fuel import prices and a 0.8% m/m decline in fuel prices.
- Export prices rose 0.3% m/m against expectations of a 0.1% m/m increase. Both agricultural and nonagricultural prices rose in December.


U.S. Import and Export Prices Rise in December

Tian Yong Woon

In our Letter this week, we explore Asia in two parts. The first reviews key developments from the past week, focusing on snap election outcomes in Japan (chart 1) and Thailand (chart 2), both of which delivered victories for incumbent parties and helped reduce near-term political uncertainty.

The second, and larger, section builds on last week’s discussion of Asia and AI, shifting the focus to AI’s potential impact on the region from an end-user perspective. On the upside, Asia stands to benefit meaningfully from the eventual large-scale adoption of AI-powered robotics, reflecting the region’s relatively high share of manufacturing value added (chart 3). That said, important considerations remain, including the cost viability of transitioning towards humanoid robotics given the sizeable upfront capital expenditure involved. Beyond manufacturing, AI adoption could also deliver gains in healthcare, particularly as many Asian economies grapple with ageing populations—implying a growing care burden alongside a shrinking domestic caregiver base (chart 4). However, regulatory, ethical, and implementation challenges persist. 

At the same time, the AI transition will likely displace certain jobs, making this a race not only of adoption but of adaptability, where education—while an imperfect proxy—offers some insight into which economies may be better positioned to adjust (chart 5). Finally, bureaucratic frictions also matter (chart 6), although even traditionally more bureaucratic economies have begun introducing fast-track frameworks to avoid falling behind in what could prove to be a pivotal transition reshaping the regional, and potentially global, economic landscape.

**Japan’s snap election**
Following a snap election held on Sunday, Japanese Prime Minister Takaichi’s Liberal Democratic Party (LDP) secured a historic landslide victory, winning a more than two-thirds majority in Japan’s 456-seat Lower House. The LDP’s coalition partner, the Japan Innovation Party, also expanded its presence to 36 seats. The outcome suggests that Takaichi’s political gamble to capitalise on strong opinion polling has paid off. While the election result has removed a key source of near-term political uncertainty for Japan, attention now turns to the policy agenda enabled by the government’s newly strengthened mandate. Among the first expected moves, Takaichi appears set to proceed with a temporary food tax pause, reducing the 8% consumption tax on food to 0% for two years. This proposal reinforces the perception that her policy stance is fiscally accommodative, even as critics raise concerns around fiscal discipline and long-term sustainability. As for the market reaction, Japanese equities rallied on stimulus expectations, bond yields rose on prospects of increased issuance to fund higher spending, while the yen recorded only muted net moves (chart 1)—prompting some speculation that some intervention may have taken place.

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**Thailand’s snap election**
Thailand also held snap elections last Sunday, which saw the incumbent deliver a strong showing at the polls. Unlike Japan’s election outcome, however, the scale of the increase in the incumbent Bhumjaithai (BJT) Party’s parliamentary footprint came as a surprise to many observers. That said, despite these sizable gains, the BJT Party fell short of an outright majority, securing 193 of the 500 seats in parliament, implying that a coalition government will likely still be required to pass legislation smoothly. Thai equities and the baht nevertheless rallied on the election results (chart 2). Attention now turns to whether—and how—Prime Minister Anutin will follow through on key campaign promises, including the revival of a popular shopping subsidy programme. While such measures would provide a near-term boost to consumption, they would also raise concerns around fiscal sustainability. Beyond the parliamentary vote, Thai voters also approved a proposal to replace the constitution. If pursued, this could pave the way for deeper structural reforms to Thailand’s economy.

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**AI’s (potential) impact on Asia**
We now turn to the longer, second part of this week’s letter, where we examine AI’s potential impact on Asia. In contrast to last week’s discussion, the focus here is on Asia’s role as an end-user of AI, rather than its position within the global AI supply chain. While AI broadly promises substantial productivity gains if deeply embedded across economies, one sector where Asia may benefit disproportionately is manufacturing. This reflects the relatively high share of manufacturing value added in GDP across many Asian economies compared with the global average (chart 3). In particular, Asia stands to reap significant productivity gains through the widespread adoption of AI-powered robotics. Cost, however, remains a key consideration: relative to the overall cost of human labour, AI-enabled robots have yet to become unequivocally competitive once high upfront capital outlays are taken into account. That said, recent advances in humanoid, AI-enabled robots have demonstrated increasingly broad and sophisticated capabilities in replicating human tasks, including delicate and precision operations. Over time, this could meaningfully alleviate a persistent structural challenge facing many advanced Asian economies—ageing populations and the associated labour constraints.

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Digging deeper into the ageing population challenge faced by many Asian economies, another area where AI and robotics could play a meaningful role is healthcare. Ageing societies face a twin burden: a rising number of elderly individuals requiring care alongside a shrinking pool of working-age caregivers, absent offsetting labour inflows. One proxy for this imbalance is the old-age dependency, which, as shown in chart 4, is already relatively high in several Asian economies, including China, Japan, and South Korea. That said, adoption remains at a very early stage. Significant barriers to widespread deployment persist, including regulatory and ethical considerations, high implementation costs, and questions around the consistency, reliability, and safety of AI-enabled systems in delivering healthcare-related tasks.

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**Asia’s challenges in AI adoption**
That said, the outlook is not entirely positive for Asia in the context of widespread AI adoption. As with previous waves of transformative technology, AI will inevitably render some jobs—at least in their current form—obsolete, even as it creates new roles and reshapes others. This implies that many Asian economies will need to navigate a significant structural adjustment in their labour markets, as certain types of work are displaced while demand for new skill sets emerges. How effectively Asia manages this transition will be critical in determining whether its economies move ahead of—or fall behind—the global shift towards AI. At present, and using education quality as a rough proxy, some Asian economies appear better positioned to manage this adjustment than others. As illustrated in chart 5, economies such as China, Singapore, Japan, and South Korea seem relatively well placed to absorb and adapt to the coming changes. That said, education quality is only an imperfect indicator. Other factors will also matter, including the capacity to rapidly retool and reskill the workforce, as well as the inclusiveness of the transition. Ensuring that lower-skilled and more vulnerable segments of society are not left behind will be an important determinant of the long-term economic and social outcomes of AI adoption across the region.

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Another potential hurdle relates to bureaucratic costs, which—when elevated—can act as a meaningful source of friction in the adoption of new AI-driven technologies. On this front, some Asian economies stand out for having comparatively low bureaucratic burdens, notably Singapore, Taiwan, and South Korea, while others, such as Vietnam, the Philippines, and China, tend to lag (chart 6). That said, as with many broad-based indicators, this picture masks important nuances. Several of these economies have introduced industry-specific—particularly AI-focused—fast-tracking initiatives aimed at accelerating development within targeted domestic sectors. Even so, in an increasingly competitive and intensifying global race to adopt AI and capture its economic upside, we may see a growing tendency toward an “adopt first, regulate later” approach in the years ahead. This is likely to persist unless and until major incidents or heightened concerns emerge that materially slow the pace of AI adoption.

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Asia

Economic Letter from Asia: Of Ballots and Bots

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Japan's economy watchers index has flattened out and backed off slightly for the current and future outlooks depending on the time horizon that you seek. However, what's clear is that the index reached the low point around the middle of last year, has been rebounding and now the rebound has either run out of gas or slowed after the index has rebuilt itself considerably.  

It is certainly too early to get pessimistic on Japan's economy, with Prime Minister Sanae Takaichi having just won a significant - essentially a landslide - snap election that she called after recently having been elected. The LDP would appear to be back in the driver's seat, and she has her sights set on more fiscal stimulus and expanded military spending. She is apparently much more on the same wavelength as Donald Trump in the United States. Mr. Trump was an Abe supporter, and Ms. Takaichi is a disciple of Mr. Abe.

At the moment, Japan would seem to have a groundswell of support behind the government and that government is set to try to rekindle some growth which could potentially put the Bank of Japan in a more decisively defensive track as far as setting rates and potentially raising rates.

**Economy watchers index is trending**
In January, the economy watchers index backed off for the second month in a row. However, it still has a percentile standing in its 51-percentile, slightly above its median standing since early-2005. The headline and all the components have standings above their respective 50th percentiles on this timeline, with the exception of housing, services, and employment; three readings that are extremely important to consumers. Housing has a 26.1 percentile standing, services (the employment sector) have a 45.8 percentile standing, while employment has a 22.9 percentile standing. Despite the otherwise solid and strong set of readings, there are these three significant flies in the ointment. Corporate Japan is doing extremely well with corporations having a 66.8 percentile standing; manufacturers and nonmanufacturers, separately, each come in with readings in their mid-to-upper 60th percentiles.

**The future index**
The future readings from the economy watchers index show continued but slight increases over the last few months. Only two future readings weaken month-to-month: housing and employment—once again two key readings as far as consumers are concerned. However, in terms of current monthly diffusion readings, the assessment of households, retailing, housing, and employment all have current diffusion values below 50, indicating net declines rather than increases. The percentile standing is for the future index are, like those for the current index, generally upbeat - and generally stronger than for the current indexes - with the future headline posting a 66.4 percentile standing in January. However, like the current index, the standing for housing is at its 21.3 percentile and the standing for employment is at its 30th percentile, both well below the neutral level that would place the ranking at the 50th percentile. Corporations show high readings, higher for the future indexes than for the current index standings. There also are high readings and standings for eating and drinking places as well as services. It's good to see services come up with a strong rating since it creates hope for the future for employment because services are the core employment sector. It will be interesting to see how this value changes in the coming months as Takaichi’s new policies are implemented and take hold.

**Summing up**
On balance, the economy watchers index has been firm to strong. There is some slight give-back in the current index in terms of trend. But beyond the index, there's more immediate reason to be more positive because Japan has just executed a very decisive and pro-growth snap election that is going to put the new Prime Minister Takaichi and strong control of the economy at a time where she seeks to cement economic strength. These elections were just completed over the weekend, and we will see the results reflected in data in the weeks and months to come.

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Japan

Economy Watchers Indexes Show Firmness; Impact of Takaichi Election to Come in Months Ahead

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

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

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

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

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

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

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Andrew Cates

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

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

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

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

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

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

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

Economy in Brief

Jump to:

U.S. Payrolls Down Again, Jobless Rate Up Further

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U.S. August Light Vehicle Sales Recovered Modestly