Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080124g.jpg" align="left" border="0" height="265" width="353">
Bounce raises the question of EMU-US de-coupling. 

Apparently Germans agree&#8230; They agree with the ECB that
weakness does not threaten Germany or Europe and they see better times
ahead as the IFO expectations index that looks six months into the
future rose enough to kick the climate index higher. No wonder Axel
Weber, Bundesbank president, was saying that markets do not understand
the ECB and are too driven by short-term horizons. Weber, in comments
today, hinted that the next ECB move could be to tighten, not to ease
as markets had expected just yesterday. 

These events raise the question of whether markets have
de-coupled or whether either Europe&#8217;s or the US central bankers are
just plain wrong about the outlook. Can Europe be so strong that it may
need to tighten if the US is as weak as all the fiscal and monetary
stimulus in train seem to expect? Or is Germany and the ECB simply
wrong in their outlook? Or is the Fed and Congress wrong and just too
wrapped up in the needs of US short-term presidential election year
politics? 

We can&#8217;t tell here and now, but time will tell. 

The respondents to the IFO survey did see somewhat weaker
current conditions, but not much weaker. At a value of 107.9 the
current index is still in the top quartile of its range. It slipped by
just 0.2 points in January, less than in December. It is still well
above its average value of 95.0. It is lower year/year by 4.2%, less
than the 6.2% drop registered on that basis in December. 

Business expectations improved by 0.8% in Germany. This
propelled the overall climate index up to 103.4 from 103.0 in December.
Expectations are still lower by 4.1% Yr/Yr less than the 4.3% drop
registered in December. But the IFO survey is hardly a report ringing
warning bells in the ears of the ECB. 

The overall EU index for Germany had already slowed its rate
of descent in December. Now the IFO actually has improved. We seem to
have a decoupling in progress if the actions of the ECB and the Fed are
each correct. The question is: are they? 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col">IFO Survey: Germany </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
</tr>
<tr>
<td class="firstcol">Biz Climate</td>
<td style="color: red;">-4.2%</td>
<td style="color: red;">-5.3%</td>
<td style="color: red;">-2.5%</td>
<td style="color: red;">-1.4%</td>
<td style="color: red;">-1.0%</td>
<td>0.7%</td>
<td>0.8%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">Current Situation</td>
<td style="color: red;">-4.3%</td>
<td style="color: red;">-6.2%</td>
<td style="color: red;">-3.2%</td>
<td style="color: red;">-2.1%</td>
<td style="color: red;">-1.3%</td>
<td>2.5%</td>
<td>2.4%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Biz Expectations</td>
<td style="color: red;">-4.1%</td>
<td style="color: red;">-4.3%</td>
<td style="color: red;">-2.0%</td>
<td style="color: red;">-0.8%</td>
<td style="color: red;">-0.4%</td>
<td style="color: red;">-1.1%</td>
<td style="color: red;">-0.9%</td>
<td style="color: red;">-1.3%</td>
</tr>
</tbody>
</table>
</body></html>

Bounce raises the question of EMU-US de-coupling. Apparently Germans agree… They agree with the ECB that weakness does not threaten Germany or Europe and they see better times ahead as the IFO expectations index that looks six months [...]

Germany’s IFO Index Bounces on Improved Expectations

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080124f.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s exports show a withering trend as Japan&#8217;s imports
continue to rise at a brisk pace. Export and import price indexes,
however, show that export volumes are being maintained better than the
nominal figures tell us as export prices are falling and falling faster
than nominal exports are shrinking. Imports on the other hand are not
as strong as nominal figures show since prices are rising sharply.
While imports are up by 37% in the past three months from August to
November, import prices rose by less at 35.8% for October through
December. As a result Japan&#8217;s nominal trade figures give exactly the
opposite impression of what is going on.

Nominal imports are rising, while real imports are actually
slowing. On the export side nominal exports are falling, but export
volumes are in fact still expanding. Rising oil prices are creating a
misdirection in terms of import trends. For exports, the rise in the
yen accounts for the drop in export prices. The yen&#8217;s rise tends to
result in a reduction of yen export prices, as though exports are
denominated in foreign currency. Volume still seems to be rising, but
if this is a currency effect it could be a warning that profits for
exports are in for a set back. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Japan
Trade Trends</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">in period level of % chg</td>
<td colspan="4">Average in period/or %
change</td>
</tr>
<tr class="odd">
<td class="firstcol">All data yen
basis</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3Mo Prev</td>
<td>6Mo Prev</td>
<td>12Mos Prev</td>
<td>12 mo Ago</td>
</tr>
<tr class="grey1">
<td class="firstcol">Balance on Goods</td>
<td>--</td>
<td>11,959</td>
<td>13,141</td>
<td>11,929</td>
<td>11,196</td>
<td>10,628</td>
<td>7,838</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% m/m</td>
<td colspan="4">% saar</td>
</tr>
<tr class="grey1">
<td class="firstcol">Exports Goods %</td>
<td>0.9%</td>
<td>0.6%</td>
<td>1.9%</td>
<td>1.5%</td>
<td>6.9%</td>
<td>9.6%</td>
<td>22.1%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles</td>
<td>2.5%</td>
<td>-3.9%</td>
<td>17.9%</td>
<td>-6.1%</td>
<td>11.3%</td>
<td>16.2%</td>
<td>40.7%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Imports Goods %</td>
<td>3.9%</td>
<td>3.6%</td>
<td>2.9%</td>
<td>35.8%</td>
<td>13.7%</td>
<td>11.4%</td>
<td>24.1%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles</td>
<td>-25.2%</td>
<td>-7.5%</td>
<td>9.8%</td>
<td>-84.4%</td>
<td>-53.1%</td>
<td>-27.4%</td>
<td>-23.3%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="4">Prices
in %, SAAR</td>
<td>3-Mos</td>
<td>6-Mos</td>
<td>12-Mos</td>
<td>12 mos Ago</td>
</tr>
<tr class="grey1">
<td class="firstcol">Export Prices</td>
<td>0.1%</td>
<td>-1.3%</td>
<td>0.7%</td>
<td>-5.3%</td>
<td>-10.4%</td>
<td>-1.8%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">Import Prices</td>
<td>4.9%</td>
<td>0.7%</td>
<td>3.8%</td>
<td>37.2%</td>
<td>10.0%</td>
<td>12.6%</td>
<td>6.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Memo: Yen/$, AVG, Level</td>
<td>112.45</td>
<td>111.07</td>
<td>115.87</td>
<td>113.13</td>
<td>115.43</td>
<td>117.76</td>
<td>116.35</td>
</tr>
<tr>
<td class="firstcol">Memo Yen Percent ('-' is a fall)</td>
<td>-1.2%</td>
<td>4.1%</td>
<td>-0.7%</td>
<td>13.9%</td>
<td>16.0%</td>
<td>4.2%</td>
<td>1.0%</td>
</tr>
</tbody>
</table>
</body></html>

Japan’s exports show a withering trend as Japan’s imports continue to rise at a brisk pace. Export and import price indexes, however, show that export volumes are being maintained better than the nominal figures tell us as export [...]

Japan’s Imports Hold Up As Exports Slow

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080124c.jpg" width="353">
According to the National Association of Realtors, sales of existing single family homes slipped 2.0% during December after a very slight 0.7% uptick in November. The decline was to the lowest level since 1998 and since the sales peak in late 2005, sales were down by roughly one third. For the full year sales fell 13.0% on top of a 7.7% decline in 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080124d.jpg" width="353">
Sales including condominiums fell 2.2% last month and ended the year down 22.0% from last December, down 12.8% for the full year.
By region, home sales in the Northeast fell 4.6% (-22.4% y/y) and for the full year were off 7.5% after the 6.9% 2006 drop. In the Midwest December sales fell 1.7%, 10.6% for the full year, while sales in the South ended the year with a 1.0% drop. Combined with a 2.0% fall in November overall sales in the South last year fell 13.0%. The worst of it came out West. The 2.1% December decline pulled sales for the year down 19.2% after a 16.2% drop during 2006. For the full year, sales of single family homes in the West was the lowest since 1998.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080124e.jpg" width="353">
The median price of an existing single family home fell 0.4% (-6.5% y/y) in December. It was the fifth m/m decline in the last six months. It lowered prices for the full year 2.8% below the 2006 level, the first full year decline in the thirty five year history of the series. Since the peak early last year, home prices were off 9.9% in December.
Perspectives on Housing and the Economic Outlook from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/SpeechBio/HoenigPDF/SantaFe11-15-07.pdf">here</a>.
The latest Budget Outlook from the Congressional Budget Office is available <a href="http://www.cbo.gov/ftpdocs/89xx/doc8917/01-23-2008_BudgetOutlook.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Existing Single Family Home Sales</th>
<th scope="col">December</th>
<th scope="col">y/y %</th>
<th scope="col">November</th>
<th scope="col">December &#39;06</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>4,890</td>
<td>-22.0</td>
<td>5,000</td>
<td>6,270</td>
<td>5,679</td>
<td>6,510</td>
<td>7,075</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Northeast</td>
<td>830</td>
<td>-22.4</td>
<td>870</td>
<td>1,070</td>
<td>1,007</td>
<td>1,088</td>
<td>1,169</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>1,160</td>
<td>-20.5</td>
<td>1,180</td>
<td>1,160</td>
<td>1,334</td>
<td>1,492</td>
<td>1,588</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South</td>
<td>1,970</td>
<td>-20.9</td>
<td>1,990</td>
<td>2,490</td>
<td>2,243</td>
<td>2,578</td>
<td>2,704</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>940</td>
<td>-24.8</td>
<td>960</td>
<td>1,250</td>
<td>1,094</td>
<td>1,353</td>
<td>1,616</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>4,310</td>
<td>-21.6</td>
<td>4,400</td>
<td>5,500</td>
<td>4,966</td>
<td>5,708</td>
<td>6,182</td>
</tr>
<tr class="odd">
<td class="firstcol">Median Price, Total, $</td>
<td>206,500</td>
<td>-6.5</td>
<td>207,300</td>
<td>220,800</td>
<td>215,642</td>
<td>221,883</td>
<td>217,492</td>
</tr>
</tbody>
</table>
</body>
</html>

According to the National Association of Realtors, sales of existing single family homes slipped 2.0% during December after a very slight 0.7% uptick in November. The decline was to the lowest level since 1998 and since the sales peak [...]

Existing Home Sales Lowest Since 1998, Prices Off 10% Since Peak

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080124a.jpg" width="353">
Initial claims for jobless insurance remained unexpectedly low last week. A 1,000 w/w decline followed sharp declines during the prior three weeks which now have totaled 15.7% since the high one month ago. The latest level was the lowest since September.
Initially, this drop in claims was doubted as genuine due to the difficulties of seasonal adjustment during the Holiday season. Those difficulties suggested that claims would bounce up last week. Indeed, a rise to 320,000 had been the Consensus expectation. No special factors were sighted by the Labor Department as having influenced last week&#39;s figure.
The four week moving average of initial claims, a measure which smoothes out most of the series&#39; w/w volatility, fell sharply to 314,750 (+0.7% y/y). It was the lowest level since mid-October and may suggest that recent labor market weakening was not as great as earlier perceived. But in a wishy-washy spirit, the perception should not be wholly dismissed based on the new figures. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080124b.jpg" width="353">
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last six years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
Continuing claims for unemployment insurance dropped 75,000. It reversed a 59,000 increase during the prior week which was revised down slightly. The figure provides some indication of workers&#39; ability to find employment but here again difficulties of seasonal adjustment this time of year are great.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment fell back to 2.0% from 2.1% during the prior week.
Monetary Policy Implementation Frameworks: A Comparative Analysis from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/staff_reports/sr313.html"> 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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">01/19/08</th>
<th scope="col">01/12/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;301</td>
<td>322</td>
<td>4.9%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,751</td>
<td>11.3%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for jobless insurance remained unexpectedly low last week. A 1,000 w/w decline followed sharp declines during the prior three weeks which now have totaled 15.7% since the high one month ago. The latest level was the [...]

Low U.S. Initial Claims for Jobless Insurance: Doubts About Hiring Slowdown

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080123c.jpg" align="left" border="0" height="265" width="353">
With various country indices showing slowing the EMU orders
aggregate for November rose and was surprisingly strong showing a gain
of 2.7% following a rise of 2.5% in Oct. Two months into Q4 data show
total MFG orders rising at a 17.6% annual rate. Domestic MFG orders in
the zone are up at a 13.8% pace while foreign orders are up at a 26.5%
pace. In Q4 German orders through November are up at a 28% pace while
in France, Italy and the UK results are much worse. French orders are
rising at a 1.2% annual rate, in Italy the pace is 7.1%. In the UK
industrial orders are dropping at a 31% annual rate in Q4. 
 

Clearly the EU/EMU is seeing a great deal of irregularity
among members. Still, in January the ECB remains pre-occupied by
inflation risk and is not following the Fed in its rate-cutting
program. The orders data seem to confirm that there remains a core of
strength within the Euro Area but, at the same time we can wonder how
widespread it is and long lived it will be. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col">E-zone-13
and UK Industrial Orders And Sales </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
</tr>
<tr class="grey4">
<td class="firstcol">Ezone Detail</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>3-Mo</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
</tr>
<tr class="grey1">
<td class="firstcol">Manufacturing Orders</td>
<td>2.7%</td>
<td>2.5%</td>
<td>-1.2%</td>
<td>17.4%</td>
<td>9.4%</td>
<td>13.0%</td>
<td>10.0%</td>
<td>11.7%</td>
<td>8.3%</td>
</tr>
<tr>
<td class="firstcol">Manufacturing Sales</td>
<td>--</td>
<td>0.1%</td>
<td>-0.2%</td>
<td>--</td>
<td>-0.5%</td>
<td>--</td>
<td>3.7%</td>
<td>--</td>
<td>5.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Consumer Goods</td>
<td>--</td>
<td>0.2%</td>
<td>0.2%</td>
<td>--</td>
<td>3.2%</td>
<td>--</td>
<td>4.1%</td>
<td>--</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>--</td>
<td>0.5%</td>
<td>0.5%</td>
<td>--</td>
<td>6.8%</td>
<td>--</td>
<td>7.1%</td>
<td>--</td>
<td>8.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Intermediate Goods</td>
<td>1.6%</td>
<td>4.2%</td>
<td>-3.0%</td>
<td>11.1%</td>
<td>2.5%</td>
<td>10.7%</td>
<td>8.4%</td>
<td>10.6%</td>
<td>7.1%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Memo: MFG</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey1">
<td class="firstcol">Total Orders</td>
<td>2.7%</td>
<td>2.5%</td>
<td>-1.2%</td>
<td>17.4%</td>
<td>9.4%</td>
<td>13.0%</td>
<td>10.0%</td>
<td>11.7%</td>
<td>8.3%</td>
</tr>
<tr>
<td class="firstcol">E-13 Domestic MFG orders</td>
<td>1.6%</td>
<td>4.2%</td>
<td>-3.0%</td>
<td>11.1%</td>
<td>2.5%</td>
<td>10.7%</td>
<td>8.4%</td>
<td>10.6%</td>
<td>7.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">E-13 Foreign MFG orders</td>
<td>3.9%</td>
<td>2.4%</td>
<td>0.0%</td>
<td>27.8%</td>
<td>18.6%</td>
<td>14.8%</td>
<td>13.5%</td>
<td>13.6%</td>
<td>11.2%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Countries:</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>3-Mo</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>12-mo</td>
</tr>
<tr class="grey1">
<td class="firstcol">Germany (MFG):</td>
<td>4.1%</td>
<td>4.0%</td>
<td>-2.0%</td>
<td>26.8%</td>
<td>15.7%</td>
<td>13.3%</td>
<td>9.8%</td>
<td>14.0%</td>
<td>10.1%</td>
</tr>
<tr>
<td class="firstcol">France (Ind):</td>
<td>-0.2%</td>
<td>2.4%</td>
<td>-2.5%</td>
<td>-1.3%</td>
<td>-4.5%</td>
<td>2.7%</td>
<td>7.9%</td>
<td>7.9%</td>
<td>6.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Italy (Ind):</td>
<td>3.6%</td>
<td>-0.5%</td>
<td>0.6%</td>
<td>15.8%</td>
<td>-2.9%</td>
<td>11.0%</td>
<td>8.4%</td>
<td>10.4%</td>
<td>6.2%</td>
</tr>
<tr>
<td class="firstcol">UK (Engineering Ind):</td>
<td>-0.6%</td>
<td>-0.7%</td>
<td>-4.9%</td>
<td>-22.5%</td>
<td>-46.9%</td>
<td>0.7%</td>
<td>0.3%</td>
<td>2.6%</td>
<td>4.6%</td>
</tr>
</tbody>
</table>
</body></html>

With various country indices showing slowing the EMU orders aggregate for November rose and was surprisingly strong showing a gain of 2.7% following a rise of 2.5% in Oct. Two months into Q4 data show total MFG orders rising at a [...]

European Orders Surprise with a Spurt in November

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080123b.jpg" width="353">
The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago during December, at -0.91, was negative for the fifth consecutive month after having been negative for virtually all of last year. The three month moving average of the index at -0.67 was its lowest since 2003.
The Chicago Fed indicated that each of the four broad categories of indicators&#151; employment, production, consumption and housing&#151;made negative contributions to the index last month.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production &amp; income, the labor market, personal consumption &amp; housing, manufacturing &amp; trade sales, and inventories &amp; orders.
The complete CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_january2008.pdf">here</a>.
Despite Increased Risks, Global Growth to Remain Solid in 2008 from the Federal Reserve Bank of Atlanta can be found <a href="http://www.frbatlanta.org/invoke.cfm?objectid=224A79FB-5056-9F12-12F3B3005AA2A645&amp;method=display_body"> 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/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Dec. &#39;06</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>-0.91</td>
<td>-0.29</td>
<td>-0.43</td>
<td>-0.39</td>
<td>0.03</td>
<td>0.28</td>
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</tbody>
</table>
</body>
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The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago during December, at -0.91, was negative for the fifth consecutive month after having been negative for virtually all of last year. The three month moving [...]

Chicago Fed National Activity Index Remained Negative

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080123a.jpg" width="353">
Chain store sales last week recovered 0.7% after a 0.9% decline during the prior period, according to the International Council of Shopping Centers (ICSC)-UBS.
For the opening three weeks of the the year chain store sales were up 1.6% from the December average which rose 1.0% from November.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS 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 leading indicator of chain store sales from ICSC-UBS similarly opened 2008 with firm gains of 0.9% and 0.7% to lift the January average level so far up 0.9% from December which fell 0.3% from November.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">01/19/08</th>
<th scope="col">01/12/08</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>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>488.6</td>
<td>485.4</td>
<td>1.6 %</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>


</html>

Chain store sales last week recovered 0.7% after a 0.9% decline during the prior period, according to the International Council of Shopping Centers (ICSC)-UBS.

U.S. Chain Store Sales Move Sideways

Disrupted global supply chains placing upward pressure on US goods prices

Construction of data centers has overtaken transportation construction in US

Elevated energy prices putting intense upward pressure on input prices around the globe

US is big leader in global surge in private AI investment

Larger-than-usual income tax refunds this year are supporting consumer spending

Sharply rising share of AI-related jobs

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

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

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Sandy Batten

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Weighed down by further rises in longer-term interest rates, housing construction continued to languish in May. Housing starts plunged 15.4% m/m (-8.7% y/y) in May on top of a downwardly revised 8.5% monthly decline in April (previously -2.8% m/m). The level of starts plummeted to 1.177 million, the lowest since May 2020 when the economy was locked down during the COVID pandemic. The Action Economics Forecast Survey expected a 2.4% m/m decline to a level of 1.432 million units. The April/May average for starts was 1.285 million, 9.4% below the Q1 average. Residential investment has been a persistent drag on real GDP growth recently, subtracting from overall growth in each of the previous five quarters. Today’s report points to another subtraction in Q2.

Single-family starts fell 1.9% m/m (-6.7% y/y) in May on top of a downwardly revised 11.6% monthly plunge in April (previously -9.0% m/m). Multi-family starts, which had generally been trending up over the past year or so, albeit with quite a bit of volatility, plummeted 40.2% m/m (-14.2% y/y) in May following a downwardly revised 2.4% m/m decline in April (previously +10.3% m/m).

Starts fell in three of the four major geographic regions. Starts rose 3.7% m/m in the Midwest with gains in both single-family and multi-family starts. By contrast, starts fell in each of the other three regions, plunging 26.8% m/m in the Northeast, the third monthly decline in the past four months, falling 17.0% m/m in the South, also the third monthly decline in the past four months, and declining 17.2% m/m in the West, the fourth monthly decline in the past five months.

The performance of building permits is typically less volatile than that of starts. Total permits edged down 0.7% m/m (-0.2% y/y) to 1.413 million units in May following a 4.4% monthly gain in April and an 11.5% m/m fall in March. Expectations were for a 0.3% monthly increase in May. Single-family permits edged up 0.6% m/m (-1.8% y/y) in May versus a 1.6% monthly decline in April and a 3.7% m/m drop in March. By contrast, multi-family permits fell 2.8% m/m (+2.5 y/y) in May but this was after a 15.8% monthly surge in April.

In contrast to the regional performance of starts, permits fell in the Midwest (-18.7% m/m) but rose in each of the other three major geographic regions. Permits increased 3.1% m/m in the Northeast in May on top of a 18.1% monthly jump in April. They edged up 1.6% m/m in the South and rose 5.5% m/m in the West, the first monthly gain in three months.

The housing starts and permits figures can be found in Haver’s **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Housing starts plunged 15.4% m/m in May to the lowest level since May 2020 with a significant downward revision to the previously reported April decline.
- Single family starts fell 1.9% m/m while multi-family starts plummeted 40.2% m/m to their lowest level since November 2024.
- Less volatile permits slid 0.7% m/m in May with a slight rise (+0.6% m/m) in single-family permits and a 2.8% monthly drop in multi-family permits.

U.S. Housing Starts Plunged in May

Michael J. Moran

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The headline index on import prices rose 1.9% in May, close to the blistering pace in April and the fourth consecutive high-side reading. This recent pressure has pulled the year-over-year change to 6.7%, a distinct shift from last year when import prices showed no change over the 12 months of 2025.

Prices of petroleum products have been the most important factor behind the recent surge, increasing 13.0% in May after an average of 17.8% in the prior two months. However, prices excluding petroleum products also have stirred this year, as they have increased more than 0.6% in each of the past five months. May posted the firmest increase in this string of brisk readings (1.3%). Prices of consumer goods had been increasing moderately in early 2026, but they jumped 0.5% in May. The changes in capital and consumer goods led to an increase of 0.8% in nonpetroleum prices in May and an average of 0.6% in the first five months of the year.

Some observers might seek to look for the effects of tariffs on import prices, but these figures would not be especially helpful in this regard, as prices are recorded before the imposition of tariffs. However, if foreign producers wished to absorb the tariff burden to remain competitive in the US market, they could reduce invoiced prices to keep post-tariff prices steady. Indeed, nonpetroleum prices softened after April of last year following the announcement of President Trump’s Liberation Day tariffs. The subsequent easing of some of the draconian tariffs and the nullification of tariffs imposed under the International Emergency Economic Powers Act might be factors leading importers to return to original prices this year. Given that the pressure on import prices ex-petroleum has been concentrated in the capital goods area, there does not seem to be a rush to return to pre-tariff pricing.

On the export side, prices rose 1.3% in May, continuing the firm pace seen in the preceding four months. Petroleum prices have played a role in this pressure, as shown by an increase of 2.4% in the industrial supply category (petroleum prices alone are not available on the export side). Food prices also have jumped this year, increasing 0.8% in May after an average of 1.2% in the prior three months. Prices of capital goods were tame in the early months of the year, but they have firmed in the past two months (0.5% in April and 0.7% in May).

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.

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- Petroleum products led import prices higher, but capital goods also had an influence.
- Petroleum was also a factor on the export side; some stirring in food and capital goods.

Import and Export Prices: Firm in May

Winnie Tapasanun

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Industrial production (IP) increased a less-than-expected 0.1% m/m in May, the third monthly gain in four months, following an upwardly revised 0.9% rise in April (+0.7% initially) and a 0.3% decline in March (unrevised), according to data from the Federal Reserve Board. A 0.3% m/m May increase had been expected in the Action Economics Forecast Survey. The year-on-year rate accelerated to 1.7% in May, the highest since January, from 1.4% in April (0.3% in May 2025). The May IP index at 102.6 was 3.3% above a low of 99.3 in November 2024 and 3.4% above a low of 99.2 in January 2024.

By **industry groups**, manufacturing production was essentially unchanged m/m (+1.4% y/y) in May after upwardly revised gains of 0.7% in April (+0.6% initially) and 0.2% in March (+0.1% previously). Durable goods production rose 0.8% (3.2% y/y) in May, the fourth m/m rise in five months, after a 1.1% increase in April. Within durables, almost all categories rose m/m in May, led by a 2.3% gain (-2.0% y/y) in wood products, followed by increases of 1.8% (3.1% y/y) in nonmetallic mineral products, 1.3% (4.4% y/y) in primary metals, 1.2% (-1.7% y/y) in motor vehicles & parts, 1.0% (-4.5% y/y) in furniture & related products, 0.9% (10.3% y/y) in computer & electronic products, 0.8% (2.5% y/y) in fabricated metal products, 0.5% (6.9% y/y) in aerospace & miscellaneous transportation equipment, 0.5% (2.7% y/y) in electrical equipment, appliances & components, and 0.2% (4.3% y/y) in machinery. Notably, aircraft & parts production climbed 1.1% (11.7% y/y), the fourth consecutive m/m rise, after a 2.6% April gain. Meanwhile, miscellaneous durable goods were virtually unchanged m/m (+0.9% y/y) in May following a 0.8% decline in April.

Nondurable goods production slid 0.9% (-0.6% y/y) in May, the first m/m slide since January, after a 0.3% increase in April. The May output decline was led by a 3.0% drop (-1.1% y/y) in petroleum & coal products, followed by decreases of 2.4% (-4.1% y/y) in textiles & product mills, 1.6% (-2.3% y/y) in printing & related support activities, 0.8% (0.0% y/y) in chemicals, 0.8% (-3.0% y/y) in paper, 0.5% (-0.4% y/y) in food, beverages & tobacco, and 0.3% (-0.2% y/y) in plastics & rubber products. In contrast, apparel & leather goods—the only rising category—recovered 2.4% (-0.1% y/y) in May following two successive m/m declines.

Mining activity advanced 1.3% (2.0% y/y) in May, the fourth m/m gain in five months, after a 0.2% increase in April (-0.1% initially). Utilities output, however, fell 0.4% (+3.1% y/y) following a 2.2% April rebound (+1.9% initially), reflecting a 1.7% drop (+1.8% y/y) in electric utilities output and an 8.5% rise (12.5% y/y) in natural gas utilities output.

By **market groups**, construction supplies production increased 1.1% (2.3% y/y) in May, up for the second time in three months, reversing a 0.3% decline in April. Business equipment output rose 0.6% (5.7% y/y), the fifth m/m rise in six months, following a 1.8% April gain. Materials production grew 0.3% (1.9% y/y), the third m/m increase in four months, after a 0.7% April rise. In contrast, consumer goods output fell 0.5% (-0.6% y/y) after a 1.2% April rebound, reflecting a 0.5% increase (-3.0% y/y) in durable consumer goods and a 0.8% decrease (+0.1% y/y) in nondurable consumer goods.

In **special classifications**, factory output of selected high-tech industries rose 1.8% (12.6% y/y) in May on top of an upwardly revised 2.2% rise in April (+1.0% initially)—marking the third straight m/m gain and the seventh in eight months. Manufacturing production excluding selected high-tech industries held steady m/m (+1.1% y/y) in May after a 0.7% increase in April, while manufacturing production excluding selected high-tech and motor vehicles & parts dipped 0.1% (+1.3% y/y) following a 0.5% April rise.

Capacity utilization inched up to 76.2% in May, the highest since July 2025, from 76.1% in April (unrevised). The result matched the forecast by the Action Economics Forecast Survey. The May reading was 3.2 percentage points below its long-run (1972–2025) average. Manufacturing capacity utilization held at 75.7% in May and April (75.8% previously), the highest since September 2025; the May rate was 2.5 percentage points below its long-run average.

Industrial production and capacity data are in Haver’s **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.

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- May IP +0.1% (+1.7% y/y), third m/m increase in four months, led by a 1.3% gain in mining.
- Manufacturing unchanged (+1.4% y/y), w/ durables +0.8% and nondurables -0.9%.
- Selected high-tech +1.8%, third straight m/m rise; motor vehicles +1.2%, fifth gain in six mths.
- Utilities -0.4%, led by a 1.7% drop in electric utilities output.
- Key categories in market groups mostly up.
- Capacity utilization up to a 10-month-high 76.2%; mfg. capacity utilization steady at 75.7%.

U.S. Industrial Production Up Marginally in May; Manufacturing Flat

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The economy watchers survey, along with other surveys, was doing fine until about March in the wake of the Iran war and the closing of the Strait of Hormuz. With that action, the economy watchers index dove sharply from a level of 48.9 in February to 42.2 in March and slipped further to 40.8 in April. The various sector gauges for the retail sector, eating & drinking places, the service sector, and employment are all lower. The only improvement in April came from the future index, where there was some minor optimism about the potential for conditions to improve ahead. And, of course, over the weekend, there is the announcement of a U.S.-Iran deal to end the hostilities between the two countries. That is expected to be signed on Friday and then will put the war into a pause phase for the next 60 days, with the hope that the two sides can come to agreement on some of the stickier elements, including Iran's access to nuclear materials, which has yet to be hammered out.

That omission makes the announcement of this arrangement as a conflict ending deal hugely speculative. Another sticking point is that Israel is not on board and is still engaged in fighting with Hezbollah.

The Teikoku survey, another survey using diffusion indexes that describes Japanese sectors, weakened sharply in March and weakened across the board again in April. Manufacturing, retailing, wholesaling, services, and construction sectors all are posting weaker numbers in April than in March.

The percentile rankings for the economy watchers survey and the Teikoku surveys are both very weak, with the economy watchers standings in the 10th percentile range or lower; the Teikoku rankings are generally higher, around the 30th percentile or perhaps as low as the 20th percentile, as seen in construction. These are still very weak readings. All the raw diffusion readings are below 50, indicating contraction.

The sector indexes from METI on manufacturing and services, which both weakened in March, rebounded in April; in both cases, the April readings were above the February readings. Standings of these indexes based on growth rates are around the 80th percentile; at the 79th percentile for industry and at the 82.5 percentile for the tertiary or services index. Based on the value of the index itself, the tertiary index has a standing at its 98.9 percentile, which we would expect over time for an index that simply grows, as is the case for the METI indexes that are not diffusion indexes. However, the industrial index for Japan has only a 19.9 percentile standing, indicating the stress that Japan's industrial sector has been through, although the current ranking based on the growth rate shows that there is some recovery in progress. The industry level index is 6.3% below its January 2020 level, while the tertiary index is 3.1% above its January 2020 level.

The leading economic index has continued to rise during all these times. It rose in February compared to January, and it rose again in March compared to February; now in April compared to March, it was up again to 115.9, from the March reading of 115.4. Based on year-over-year growth, the leading economic index has a 95.1 percentile standing, which is relatively strong. Based on the index level, we get another strong reading at the 93.2 percentile mark. The leading index is also up 12.9% from its January 2020 level.

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The report of a deal to end the U.S. embargo of Iran and open the Strait of Hormuz without tolls is potentially a real gamechanger for the economic outlook. However, the deal still had pieces to be negotiated, and I, for one, am very wary since we know Iran wants to have nuclear access and the U.S. wants to block it. I just don’t see what a 60-day cooling period for negotiation will do. It will push the U.S. closer to midterm elections and make Trump less willing to engage in conflict with Iran, which is likely to remain intransigent on this issue of nuclear access. I view this as the eye of a hurricane, a period in which there will be calm, with the potential for a reset of confrontation down the road, say 60 days on.

Japan

Japan’s Surveys Mixed in April but Mostly Weak

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Industrial production in the United Kingdom took another step up in April, rising by 0.4% after gaining 1.2% month-to-month in March. Consumer durable goods production fell by 0.7% and capital goods production fell by 0.6% in April, but nondurable goods production increased by 0.8% and intermediate goods output increased by 1.1%. Given the weighting for these sectors, all that amounted to an overall increase of 0.4% in manufacturing output.

In March, there had been month-to-month increases in each of these sectors. Sector by sector gains were quite substantial in March for all the sectors, except for capital goods output up only 0.1%; capital goods output has been weak over the last several months and has come through a period of some significant volatility.

Sequentially, U.K. manufacturing output has registered gains over 12 months, six months and three months. The 12-month gain is only 1%, but over six months output expands at a 6.4% annual rate, and while it stepped back to a 5.7% rate of expansion over three months, there is a hint of acceleration.

**Sequential trends in manufacturing output**
Looking at sectors, there are two that have accelerated over this time span; the output of consumer nondurable goods and the output of intermediate goods. Nondurable goods output rose by 0.4% over 12 months, then stepped up to an 8.1% pace over six months and rose further to an 11.1% pace over three months. For intermediate goods, output declined by 0.9% over 12 months, then switched to post a gain at a 3.2% pace over six months and then again at a 9.7% annual rate over three months. Durable goods output has a hint of acceleration but doesn't quite go over the hurdle as its 8.7% year-over-year growth rate fades to 5.7% over six months but then jumps back to 10.1% over three months. Capital goods output is more indeterminate, with a 3.9% growth rate over 12 months, a very strong 9.5% growth rate over six months, and then a decline of 1.9% at an annual rate over three months.

On a quarter-to-date (QTD) basis, all the sectors are showing increases except for capital goods where output is falling at a 3.1% annual rate. The QTD calculation as of April is only one month into the new quarter; the quarter’s overall output is growing at a 7% annual rate. Manufacturing sectors have recovered fairly well from the difficulties during COVID. The exception is intermediate goods where output as of April 2026 is still 17% below what it was back in January 2020. However, if we evaluate the sectors on their current year-over-year growth rates, we'll find consumer durables has a strong standing at their 86th percentile and capital goods, despite its recent weakness, has a 71.5 percentile standing among its growth rates back to January 2012. However, manufacturing growth overall at 1.0% has only a 43.6 percentile standing. Intermediate goods (that registered a decline over 12 months) have a 40.7 percentile standing. Consumer nondurables, despite their current acceleration string, have only a 25.6 percentile standing, but that's based on the year-over-year growth rate of only 0.4%.

**U.K. industries**
The industry level growth rates and standings for the United Kingdom show more diversity, with current growth rates above their medians for textile & leather as well as for utilities. Food, motor vehicles, and mining generate growth rates below their medians on data back to 2012. However, comparing aggregate levels of output to January 2020 shows three sectors: textile & leather, mining & quarrying, and utilities that report a level of output below where it was over six years ago. The shortfalls in mining & quarrying and in utilities are stunningly weak.

Overall, the manufacturing sector is doing quite well by comparison with past trends. But parts of the U.K. economy are clearly going through some massive changes.

Economy in Brief

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