Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080114e.jpg" align="left" border="0" height="265" width="353">
Industrial output is dropping in November and more than
offsetting the rise in October that followed another drop in September.
The chart shows that while industrial output trends are ragged across
sectors they are also losing momentum. Main EMU sectors are lower in
November and in the quarter-to-date (see table, final column). Still
for two of the three largest Euro Area countries, France and Germany,
IP was still advancing in Q2 even though it did fall in both those
countries in November. Spain&#8217;s sharp rise is no surprise since the
Spanish data are extremely volatile. The UK, an European Union member,
shows a slight drop in output in November and small decline two months
into the fourth quarter as well. 
 

On Balance, the talk for Euro Area suggests that growth is not
the main worry there, while inflation is becoming more of a worry,
unlike the US cycle. Recent reports show that the 3-Month LIBOR premium
over the US discount rate has been evaporating as the successive TAF
auctions have been completed. So Europe may have less of a sense of
risk form the financial crisis that welled up related to sub-prime
loans and more at the end of last year. Still that is different from
saying that growth prospects there have improved. This morning the Euro
was strong and headed toward a new high vs dollar. It made a new high
vs sterling. Surely with the impact for such shifts in the pipeline
growth in the E-zone will not be enhanced. Nonetheless more of the ECB
members seem to be leaning toward agreeing that it is time to hike
rates. 
 
 


<table border="0" cellspacing="0" width="100%">
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> E-zone
and UK IP and MFG</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>Nov-07</td>
<td>Nov-07</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">Ezone Detail</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Q-2-Date</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>-0.6%</td>
<td>0.5%</td>
<td>-1.3%</td>
<td>-5.4%</td>
<td>1.0%</td>
<td>2.2%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Goods</td>
<td>-0.2%</td>
<td>0.2%</td>
<td>-1.4%</td>
<td>-5.6%</td>
<td>0.1%</td>
<td>1.3%</td>
<td>-1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Durables</td>
<td>-1.9%</td>
<td>0.0%</td>
<td>-3.7%</td>
<td>-20.5%</td>
<td>-4.5%</td>
<td>-3.1%</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Nondurables</td>
<td>0.1%</td>
<td>0.1%</td>
<td>-1.2%</td>
<td>-4.1%</td>
<td>0.8%</td>
<td>2.2%</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-0.6%</td>
<td>0.6%</td>
<td>-1.4%</td>
<td>-5.8%</td>
<td>0.6%</td>
<td>2.1%</td>
<td>-1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Goods</td>
<td>-0.7%</td>
<td>0.9%</td>
<td>-1.3%</td>
<td>-4.1%</td>
<td>4.0%</td>
<td>3.9%</td>
<td>0.7%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Main
E-zone Countries and
UK IP in MFG</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo</td>
<td>104.8</td>
<td>104.8</td>
<td>104.8</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">Memo: Manufacturing</td>
<td>1-Mo%</td>
<td>1-Mo%</td>
<td>1-Mo%</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Q-2-Date</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>-0.9%</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>-2.9%</td>
<td>2.7%</td>
<td>4.5%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">France: IP excl Construction</td>
<td>-1.5%</td>
<td>2.1%</td>
<td>-1.3%</td>
<td>-3.0%</td>
<td>0.8%</td>
<td>2.5%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>-1.4%</td>
<td>-0.6%</td>
<td>-1.7%</td>
<td>-13.9%</td>
<td>-5.3%</td>
<td>-3.9%</td>
<td>-9.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>-6.2%</td>
<td>10.2%</td>
<td>-6.8%</td>
<td>-13.6%</td>
<td>-7.7%</td>
<td>-0.7%</td>
<td>13.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>-0.7%</td>
<td>-1.9%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>-0.2%</td>
</tr>
</tbody>
</table>
</body></html>

Industrial output is dropping in November and more than offsetting the rise in October that followed another drop in September. The chart shows that while industrial output trends are ragged across sectors they are also losing [...]

Euro Area IP Slows on Broad Front

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080114a.jpg" width="353">
The U.S. government ran a budget surplus this past December of $48.261B, about the same as during December of 2006. These two figures were improved from the December deficits of the prior two years.
For the first three months of FY08, however, the government&#39;s budget deficit deepened to $105.5B versus a deficit of $80.4B during the first three months of FY07.
Federal receipts grew 5.7% y/y, a slowdown from the 8.2% y/y growth during the first three months FY07. Growth in individual income tax receipts (44% of total receipts) continued steady at 9.1%. Withheld income taxes grew 10.5%, which was an acceleration from 8.3% growth early last fiscal year, but non-withheld taxes fell 4.0% versus 28.3% growth during the first three months of FY07.
As a result of the slowdown in corporate profit growth, growth corporate income taxes (13% of total receipts) showed a shortfall of -1.0% versus an 18.6% gain in FY07. Employment &amp; general retirement contributions picked up to a 6.9% rate of growth from 3.7% but unemployment insurance receipts fell 6.4%, about the same as during the prior fiscal year.
U.S. net outlays grew 4.9%, reversing a y/y decline of 5.6% in early FY07. Growth in defense spending (19% of total outlays) eased to 2.1% from 3.8% and Medicare expenditures (12% of outlays) fell 33.4%, but spending in many other categories picked up: agriculture, transportation, health, income security, justice administration and interest, with the rise in interest rates. Growth in social security spending (21% of outlays) held about steady at 6.3%.The Government&#39;s financial data is available in Haver&#39;s USECON database.
Monetary Policy Flexibility, Risk Management, and Financial Disruptions is Friday&#39;s speech by GovernorFrederic S. Mishkin and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/mishkin20080111a.htm"> 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/@E1/@E106/@E10602/@E106021.HTM">US Government Finance</a> &nbsp;</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2007</th>
<th scope="col">FY 2006</th>
<th scope="col">FY 2005 &nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$48.261B</td>
<td>$-98.238B</td>
<td>$41.961B (12/06)</td>
<td>-$162.8B</td>
<td>-$248.2B</td>
<td>-$318.7B</td>
</tr>
<tr>
<td class="firstcol">Net Revenues</td>
<td>$277.0B</td>
<td>$151.1B</td>
<td>6.5%</td>
<td>6.7%</td>
<td>11.8%</td>
<td>14.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Outlays</td>
<td>$228.7B</td>
<td>$249.3B</td>
<td>4.9%</td>
<td>2.8%</td>
<td>7.4%</td>
<td>7.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

The U.S. government ran a budget surplus this past December of $48.261B, about the same as during December of 2006. These two figures were improved from the December deficits of the prior two years. For the first three months of FY08, [...]

U.S. Budget Deficit Deeper in 1Q FY08: Growth in Receipts Down, Outlays Up

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080114a.jpg" align="left" border="0" height="265" width="353">
The U.S. government ran a budget surplus this past December of
$48.261B, about the same as during December of 2006. These two figures
were improved from the December deficits of the prior two years.
For the first three months of FY08, however, the government's
budget deficit deepened to $105.5B versus a deficit of $80.4B during
the first three months of FY07.
Federal receipts grew 5.7% y/y, a slowdown from the 8.2% y/y
growth during the first three months FY07. Growth in individual income
tax receipts (44% of total receipts) continued steady at 9.1%. Withheld
income taxes grew 10.5%, which was an acceleration from 8.3% growth
early last fiscal year, but non-withheld taxes fell 4.0% versus 28.3%
growth during the first three months of FY07.
As a result of the slowdown in corporate profit growth, growth
corporate income taxes (13% of total receipts) showed a shortfall of
-1.0% versus an 18.6% gain in FY07. Employment &amp; general
retirement contributions picked up to a 6.9% rate of growth from 3.7%
but unemployment insurance receipts fell 6.4%, about the same as during
the prior fiscal year.
U.S. net outlays grew 4.9%, reversing a y/y decline of 5.6% in
early FY07. Growth in defense spending (19% of total outlays) eased to
2.1% from 3.8% and Medicare expenditures (12% of outlays) fell 33.4%,
but spending in many other categories picked up: agriculture,
transportation, health, income security, justice administration and
interest, with the rise in interest rates. Growth in social security
spending (21% of outlays) held about steady at 6.3%.The Government's
financial data is available in Haver's USECON
database.
Monetary Policy Flexibility, Risk Management, and
Financial Disruptions is Friday's speech by GovernorFrederic
S. Mishkin and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/mishkin20080111a.htm">
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/@E1/@E106/@E10602/@E106021.HTM">US
Government Finance</a> &nbsp;</th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2007</th>
<th scope="col">FY 2006</th>
<th scope="col">FY 2005 &nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$48.261B</td>
<td>$-98.238B</td>
<td>$41.961B 
(12/06)</td>
<td>-$162.8B</td>
<td>-$248.2B</td>
<td>-$318.7B</td>
</tr>
<tr>
<td class="firstcol">Net Revenues</td>
<td>$277.0B</td>
<td>$151.1B</td>
<td>6.5%</td>
<td>6.7%</td>
<td>11.8%</td>
<td>14.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Outlays</td>
<td>$228.7B</td>
<td>$249.3B</td>
<td>4.9%</td>
<td>2.8%</td>
<td>7.4%</td>
<td>7.6%</td>
</tr>
</tbody>
</table>
Decline in British
PoundComplicates U.K. Monetary Policy, Dampens Euro Area Export
Prospects 
by <a href="/comment/Curley.html">Louise
Curley</a> January 14, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080114b.jpg" align="left" border="0" height="265" width="353">
In recent months, the British Pound has taken a sharp fall.
From its peak of 102.89 (January, 2005 = 100) in early November, the
Broad Effective Exchange rate of the British pound had declined 7.6% by
last Friday. By contrast, during this time, the Broad Effective
Exchange rate of the US dollar rose 0.56% from 89.63 to 90.13. The
first chart compares the effective exchange rates of the two countries.
The inflationary implications of decline in the pound are likely to
complicate monetary policy.
The pound has depreciated somewhat more against the euro than
the dollar. From the November peak of 1.43 euros, the pound declined
8.3% to 1.32 euros on January 11, while the pound declined 7.1% from
the peak of $2.11 to $1.96 over the same period. The value of the pound
in dollar and euro terms is shown in the second chart. The sharp
decline in the pound relative to the euro is likely to have a dampening
effect on the Euro Area's exports to the U. K.
In hindsight, the earlier rise in the value of the pound
appears to have been somewhat anomalous. The British current account as
a percentage of GDP, which had been relatively high, was even higher
than that of the U.S. in the third quarter of last year as can be seen
in the third chart.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080114d.jpg" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080114c.jpg" height="265" width="312">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">GERMAN&nbsp;
MANUFACTURING NEW ORDERS AND SALES (2000=100)&nbsp;</th>
<th scope="col">Jan 11,&nbsp; 2008</th>
<th scope="col">Nov 11, 2007&nbsp;</th>
<th scope="col">% Chg&nbsp;</th>
<th scope="col"></th>
<th scope="col"></th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Broad Effective
Exchange Rates (Jan, 2005=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; U.
K&nbsp;.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>95.04</td>
<td>102.89</td>
<td>-7.63</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; U. S.</td>
<td>89.63</td>
<td>90.13</td>
<td>0.56</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">Pound/
Euro&nbsp;</td>
<td>1.32</td>
<td>1.44</td>
<td>-8.33</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td style="font-weight: bold;" class="firstcol">Pound/Dollar</td>
<td>1.96</td>
<td>2.11</td>
<td>-7.11</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Q3 2007</td>
<td>Q2 2007&nbsp;</td>
<td>Q3 2006&nbsp;</td>
<td>Q/Q&nbsp; Dif&nbsp;</td>
<td>Y/Y Dif&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">Current Account/
GDP&nbsp; (%)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;
&nbsp;U.
K&nbsp;.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>5.7</td>
<td>-4.0</td>
<td>-4.0</td>
<td>-1.7</td>
<td>0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;
U. S.</td>
<td>5.1</td>
<td>5.4</td>
<td>6.6</td>
<td>-0.3</td>
<td>-1.5</td>
</tr>
</tbody>
</table>
UK Core PPI Inflation on the Rise
Again 
by <a href="/comment/Brusca.html">Robert
Brusca</a> January 14, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080114f.jpg" align="left" border="0" height="265" width="353">
UK Core PPI inflation is making a strong move above the 2%
inflation threshold that the Bank of England applies to overall
consumer inflation (HICP). While the PPI is not the main inflation
metric for the Bank, the surge of inflation at this earlier stage of
production is not welcome news. PPI inflation can be erratic in the UK.
Since Early 2006 this is already the third inflation cycle. Three month
inflation peaked around 3.75% before mid-2006 and again around April
2007; the pace of inflation is again heading higher again in late 2007.
While the successive peaks for inflation were higher during this
episode, the troughs were lower. Through all this, core inflation on a
Yr/Yr basis has been broadly steady. But after edging lower through
November, Yr/Yr core inflation has tuned higher in December. Although
such a move makes a BOE rate cut less likely, the surge in the PPI came
as sterling was hitting a new low vs the euro, the weakest since Dec
1996. Britain, the Euro Area and US all have Central Banks facing tough
policy choices. 
 

 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> UK PPI</th>
</tr>
</thead><tbody>
<tr class="grey3">
<td></td>
<td class="firstcol" colspan="3">%
M/M</td>
<td colspan="4">%-SAAR</td>
</tr>
<tr class="even">
<td></td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-MO
</td>
<td>12-Mo
Y-Ago</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.8%</td>
<td>0.8%</td>
<td>0.7%</td>
<td>9.5%</td>
<td>5.8%</td>
<td>5.0%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>0.4%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>2.6%</td>
<td>2.4%</td>
</tr>
<tr class="grey1">
<td colspan="8" class="firstcol">Core: ex
food
beverages, tobacco
&amp; Petroleum</td>
</tr>
</tbody>
</table>
Euro Area IP Slows on Broad
Front&nbsp; 
by <a href="/comment/Brusca.html">Robert
Brusca</a> January 14, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080114e.jpg" align="left" border="0" height="265" width="353">
Industrial output is dropping in November and more than
offsetting the rise in October that followed another drop in September.
The chart shows that while industrial output trends are ragged across
sectors they are also losing momentum. Main EMU sectors are lower in
November and in the quarter-to-date (see table, final column). Still
for two of the three largest Euro Area countries, France and Germany,
IP was still advancing in Q2 even though it did fall in both those
countries in November. Spain&#8217;s sharp rise is no surprise since the
Spanish data are extremely volatile. The UK, an European Union member,
shows a slight drop in output in November and small decline two months
into the fourth quarter as well. 
 

On Balance, the talk for Euro Area suggests that growth is not
the main worry there, while inflation is becoming more of a worry,
unlike the US cycle. Recent reports show that the 3-Month LIBOR premium
over the US discount rate has been evaporating as the successive TAF
auctions have been completed. So Europe may have less of a sense of
risk form the financial crisis that welled up related to sub-prime
loans and more at the end of last year. Still that is different from
saying that growth prospects there have improved. This morning the Euro
was strong and headed toward a new high vs dollar. It made a new high
vs sterling. Surely with the impact for such shifts in the pipeline
growth in the E-zone will not be enhanced. Nonetheless more of the ECB
members seem to be leaning toward agreeing that it is time to hike
rates. 
 
 


<table border="0" cellspacing="0" width="100%">
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> E-zone
and UK IP and MFG</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>Nov-07</td>
<td>Nov-07</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">Ezone Detail</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Q-2-Date</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>-0.6%</td>
<td>0.5%</td>
<td>-1.3%</td>
<td>-5.4%</td>
<td>1.0%</td>
<td>2.2%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Goods</td>
<td>-0.2%</td>
<td>0.2%</td>
<td>-1.4%</td>
<td>-5.6%</td>
<td>0.1%</td>
<td>1.3%</td>
<td>-1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Durables</td>
<td>-1.9%</td>
<td>0.0%</td>
<td>-3.7%</td>
<td>-20.5%</td>
<td>-4.5%</td>
<td>-3.1%</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Nondurables</td>
<td>0.1%</td>
<td>0.1%</td>
<td>-1.2%</td>
<td>-4.1%</td>
<td>0.8%</td>
<td>2.2%</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-0.6%</td>
<td>0.6%</td>
<td>-1.4%</td>
<td>-5.8%</td>
<td>0.6%</td>
<td>2.1%</td>
<td>-1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Goods</td>
<td>-0.7%</td>
<td>0.9%</td>
<td>-1.3%</td>
<td>-4.1%</td>
<td>4.0%</td>
<td>3.9%</td>
<td>0.7%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Main
E-zone Countries and
UK IP in MFG</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo</td>
<td>104.8</td>
<td>104.8</td>
<td>104.8</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">Memo: Manufacturing</td>
<td>1-Mo%</td>
<td>1-Mo%</td>
<td>1-Mo%</td>
<td>3-Mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Q-2-Date</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>-0.9%</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>-2.9%</td>
<td>2.7%</td>
<td>4.5%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">France: IP excl Construction</td>
<td>-1.5%</td>
<td>2.1%</td>
<td>-1.3%</td>
<td>-3.0%</td>
<td>0.8%</td>
<td>2.5%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>-1.4%</td>
<td>-0.6%</td>
<td>-1.7%</td>
<td>-13.9%</td>
<td>-5.3%</td>
<td>-3.9%</td>
<td>-9.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>-6.2%</td>
<td>10.2%</td>
<td>-6.8%</td>
<td>-13.6%</td>
<td>-7.7%</td>
<td>-0.7%</td>
<td>13.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>-0.7%</td>
<td>-1.9%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>-0.2%</td>
</tr>
</tbody>
</table>
</body></html>

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080111f.jpg" align="left" border="0" height="265" width="353">
Overall import prices were unchanged, as expected, last month
after the revised 3.3% spurt during November.
Petroleum prices, overall, eased 0.6% after the 12.7% November
surge. Crude petroleum prices rose 0.6% (53.5% y/y) after a 12.0%
November jump while fuel oil prices fell 5.5% (+43.5% y/y).
Less petroleum, import prices rose 0.3% after a 0.7% November
gain.

During
the last ten years there has been a 66% (negative) correlation between
the nominal trade-weighted exchange value of the US dollar vs. major
currencies and the y/y change in non oil import prices. The correlation
is a reduced 47% against a broader basket of currencies for industrial
supplies &amp; materials excluding petroleum rose
another 0.7% (6.9% y/y). The detailed import price series can be found
in the Haver USINT database.
Capital goods import prices were unchanged (0.8% y/y). Prices
of computers, peripheral and semiconductors fell 0.6% (-5.3% y/y) and
less the high tech sector capital goods prices rose 0.3% (3.4% y/y).
Prices for imports of nonauto consumer goods rose 0.2% (1.6%
y/y) as apparel prices rose 0.3% (1.9% y/y). These prices had been
unchanged or declining through 2004 to 2006. Prices for household goods
rose 0.1% (1.2% y/y) and that y/y growth has been fairly stable.
The gain in overall export prices eased to 0.4%, half the
prior month's increase. Agricultural prices surged again, last month by
2.7% (23.5% y/y) which was double the November increase. Prices for
nonagricultural price goods eased to a 0.3% (4.5% y/y) rise after a
0.9% surge during November. 
Sovereign Wealth Funds: Stumbling Blocks or
Stepping Stones to Financial Globalization? from the
Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2007/el2007-38.pdf">
here</a>.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080111h.jpg" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080111g.jpg" height="265" width="312">
<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/@E8/@E807/@E807.HTM">Import/Export
Prices (NSA)</a></th>
<th scope="col">December</th>
<th scope="col">November</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">Import - All Commodities</td>
<td>0.0%</td>
<td>3.3%</td>
<td>10.9%</td>
<td>4.2%</td>
<td>4.9%</td>
<td>7.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-0.6%</td>
<td>12.7%</td>
<td>50.1%</td>
<td>11.7%</td>
<td>20.6%</td>
<td>37.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.3%</td>
<td>0.7%</td>
<td>2.9%</td>
<td>2.7%</td>
<td>1.7%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>0.4%</td>
<td>0.9%</td>
<td>6.0%</td>
<td>4.9%</td>
<td>3.6%</td>
<td>3.2%</td>
</tr>
</tbody>
</table>

</body></html>

Overall import prices were unchanged, as expected, last month after the revised 3.3% spurt during November. Petroleum prices, overall, eased 0.6% after the 12.7% November surge. Crude petroleum prices rose 0.6% (53.5% y/y) after a [...]

U.S. Import Prices Flat as Oil Levels Off

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080111b.jpg" align="left" border="0" height="265" width="353">
The Economy watcher indices and the Teikoku indices are all at
relative low points in their respective ranges. The headline economy
watchers index is in the bottom 5% of its five year range. Still
Japanese authorities say that the virtuous circle is intact (some
circle). The Economy Watchers&#8217; employment index is at a five year low.
The future index from the Economy Watchers complex is in the bottom 1.5
percentile of its five year range. Surely this can&#8217;t be good. 
 

We can add to this the finding in the November US trade report
that real non petroleum US exports growth has turned negative over
three months. Surely the rest of the world economy is slowing down and
slumping US exports &#8211; despite their competitiveness- is one sign. These
results from Japan are just another piece of the puzzle that helps to
explain US export weakness despite a huge decline in the dollar
exchange rate (although it&#8217;s not so weak vs the yen). 
 

The Teikoku sector indices echo the Economy-Watcher findings.
The manufacturing, retail and wholesale sector indices are on five year
lows. Construction is in the bottom 16% of its range. Services are
&#8216;relatively strong&#8217; holding to the bottom 20% of their range&#8230; 
 

Japan is still slowing and expectations of the Economy
Watchers do NOT see a turning here soon. Results still seem to be worse
than what the government wants to admit. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">Key Japanese surveys </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="4">Raw readings of each survey</td>
<td colspan="3">Percent of 5Yr range*</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
</tr>
<tr>
<td colspan="8">Diffusion</td>
</tr>
<tr>
<td class="firstcol">Economy Watchers</td>
<td>36.6</td>
<td>38.8</td>
<td>41.5</td>
<td>42.9</td>
<td>5.0%</td>
<td>15.1%</td>
<td>27.5%</td>
</tr>
<tr>
<td class="firstcol">Employment</td>
<td>37.5</td>
<td>41.9</td>
<td>43.8</td>
<td>48.8</td>
<td>0.0%</td>
<td>14.7%</td>
<td>21.5%</td>
</tr>
<tr>
<td class="firstcol">Future</td>
<td>37.0</td>
<td>38.8</td>
<td>43.1</td>
<td>46.0</td>
<td>1.5%</td>
<td>10.6%</td>
<td>32.2%</td>
</tr>
<tr>
<td class="firstcol">NTC Manufacturing</td>
<td>52.3</td>
<td>50.8</td>
<td>49.5</td>
<td>49.8</td>
<td>47.3%</td>
<td>30.2%</td>
<td>15.5%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Econ Trends (Teikoku'/50
neutral/weighted diffusion)</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>40.8</td>
<td>41.7</td>
<td>42.4</td>
<td>43.8</td>
<td>0.0%</td>
<td>9.7%</td>
<td>18.9%</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>34.2</td>
<td>34.4</td>
<td>37.2</td>
<td>37.7</td>
<td>0.0%</td>
<td>0.0%</td>
<td>17.1%</td>
</tr>
<tr>
<td class="firstcol">Wholesale</td>
<td>37.0</td>
<td>38.3</td>
<td>39.1</td>
<td>40.2</td>
<td>0.0%</td>
<td>0.0%</td>
<td>6.3%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>43.5</td>
<td>45.0</td>
<td>45.6</td>
<td>46.6</td>
<td>20.1%</td>
<td>36.4%</td>
<td>42.7%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>32.0</td>
<td>32.6</td>
<td>34.7</td>
<td>36.8</td>
<td>16.4%</td>
<td>22.8%</td>
<td>43.8%</td>
</tr>
<tr class="grey2">
<td colspan="8" class="firstcol">100 is high; Zero is low</td>
</tr>
</tbody>
</table>
</body></html>

The Economy watcher indices and the Teikoku indices are all at relative low points in their respective ranges. The headline economy watchers index is in the bottom 5% of its five year range. Still Japanese authorities say that the [...]

Japan’s Economy Watcher Index Measures Sink Sharply

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080111a.jpg" align="left" border="0" height="265" width="353">
The OECD trend restores leading indicators show a slowing is
in progress across the OECD area. The OECD prefers to look at 6-month
changes in its indicators; these are presented for four separate
non-overlapping periods at the bottom of the table. All
regions/countries shown have declines over the recent past six months -
that indicates a loss of momentum. Over the previous 6-months only OECD
Europe was declining, although Japan barely avoided decline with a 0.1%
rise. Then over the previous two six month periods all regions saw
their trend restored leading indicators declining. What we have is a
slowdown that is broad-based. 
It is very severe in some places. Japan&#8217;s six month drop of 7.5% is
sharp. The US drop of 3.8% is also considerable. The OECD Europe drop
of 2.4% is substantial. 
 

In the chart above we plot the various indices against the
recession bars for the US. The current US decline is not as severe as
it was the last time that the US went into recession. Japan&#8217;s decline
is on the same order of magnitude as it was the last time the US was in
recession, however. Europe&#8217;s decline is more like the sort of slowing
it had in 1996 than when the US was in recession in 2001. However, for
all these comparisons the situation is still in flux and in most places
flux means that conditions are still deteriorating. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="5" scope="col"> OECD
Trend-restored leading Indicators</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Growth progression-SAAR</td>
<td>3-Mos</td>
<td>6-Mos</td>
<td>12-mos</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">OECD</td>
<td>-3.1%</td>
<td style="color: red;">-3.1%</td>
<td style="color: red;">-0.3%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">OECD 7</td>
<td style="color: red;">-4.5%</td>
<td style="color: red;">-4.2%</td>
<td style="color: red;">-1.0%</td>
<td style="color: red;">1.4%</td>
</tr>
<tr>
<td class="firstcol">OECD Europe</td>
<td>-1.8%</td>
<td style="color: red;">-2.4%</td>
<td style="color: red;">-0.7%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">OECD Japan</td>
<td>-1.2%</td>
<td style="color: red;">-7.5%</td>
<td style="color: red;">-3.8%</td>
<td style="color: red;">1.4%</td>
</tr>
<tr>
<td class="firstcol">OECD US</td>
<td style="color: red;">-6.6%</td>
<td style="color: red;">-3.8%</td>
<td style="color: red;">-0.1%</td>
<td style="color: red;">1.5%</td>
</tr>
<tr class="odd">
<td colspan="5" class="firstcol">Six
month readings at 6-Mo
Intervals:</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Recent six</td>
<td>6-Mo Ago</td>
<td>12-Mo Ago</td>
<td>18-Mo Ago</td>
</tr>
<tr>
<td class="firstcol">OECD</td>
<td style="color: red;">-3.1%</td>
<td>2.6%</td>
<td style="color: red;">0.9%</td>
<td style="color: red;">3.6%</td>
</tr>
<tr>
<td class="firstcol">OECD 7</td>
<td style="color: red;">-4.2%</td>
<td>2.2%</td>
<td style="color: red;">0.1%</td>
<td style="color: red;">2.6%</td>
</tr>
<tr>
<td class="firstcol">OECD Europe</td>
<td style="color: red;">-2.4%</td>
<td style="color: red;">0.9%</td>
<td style="color: red;">1.1%</td>
<td style="color: red;">3.6%</td>
</tr>
<tr>
<td class="firstcol">OECD Japan</td>
<td style="color: red;">-7.5%</td>
<td>0.1%</td>
<td style="color: red;">-0.5%</td>
<td style="color: red;">3.3%</td>
</tr>
<tr>
<td class="firstcol">OECD US</td>
<td style="color: red;">-3.8%</td>
<td>3.6%</td>
<td style="color: red;">0.5%</td>
<td style="color: red;">2.4%</td>
</tr>
<tr class="grey1">
<td colspan="5" class="firstcol">Slowdowns
indicated by BOLD RED</td>
</tr>
</tbody>
</table>
</body></html>

The OECD trend restores leading indicators show a slowing is in progress across the OECD area. The OECD prefers to look at 6-month changes in its indicators; these are presented for four separate non-overlapping periods at the bottom [...]

OECD Leading Indicators Showing Declining Momentum

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080111c.jpg" width="353">
The U.S. foreign trade deficit deepened to $63.1B in November from an unrevised $57.8B during October. Consensus expectations had been for a deficit of $60.0B.
During the first eleven months of 2007 the deficit averaged $59.1B versus an average of $63.5B during the first eleven months of 2006.
U.S. exports rose 0.4% after an unrevised 0.9% gain during October. During the first eleven months of last year exports rose 12.3%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080111d.jpg" width="353">
Exports of goods ticked up just 0.1% (13.7% y/y) after a 0.5% advance during October. The latest was the smallest rise since a slight decline last April. Exports of capital goods reversed much of an October surge with a 2.3% (+6.1% y/y) drop. Exports of civilian aircraft (-2.4% y/y) reversed nearly all of an 18.7% drop. Exports of computers surged 8.6% (22.3% y/y) but nonfood exports less autos fell 0.9% (+8.9% y/y).
U.S. exports of services rose another strong 1.3% (11.4 y/y). Travel exports jumped again by 1.1% (21.2% y/y) and passenger fares surged 2.1% (18.1% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080111e.jpg" width="353">
Overall imports surged 3.0% as higher oil prices raised petroleum imports by 16.3%. The quantity of energy related products fell 3.3% (+3.1% y/y) but the per barrel price of crude petroleum surged 9.9% (52.5% y/y). Imports of nonauto consumer goods surged 2.0% (4.1% y/y) after a strong 1.2% October gain but capital goods imports rose just 0.4% (5.9% y/y) after a 1.4% October decline.
Imports of services rose 0.4% (8.3% y/y) after a 1.0% October increase.
The U.S. trade deficit in goods with China improved slightly m/m to $24.0B. During the first eleven months of 2007 the deficit with China averaged $21.6B versus $19.4B in 2006. Exports to China rose 20.9% y/y and imports rose 7.2%. 
Yesterday&#39;s speech titled Financial Markets, the Economic Outlook, and Monetary Policy by Federal Reserve Chairman Ben S. Bernanke can be found <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20080110a.htm">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/@EE/@EE01/@EE01.HTM">Foreign Trade&nbsp;</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">U.S. Trade Deficit</td>
<td>$63.1B</td>
<td>$57.8B</td>
<td>$58.5B (11/06)</td>
<td>$758.5</td>
<td>$714.4B</td>
<td>$612.1B</td>
</tr>
<tr>
<td class="firstcol">Exports - Goods &amp; Services</td>
<td>0.4%</td>
<td>0.9%</td>
<td>13.0%</td>
<td>12.7%</td>
<td>10.9%</td>
<td>13.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports - Goods &amp; Services</td>
<td>3.0%</td>
<td>1.0%</td>
<td>11.4%</td>
<td>10.4%</td>
<td>12.9%</td>
<td>16.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>16.3%</td>
<td>8.4%</td>
<td>55.5%</td>
<td>20.1%</td>
<td>39.6%</td>
<td>35.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonpetroleum Goods</td>
<td>1.0%</td>
<td>-0.4%</td>
<td>4.8%</td>
<td>9.1%</td>
<td>10.3%</td>
<td>14.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

The U.S. foreign trade deficit deepened to $63.1B in November from an unrevised $57.8B during October. Consensus expectations had been for a deficit of $60.0B. During the first eleven months of 2007 the deficit averaged $59.1B versus [...]

U.S. Trade Deficit Deepest Since Last August, Oil Imports Surged

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080111c.jpg" align="left" border="0" height="265" width="353">
The U.S. foreign trade deficit deepened to $63.1B in November
from an unrevised $57.8B during October. Consensus expectations had
been for a deficit of $60.0B.
During the first eleven months of 2007 the deficit averaged
$59.1B versus an average of $63.5B during the first eleven months of
2006.
U.S. exports rose 0.4% after an unrevised 0.9% gain during
October. During the first eleven months of last year exports rose 12.3%.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080111d.jpg" align="right" border="0" height="265" width="353">
Exports of goods ticked up just 0.1% (13.7% y/y) after a 0.5%
advance during October. The latest was the smallest rise since a slight
decline last April. Exports of capital goods reversed much of an
October surge with a 2.3% (+6.1% y/y) drop. Exports of civilian
aircraft (-2.4% y/y) reversed nearly all of an 18.7% drop. Exports of
computers surged 8.6% (22.3% y/y) but nonfood exports less autos fell
0.9% (+8.9% y/y).
U.S. exports of services rose another strong 1.3% (11.4 y/y).
Travel exports jumped again by 1.1% (21.2% y/y) and passenger fares
surged 2.1% (18.1% y/y).<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080111e.jpg" align="left" border="0" height="265" width="353">
Overall imports surged 3.0% as higher oil prices raised
petroleum imports by 16.3%. The quantity of energy related products
fell 3.3% (+3.1% y/y) but the per barrel price of crude petroleum
surged 9.9% (52.5% y/y). Imports of nonauto consumer goods surged 2.0%
(4.1% y/y) after a strong 1.2% October gain but capital goods imports
rose just 0.4% (5.9% y/y) after a 1.4% October decline.
Imports of services rose 0.4% (8.3% y/y) after a 1.0% October
increase.
The U.S. trade deficit in goods with China improved slightly
m/m to $24.0B. During the first eleven months of 2007 the deficit with
China averaged $21.6B versus $19.4B in 2006. Exports to China rose
20.9% y/y and imports rose 7.2%. 
 

Yesterday's speech titled Financial Markets, the
Economic Outlook, and Monetary Policy by Federal Reserve
Chairman Ben S. Bernanke can be found <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20080110a.htm">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/@EE/@EE01/@EE01.HTM">Foreign
Trade&nbsp;</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">U.S. Trade Deficit</td>
<td>$63.1B</td>
<td>$57.8B</td>
<td>$58.5B 
(11/06)</td>
<td>$758.5</td>
<td>$714.4B</td>
<td>$612.1B</td>
</tr>
<tr>
<td class="firstcol">Exports - Goods &amp;
Services</td>
<td>0.4%</td>
<td>0.9%</td>
<td>13.0%</td>
<td>12.7%</td>
<td>10.9%</td>
<td>13.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports - Goods &amp;
Services</td>
<td>3.0%</td>
<td>1.0%</td>
<td>11.4%</td>
<td>10.4%</td>
<td>12.9%</td>
<td>16.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>16.3%</td>
<td>8.4%</td>
<td>55.5%</td>
<td>20.1%</td>
<td>39.6%</td>
<td>35.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonpetroleum Goods</td>
<td>1.0%</td>
<td>-0.4%</td>
<td>4.8%</td>
<td>9.1%</td>
<td>10.3%</td>
<td>14.7%</td>
</tr>
</tbody>
</table>
OECD Leading Indicators
ShowingDeclining Momentum 
by <a href="/comment/Brusca.html">Robert
Brusca</a> January 11, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080111a.jpg" align="left" border="0" height="265" width="353">
The OECD trend restores leading indicators show a slowing is
in progress across the OECD area. The OECD prefers to look at 6-month
changes in its indicators; these are presented for four separate
non-overlapping periods at the bottom of the table. All
regions/countries shown have declines over the recent past six months -
that indicates a loss of momentum. Over the previous 6-months only OECD
Europe was declining, although Japan barely avoided decline with a 0.1%
rise. Then over the previous two six month periods all regions saw
their trend restored leading indicators declining. What we have is a
slowdown that is broad-based. 
It is very severe in some places. Japan&#8217;s six month drop of 7.5% is
sharp. The US drop of 3.8% is also considerable. The OECD Europe drop
of 2.4% is substantial. 
 

In the chart above we plot the various indices against the
recession bars for the US. The current US decline is not as severe as
it was the last time that the US went into recession. Japan&#8217;s decline
is on the same order of magnitude as it was the last time the US was in
recession, however. Europe&#8217;s decline is more like the sort of slowing
it had in 1996 than when the US was in recession in 2001. However, for
all these comparisons the situation is still in flux and in most places
flux means that conditions are still deteriorating. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="5" scope="col"> OECD
Trend-restored leading Indicators</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Growth progression-SAAR</td>
<td>3-Mos</td>
<td>6-Mos</td>
<td>12-mos</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">OECD</td>
<td>-3.1%</td>
<td style="color: red;">-3.1%</td>
<td style="color: red;">-0.3%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">OECD 7</td>
<td style="color: red;">-4.5%</td>
<td style="color: red;">-4.2%</td>
<td style="color: red;">-1.0%</td>
<td style="color: red;">1.4%</td>
</tr>
<tr>
<td class="firstcol">OECD Europe</td>
<td>-1.8%</td>
<td style="color: red;">-2.4%</td>
<td style="color: red;">-0.7%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">OECD Japan</td>
<td>-1.2%</td>
<td style="color: red;">-7.5%</td>
<td style="color: red;">-3.8%</td>
<td style="color: red;">1.4%</td>
</tr>
<tr>
<td class="firstcol">OECD US</td>
<td style="color: red;">-6.6%</td>
<td style="color: red;">-3.8%</td>
<td style="color: red;">-0.1%</td>
<td style="color: red;">1.5%</td>
</tr>
<tr class="odd">
<td colspan="5" class="firstcol">Six
month readings at 6-Mo
Intervals:</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Recent six</td>
<td>6-Mo Ago</td>
<td>12-Mo Ago</td>
<td>18-Mo Ago</td>
</tr>
<tr>
<td class="firstcol">OECD</td>
<td style="color: red;">-3.1%</td>
<td>2.6%</td>
<td style="color: red;">0.9%</td>
<td style="color: red;">3.6%</td>
</tr>
<tr>
<td class="firstcol">OECD 7</td>
<td style="color: red;">-4.2%</td>
<td>2.2%</td>
<td style="color: red;">0.1%</td>
<td style="color: red;">2.6%</td>
</tr>
<tr>
<td class="firstcol">OECD Europe</td>
<td style="color: red;">-2.4%</td>
<td style="color: red;">0.9%</td>
<td style="color: red;">1.1%</td>
<td style="color: red;">3.6%</td>
</tr>
<tr>
<td class="firstcol">OECD Japan</td>
<td style="color: red;">-7.5%</td>
<td>0.1%</td>
<td style="color: red;">-0.5%</td>
<td style="color: red;">3.3%</td>
</tr>
<tr>
<td class="firstcol">OECD US</td>
<td style="color: red;">-3.8%</td>
<td>3.6%</td>
<td style="color: red;">0.5%</td>
<td style="color: red;">2.4%</td>
</tr>
<tr class="grey1">
<td colspan="5" class="firstcol">Slowdowns
indicated by BOLD RED</td>
</tr>
</tbody>
</table>
Japan&#8217;s Economy Watcher Index
Measures Sink Sharply 
by <a href="/comment/Brusca.html">Robert
Brusca</a> January 11, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080111b.jpg" align="left" border="0" height="265" width="353">
The Economy watcher indices and the Teikoku indices are all at
relative low points in their respective ranges. The headline economy
watchers index is in the bottom 5% of its five year range. Still
Japanese authorities say that the virtuous circle is intact (some
circle). The Economy Watchers&#8217; employment index is at a five year low.
The future index from the Economy Watchers complex is in the bottom 1.5
percentile of its five year range. Surely this can&#8217;t be good. 
 

We can add to this the finding in the November US trade report
that real non petroleum US exports growth has turned negative over
three months. Surely the rest of the world economy is slowing down and
slumping US exports &#8211; despite their competitiveness- is one sign. These
results from Japan are just another piece of the puzzle that helps to
explain US export weakness despite a huge decline in the dollar
exchange rate (although it&#8217;s not so weak vs the yen). 
 

The Teikoku sector indices echo the Economy-Watcher findings.
The manufacturing, retail and wholesale sector indices are on five year
lows. Construction is in the bottom 16% of its range. Services are
&#8216;relatively strong&#8217; holding to the bottom 20% of their range&#8230; 
 

Japan is still slowing and expectations of the Economy
Watchers do NOT see a turning here soon. Results still seem to be worse
than what the government wants to admit. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Key
Japanese surveys </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="4">Raw readings of each survey</td>
<td colspan="3">Percent of 5Yr range*</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
</tr>
<tr>
<td colspan="8">Diffusion</td>
</tr>
<tr>
<td class="firstcol">Economy Watchers</td>
<td>36.6</td>
<td>38.8</td>
<td>41.5</td>
<td>42.9</td>
<td>5.0%</td>
<td>15.1%</td>
<td>27.5%</td>
</tr>
<tr>
<td class="firstcol">Employment</td>
<td>37.5</td>
<td>41.9</td>
<td>43.8</td>
<td>48.8</td>
<td>0.0%</td>
<td>14.7%</td>
<td>21.5%</td>
</tr>
<tr>
<td class="firstcol">Future</td>
<td>37.0</td>
<td>38.8</td>
<td>43.1</td>
<td>46.0</td>
<td>1.5%</td>
<td>10.6%</td>
<td>32.2%</td>
</tr>
<tr>
<td class="firstcol">NTC Manufacturing</td>
<td>52.3</td>
<td>50.8</td>
<td>49.5</td>
<td>49.8</td>
<td>47.3%</td>
<td>30.2%</td>
<td>15.5%</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Econ
Trends (Teikoku'/50
neutral/weighted diffusion)</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>40.8</td>
<td>41.7</td>
<td>42.4</td>
<td>43.8</td>
<td>0.0%</td>
<td>9.7%</td>
<td>18.9%</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>34.2</td>
<td>34.4</td>
<td>37.2</td>
<td>37.7</td>
<td>0.0%</td>
<td>0.0%</td>
<td>17.1%</td>
</tr>
<tr>
<td class="firstcol">Wholesale</td>
<td>37.0</td>
<td>38.3</td>
<td>39.1</td>
<td>40.2</td>
<td>0.0%</td>
<td>0.0%</td>
<td>6.3%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>43.5</td>
<td>45.0</td>
<td>45.6</td>
<td>46.6</td>
<td>20.1%</td>
<td>36.4%</td>
<td>42.7%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>32.0</td>
<td>32.6</td>
<td>34.7</td>
<td>36.8</td>
<td>16.4%</td>
<td>22.8%</td>
<td>43.8%</td>
</tr>
<tr class="grey2">
<td colspan="8" class="firstcol">100 is high;
Zero is low</td>
</tr>
</tbody>
</table>
U.S. Import Prices Flat as Oil
Levels Off 
by <a href="/comment/Moeller.html">Tom
Moeller</a> January 11, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080111f.jpg" align="left" border="0" height="265" width="353">
Overall import prices were unchanged, as expected, last month
after the revised 3.3% spurt during November.
Petroleum prices, overall, eased 0.6% after the 12.7% November
surge. Crude petroleum prices rose 0.6% (53.5% y/y) after a 12.0%
November jump while fuel oil prices fell 5.5% (+43.5% y/y).
Less petroleum, import prices rose 0.3% after a 0.7% November
gain.

During
the last ten years there has been a 66% (negative) correlation between
the nominal trade-weighted exchange value of the US dollar vs. major
currencies and the y/y change in non oil import prices. The correlation
is a reduced 47% against a broader basket of currencies for industrial
supplies &amp; materials excluding petroleum rose
another 0.7% (6.9% y/y). The detailed import price series can be found
in the Haver USINT database.
Capital goods import prices were unchanged (0.8% y/y). Prices
of computers, peripheral and semiconductors fell 0.6% (-5.3% y/y) and
less the high tech sector capital goods prices rose 0.3% (3.4% y/y).
Prices for imports of nonauto consumer goods rose 0.2% (1.6%
y/y) as apparel prices rose 0.3% (1.9% y/y). These prices had been
unchanged or declining through 2004 to 2006. Prices for household goods
rose 0.1% (1.2% y/y) and that y/y growth has been fairly stable.
The gain in overall export prices eased to 0.4%, half the
prior month's increase. Agricultural prices surged again, last month by
2.7% (23.5% y/y) which was double the November increase. Prices for
nonagricultural price goods eased to a 0.3% (4.5% y/y) rise after a
0.9% surge during November. 
Sovereign Wealth Funds: Stumbling Blocks or
Stepping Stones to Financial Globalization? from the
Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2007/el2007-38.pdf">
here</a>.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080111h.jpg" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080111g.jpg" height="265" width="312">
<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/@E8/@E807/@E807.HTM">Import/Export
Prices (NSA)</a></th>
<th scope="col">December</th>
<th scope="col">November</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">Import - All Commodities</td>
<td>0.0%</td>
<td>3.3%</td>
<td>10.9%</td>
<td>4.2%</td>
<td>4.9%</td>
<td>7.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-0.6%</td>
<td>12.7%</td>
<td>50.1%</td>
<td>11.7%</td>
<td>20.6%</td>
<td>37.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.3%</td>
<td>0.7%</td>
<td>2.9%</td>
<td>2.7%</td>
<td>1.7%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>0.4%</td>
<td>0.9%</td>
<td>6.0%</td>
<td>4.9%</td>
<td>3.6%</td>
<td>3.2%</td>
</tr>
</tbody>
</table>

</body></html>

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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260616A.jpg

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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

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

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The ZEW diffusion survey (an up-minus-down survey) showed mixed improvements in the economic situation and improvements for macroeconomic expectations in June. The report shows the economic situation improving in the United States and China, with the euro area taking a small step back (to -43.4 in June from -41.4 in May), while Germany also saw a step back in the economic situation (to -81.0 from -77.8). The ranking metrics show the German reading as lower only 13.8% of the time—the weakest showing among the four. The EMU ranking is at a 36.7 percentile, with the U.S. ranking close to that at a 42.5 percentile. China has a 76.2 percentile ranking over a shorter timeline.

Macro expectations show solid improvements reported in Germany, the U.S., and China. Macroeconomic rankings all are muted, with the U.S. at a 39.9 percentile standing as the strongest, followed by Germany at a 35.2 percentile standing and China at a 22.2 percentile standing.

Inflation expectations are still high across the board, ranging from a low percentile standing for the EMU, Germany, and China—from a euro area low of 78.6 to a high standing for this group at 85.7 for China. In contrast, the U.S. ranking is still high, but only at its 61.8 percentile. And all the inflation expectations readings fell in June as optimism on opening the Strait of Hormuz has been growing. 

Nonetheless, expectations for short-term rates have been rising. They rose solidly in the EMU and China, and strongly in the U.S., from 10.5 in May to 38.5 in June.

In contrast, long-term rate expectations rose across the board as well but by modest amounts. The rankings for short-term expectations are stronger for all three countries compared to the ranking on long-term rate expectations. I suppose we can understand that as expectations of anti-inflation medicine.

Stock markets are assessed as higher month-to-month in the EMU and in all three countries. China has a strong ranking for its stock market assessment at its 81st percentile. The U.S. standing is above its median at its 51.5 percentile; the euro area expectation is at its 34.2 percentile, with German stock market expectations still weak at its 23.6 percentile.

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The pending conflict-ending deal in the Middle East should be a catalyst for further improvement. While the U.S.-Iran deal is not yet announced in detail—or even signed—market reactions are clear-cut across the board; there is no sign that this deal is expected to wither so soon. But it still has issues and contentious elements, such as Iran’s nuclear ambitions and the fact that the Israel is not on board with what it regards as a too-early exit from hostilities. Israel wants regime change and warns of a more difficult future without one.

ZEW Shows Mixed Conditions and an Expectations Rebound

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.

Economy in Brief

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Euro Area IP Slows on Broad Front

U.S. Budget Deficit Deeper in 1Q FY08: Growth in Receipts Down, Outlays Up

U.S. Budget Deficit Deeper in 1Q FY08: Growth in Receipts Down, Outlays Up

U.S. Import Prices Flat as Oil Levels Off

Japan’s Economy Watcher Index Measures Sink Sharply

OECD Leading Indicators Showing Declining Momentum

U.S. Trade Deficit Deepest Since Last August, Oil Imports Surged

U.S. Trade Deficit Deepest Since Last August, Oil Imports Surged