Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061219f.jpg" width="353">
According to the International Council of Shopping Centers (ICSC)-UBS, chain store sales last week rose again by 1.6% after the prior period&#39;s 1.0% gain. Despite these increases which recovered about all of a collapse in sales which opened the month, December sales are 1.3% below the November average which advanced 0.3% from October.
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 rose again by 0.7% for the fifth weekly gain in the last six.

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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">12/16/06</th>
<th scope="col">12/09/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>466.1</td>
<td>458.8</td>
<td>2.4%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
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</tbody>
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According to the International Council of Shopping Centers (ICSC)-UBS, chain store sales last week rose again by 1.6% after the prior period's 1.0% gain. Despite these increases which recovered about all of a collapse in sales which [...]

Weekly Chain Store Sales Rose Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061219e.jpg" width="353">
The Composite Housing Market Index from the National Association of Home Builders&#39; (NAHB) slipped in December to 32 and gave back half of last month&#39;s improvement. The index, therefore, remained down 5.9% in the fourth quarter versus 3Q and off nearly one half from last year. 
During the last twenty years there has been a 76% correlation between the y/y change in the Composite Index and the change in single family housing starts. 
The decline was led by a falloff in the traffic of prospective home buyers which reversed all of the November gain (-42.5% y/y). 
The sub-index for current sales also was unchanged m/m (-48.4% y/y) but the sub-index covering prospective sales in the next six months improved to its highest level since July (-26.2% y/y). 
The housing market index for the Midwest rose sharply (-35.3% y/y) to the highest level since June but that was offset by deterioration in the West (-58.7% y/y). 
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions good than poor. 
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">December</th>
<th scope="col">November</th>
<th scope="col">Dec. &#39;05 </th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
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</thead>
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<td class="firstcol">Composite Housing Market Index</td>
<td>32</td>
<td>33</td>
<td>57</td>
<td>42</td>
<td>67</td>
<td>68</td>
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The Composite Housing Market Index from the National Association of Home Builders' (NAHB) slipped in December to 32 and gave back half of last month's improvement. The index, therefore, remained down 5.9% in the fourth quarter versus [...]

NAHB Housing Market Index Slipped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061219c.jpg" width="353">
The producer price index for finished goods surged 2.0% last month and far surpassed Consensus expectations for a 0.6% rise. It was the largest one month increase since 1974 and reflected higher energy &amp; nonenergy prices. The core PPI jumped a surprising 1.3% and easily beat Consensus expectations for a 0.2% uptick with the largest m/m increase since 1980.
Finished energy goods prices recovered all of the prior month&#39;s decline with a 6.1% (-1.8% y/y) increase. Gasoline prices jumped 17.9% (3.5% y/y) after three months of sharp decline and fuel oil prices surged 7.7% (6.1% y/y). Natural gas prices also recovered most of their October drop with a 5.9% (-14.1% y/y) increase. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061219d.jpg" width="353">
Finished consumer goods prices less food &amp; energy jumped 1.1% (1.7% y/y) after the 0.8% October decline and the rise was led by a 2.2% (-0.7% y/y) increase in passenger cars. Furniture prices rose 0.2% (2.5% y/y) for the second month.
The 1.4% (2.2% y/y) surge in capital equipment prices followed a 0.9% October decline and reflected a 13.6% (0.7% y/y) recovery in light truck prices which had plunged 9.7% during the prior month. 
Intermediate goods prices increased 0.7% but prices less food &amp; energy fell 0.3% reflecting a huge 4.4% (+12.2% y/y) decline in steel mill products prices. 
The crude materials PPI recovered all of the prior months decline with a 15.7% surge as natural gas prices nearly doubled m/m (-35.1% y/y). Plywood &amp; timber prices surged 5.0% (7.5% y/y) and aluminum base scrap rose 2.7% (28.8% y/y).

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">Finished Goods</td>
<td>2.0%&nbsp;</td>
<td>-1.6%</td>
<td>&nbsp; 0.9%&nbsp;</td>
<td>&nbsp;4.9%&nbsp;</td>
<td>3.6%&nbsp;</td>
<td>3.2%</td>
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<td class="firstcol">&nbsp; Core</td>
<td>1.3%</td>
<td>-0.9%</td>
<td>&nbsp;1.8%</td>
<td>2.4%</td>
<td>1.5%</td>
<td>0.2%</td>
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<td class="firstcol">Intermediate Goods</td>
<td>0.7%</td>
<td>-1.1%</td>
<td>2.6%</td>
<td>&nbsp;8.0%</td>
<td>6.6%</td>
<td>4.7%</td>
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<td class="firstcol">&nbsp; Core</td>
<td>-0.3%</td>
<td>0.0%</td>
<td>5.1%</td>
<td>&nbsp;5.5%</td>
<td>5.7%</td>
<td>2.0%</td>
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<td class="firstcol">Crude Goods</td>
<td>&nbsp;15.7%&nbsp;</td>
<td>-10.5%</td>
<td>&nbsp;-8.5%</td>
<td>14.6%</td>
<td>&nbsp;17.5%</td>
<td>25.1%</td>
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<td class="firstcol">&nbsp; Core</td>
<td>0.5%</td>
<td>-1.3%</td>
<td>&nbsp;17.8%</td>
<td>4.8%</td>
<td>&nbsp;26.5%</td>
<td>12.4%</td>
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The producer price index for finished goods surged 2.0% last month and far surpassed Consensus expectations for a 0.6% rise. It was the largest one month increase since 1974 and reflected higher energy & nonenergy prices. The core PPI [...]

November PPI Gain the Largest Since 1974

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061219b.jpg" width="353">
November housing starts recovered less than half of the previous month&#39;s little revised decline with a 6.7% increase. The gain to 1.588M was slightly better than Consensus expectations for a rise to 1.54M starts.
The year-to-date average for starts of 1.588M was 11.7% below the first eleven months of 2005.
Single-family starts in November rose 8.1% to 1.281M, recovering less than half of the October decline which was to the lowest level since July 2000. The year-to-date average level of single family starts was 12.6% below 2005.
Multi-family starts gained back just 1.3% of the 8.5% October drop and were down 4.5% during this year&#39;s first eleven months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061219a.jpg" width="353">
By region, single family housing starts in the South posted a 14.1% (-22.1% y/y) increase but that was only about half of the sharp October decline. Single family starts in the Northeast again were up (-13.6% y/y) but the gains during the last two months still have not recovered the precipitous 16.7% decline during September. Starts in the Midwest rose 1.5% (-37.6% y/y) and starts out West nudged up 1.4% (-38.5% y/y).
Building permits fell 3.0% after a little revised 5.2% decline during October. This tenth monthly decline this year was to the lowest level since 1997. Permits to start single family homes fell 3.1% (-33.3% y/y) for the second consecutive month to the lowest since 1997.
What Do Financial Asset Prices Say About the Housing Market? from the Board of Governors of the Federal Reserve System can be found <a href="http://www.federalreserve.gov/pubs/feds/2006/200632/200632abs.html">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003&nbsp;</th>
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<td class="firstcol">Total</td>
<td>1,588</td>
<td>1,488</td>
<td>-25.5%&nbsp;</td>
<td>2,073</td>
<td>1,950</td>
<td>1,854</td>
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<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,281</td>
<td>1,185&nbsp;</td>
<td>-28.6%&nbsp;</td>
<td>1,719</td>
<td>1,604</td>
<td>1,505&nbsp;</td>
</tr>
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<td class="firstcol">&nbsp; Multi-family</td>
<td>303&nbsp;</td>
<td>303&nbsp;</td>
<td>-8.6%&nbsp;</td>
<td>354</td>
<td>345</td>
<td>349&nbsp;</td>
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<td class="firstcol">Building Permits</td>
<td>1,506&nbsp;</td>
<td>1,553&nbsp;</td>
<td>-31.3%&nbsp;</td>
<td>2,159</td>
<td>2,058</td>
<td>1,888</td>
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November housing starts recovered less than half of the previous month's little revised decline with a 6.7% increase. The gain to 1.588M was slightly better than Consensus expectations for a rise to 1.54M starts. The year-to-date [...]

Housing Starts Recover A Bit

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218c.jpg" width="353">
The Euro Zone&#39;s surplus on trade in October declined to 1,710.7 million euros from 2,418.0 million euros in September, but was 2,927.8 million euros above the deficit of 1,217.1 million euros in October, 2005. The traditional surplus on trade that the Euro Zone had enjoyed was turned into a deficit in mid 2005, due in part to increased oil imports and in part to the unrelenting surge in imports from China. The first chart shows the balance of trade for the Euro Zone with the rest of the world.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218d.jpg" width="353">
As the second chart shows the deficit with OPEC appears to have stabilized in recent months, but that with China continues to widen. Imports from China now exceed those from the United States, which had been the largest source of imports after the United Kingdom. The third chart compares imports from China with those from the US. While imports from China are now lower than those from the UK, the recent growth in these imports suggest it will not be too long before they exceed imports from the UK as can be seen in the fourth chart.
The imbalances resulting from China&#39;s growing surplus on its trade account with the Euro Zone is adding to the pressure already being exerted by the US to appreciate the Chinese Yuan. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218e.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218f.jpg" width="353">

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<th scope="col" class="firstcol">EURO ZONE TRADE IN GOODS (Mil. Euro)</th>
<th scope="col">Oct&nbsp; 06</th>
<th scope="col">Sep 06</th>
<th scope="col">Oct 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">Balance of Trade</td>
<td>1,710.7</td>
<td>2,418.0</td>
<td>-1,217.1</td>
<td>-702.3*</td>
<td>2,927.8*</td>
<td>16,835.0</td>
<td>71,537.1</td>
<td>69,723.3</td>
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<td class="firstcol">&nbsp; China</td>
<td>-7,764.8</td>
<td>-7,391.0</td>
<td>-6,512.4</td>
<td>-373.8*</td>
<td>-1,252.4*</td>
<td>-74,705.5</td>
<td>-51,792.9</td>
<td>-39,279.3</td>
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<td class="firstcol">&nbsp; OPEC</td>
<td>-4,321.9</td>
<td>-3,265.7</td>
<td>-4,130.3</td>
<td>-1,056.2*</td>
<td>-191.6*</td>
<td>-36,858.0</td>
<td>-13,422.0</td>
<td>-10,731.9</td>
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<td class="firstcol"> Imports </td>
<td>118,727.7</td>
<td>117,964.5</td>
<td>106,537.8</td>
<td>0.65</td>
<td>11.44</td>
<td>1,224,700</td>
<td>1,075,342</td>
<td>990,435</td>
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<td class="firstcol">&nbsp; US</td>
<td>10,725.0</td>
<td>10,557.8</td>
<td>10,144.6</td>
<td>1.58</td>
<td>5.72</td>
<td>120,158.3</td>
<td>113,775.4</td>
<td>110,326.1</td>
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<td class="firstcol">&nbsp; China</td>
<td>12,582.8</td>
<td>12,170.7</td>
<td>10,231.3</td>
<td>3.39&nbsp;</td>
<td>22.98</td>
<td>118,120.7</td>
<td>92,060.4</td>
<td>74,515.0</td>
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<td class="firstcol"> &nbsp; UK </td>
<td>n.a.</td>
<td>13,430.2</td>
<td>12,888.2</td>
<td>n.a.</td>
<td>n.a.</td>
<td>152,360.0</td>
<td>144,047.1</td>
<td>138,863.4</td>
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The Euro Zone's surplus on trade in October declined to 1,710.7 million euros from 2,418.0 million euros in September, but was 2,927.8 million euros above the deficit of 1,217.1 million euros in October, 2005. The traditional surplus [...]

Euro Zone Trade Shows a Surplus, but Rising Imports from China Add to Pressure on China to Speed Up Appreciation [...]

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218a.jpg" width="353">
Last quarter the US current account deficit posted a new record of $225.6B versus a revised 2Q deficit of $217.1B which was slightly shallower than initially reported. The figure matched Consensus expectations for a 3Q deficit of $225B.
The deficit last quarter equaled 6.8% of GDP and so far this year has averaged 6.64% versus 6.35% during all of last year .
The deficit in merchandise trade deteriorated to $218.6B from an unrevised 2Q deficit of $210.6B. Exports grew 3.6% (16.5% y/y) yet that strong gain was again offset by a 3.7% surge in imports (13.5% y/y).
Last quarter, higher oil prices caused the balance in petroleum trade to deteriorate to $75.2B from $71.4B during 2Q. The nonpetroleum trade balance reversed all of its 2Q improvement and fell to $138.7B which was just shy of the record set during last year&#39;s fourth quarter.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218b.jpg" width="353">
The surplus in services trade improved sharply to a surplus of $18.3B from a revised $17.5B during 2Q which was better than initially estimated. Exports of services grew just 0.9% (8.5% y/y) last quarter but services imports grew an even smaller 0.1% (8.6% y/y).
The U.S. capital account improved q/q though the net US foreign direct investment balance deteriorated. U.S. direct investment abroad rose 35% to $$63.1B (37.7% y/y). Foreign direct investment in the US, however, increased $44.1B, less than the $45.8B increase during 2Q.
Would Protectionism Defuse Global Imbalances and Spur Economic Activity? from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/staff_reports/sr268.pdf"> here</a>.
Should We Worry About the Current Account Deficit? from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/region_focus/winter_2006/pdf/research_spotlight.pdf"> here</a>.
How Dangerous is the U.S. Current Account Deficit? from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2006/b/pages/account_deficit.html"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">US Int&#39;l Balance of Payments</a></th>
<th scope="col">3Q &#39;06</th>
<th scope="col">2Q &#39;06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">Current Account Deficit</td>
<td>$225.6</td>
<td>$217.1B</td>
<td>$183.4B (3Q&#39;05)</td>
<td>$791.5B</td>
<td>$665.3B</td>
<td>$527.5B</td>
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<tr>
<td class="firstcol">&nbsp; Goods/Services/Income Deficit</td>
<td>$204.1</td>
<td>$195.3B</td>
<td>$174.0B (3Q&#39;05)</td>
<td>$705.4B</td>
<td>$583.7B</td>
<td>$458.3B</td>
</tr>
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<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports</td>
<td>2.9%</td>
<td>5.7%</td>
<td>19.0%</td>
<td>14.6%</td>
<td>15.7%</td>
<td>5.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports</td>
<td>3.4%</td>
<td>4.3%</td>
<td>18.5%</td>
<td>16.3%</td>
<td>18.7%</td>
<td>7.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Unilateral Transfers Deficit</td>
<td>$21.5B</td>
<td>$21.9B</td>
<td>$9.5B (3Q&#39;05)</td>
<td>$86.1B</td>
<td>$81.6B</td>
<td>$69.2B</td>
</tr>
</tbody>
</table>
</body>
</html>

Last quarter the US current account deficit posted a new record of $225.6B versus a revised 2Q deficit of $217.1B which was slightly shallower than initially reported. The figure matched Consensus expectations for a 3Q deficit of [...]

Another Record U.S. Current Account Deficit in 3Q

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218a.jpg" width="353">
Last quarter the US current account deficit posted a new record of $225.6B versus a revised 2Q deficit of $217.1B which was slightly shallower than initially reported. The figure matched Consensus expectations for a 3Q deficit of $225B.
The deficit last quarter equaled 6.8% of GDP and so far this year has averaged 6.64% versus 6.35% during all of last year .
The deficit in merchandise trade deteriorated to $218.6B from an unrevised 2Q deficit of $210.6B. Exports grew 3.6% (16.5% y/y) yet that strong gain was again offset by a 3.7% surge in imports (13.5% y/y).
Last quarter, higher oil prices caused the balance in petroleum trade to deteriorate to $75.2B from $71.4B during 2Q. The nonpetroleum trade balance reversed all of its 2Q improvement and fell to $138.7B which was just shy of the record set during last year&#39;s fourth quarter.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218b.jpg" width="353">
The surplus in services trade improved sharply to a surplus of $18.3B from a revised $17.5B during 2Q which was better than initially estimated. Exports of services grew just 0.9% (8.5% y/y) last quarter but services imports grew an even smaller 0.1% (8.6% y/y).
The U.S. capital account improved q/q though the net US foreign direct investment balance deteriorated. U.S. direct investment abroad rose 35% to $$63.1B (37.7% y/y). Foreign direct investment in the US, however, increased $44.1B, less than the $45.8B increase during 2Q.
Would Protectionism Defuse Global Imbalances and Spur Economic Activity? from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/staff_reports/sr268.pdf"> here</a>.
Should We Worry About the Current Account Deficit? from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/region_focus/winter_2006/pdf/research_spotlight.pdf"> here</a>.
How Dangerous is the U.S. Current Account Deficit? from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2006/b/pages/account_deficit.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/USECON/@EE/@EE01/@EE01.HTM">US Int&#39;l Balance of Payments</a></th>
<th scope="col">3Q &#39;06</th>
<th scope="col">2Q &#39;06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Account Deficit</td>
<td>$225.6</td>
<td>$217.1B</td>
<td>$183.4B (3Q&#39;05)</td>
<td>$791.5B</td>
<td>$665.3B</td>
<td>$527.5B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Goods/Services/Income Deficit</td>
<td>$204.1</td>
<td>$195.3B</td>
<td>$174.0B (3Q&#39;05)</td>
<td>$705.4B</td>
<td>$583.7B</td>
<td>$458.3B</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports</td>
<td>2.9%</td>
<td>5.7%</td>
<td>19.0%</td>
<td>14.6%</td>
<td>15.7%</td>
<td>5.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports</td>
<td>3.4%</td>
<td>4.3%</td>
<td>18.5%</td>
<td>16.3%</td>
<td>18.7%</td>
<td>7.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Unilateral Transfers Deficit</td>
<td>$21.5B</td>
<td>$21.9B</td>
<td>$9.5B (3Q&#39;05)</td>
<td>$86.1B</td>
<td>$81.6B</td>
<td>$69.2B</td>
</tr>
</tbody>
</table>
Euro Zone Trade Shows a Surplus, but Rising Imports from China Add to Pressure on China to Speed Up Appreciation of the Yuan  
by <a href="/comment/Curley.html">Louise Curley</a> December 18, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218c.jpg" width="353">
The Euro Zone&#39;s surplus on trade in October declined to 1,710.7 million euros from 2,418.0 million euros in September, but was 2,927.8 million euros above the deficit of 1,217.1 million euros in October, 2005. The traditional surplus on trade that the Euro Zone had enjoyed was turned into a deficit in mid 2005, due in part to increased oil imports and in part to the unrelenting surge in imports from China. The first chart shows the balance of trade for the Euro Zone with the rest of the world.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218d.jpg" width="353">
As the second chart shows the deficit with OPEC appears to have stabilized in recent months, but that with China continues to widen. Imports from China now exceed those from the United States, which had been the largest source of imports after the United Kingdom. The third chart compares imports from China with those from the US. While imports from China are now lower than those from the UK, the recent growth in these imports suggest it will not be too long before they exceed imports from the UK as can be seen in the fourth chart.
The imbalances resulting from China&#39;s growing surplus on its trade account with the Euro Zone is adding to the pressure already being exerted by the US to appreciate the Chinese Yuan. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218e.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061218f.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">EURO ZONE TRADE IN GOODS (Mil. Euro)</th>
<th scope="col">Oct&nbsp; 06</th>
<th scope="col">Sep 06</th>
<th scope="col">Oct 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Balance of Trade</td>
<td>1,710.7</td>
<td>2,418.0</td>
<td>-1,217.1</td>
<td>-702.3*</td>
<td>2,927.8*</td>
<td>16,835.0</td>
<td>71,537.1</td>
<td>69,723.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; China</td>
<td>-7,764.8</td>
<td>-7,391.0</td>
<td>-6,512.4</td>
<td>-373.8*</td>
<td>-1,252.4*</td>
<td>-74,705.5</td>
<td>-51,792.9</td>
<td>-39,279.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; OPEC</td>
<td>-4,321.9</td>
<td>-3,265.7</td>
<td>-4,130.3</td>
<td>-1,056.2*</td>
<td>-191.6*</td>
<td>-36,858.0</td>
<td>-13,422.0</td>
<td>-10,731.9</td>
</tr>
<tr>
<td class="firstcol"> Imports </td>
<td>118,727.7</td>
<td>117,964.5</td>
<td>106,537.8</td>
<td>0.65</td>
<td>11.44</td>
<td>1,224,700</td>
<td>1,075,342</td>
<td>990,435</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; US</td>
<td>10,725.0</td>
<td>10,557.8</td>
<td>10,144.6</td>
<td>1.58</td>
<td>5.72</td>
<td>120,158.3</td>
<td>113,775.4</td>
<td>110,326.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; China</td>
<td>12,582.8</td>
<td>12,170.7</td>
<td>10,231.3</td>
<td>3.39&nbsp;</td>
<td>22.98</td>
<td>118,120.7</td>
<td>92,060.4</td>
<td>74,515.0</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; UK </td>
<td>n.a.</td>
<td>13,430.2</td>
<td>12,888.2</td>
<td>n.a.</td>
<td>n.a.</td>
<td>152,360.0</td>
<td>144,047.1</td>
<td>138,863.4</td>
</tr>
</tbody>
</table>
</body>
</html>

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

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Sandy Batten

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Existing home sales rose 0.5% m/m (-1.0% y/y) in November to 4.13 million homes (SAAR) following a 1.5% monthly gain in October and a 1.3% monthly rise in September, according to the National Association of Realtors (NAR). It was the highest level of sales since February and matched expectations in the Action Economics Forecast Survey. The average effective 30-year mortgage interest rate was unchanged at 6.54% last month, but this is down markedly from 7.10% in May and accounts for some of the revival in home sales over the past several months. The sales figures are based on closings of sales contracts signed over the past couple of months.

Existing single-family home sales rose 0.8% m/m (-0.8% y/y) in November to 3.75 million units after a 1.1% m/m rise in October and a 1.4% monthly gain in September. Sales of condos and co-ops slumped 2.6% m/m (-2.6% y/y) to 380,000 in November following a 5.4% monthly jump in October.

Compared to a month ago, sales rose 4.1% m/m in the Northeast, increased 1.1% m/m in the South, were unchanged in the West and fell 2.0% m/m in the Midwest. Compared to a year ago, sales were unchanged in both the Northeast and the South, fell 3.0% y/y in the Midwest and declined 1.3% y/y in the West.

The median price of all existing homes (NSA) declined 1.4% m/m (+1.2% y/y) to $409,200 in November. The median price of an existing single-family home fell 1.4% m/m (+1.2% y/y) to $414,300 in November. Prices of single-family homes in the Northeast edged up 0.9% from a year ago. Prices in the Midwest jumped 5.8% y/y; prices in the South rose 1.0% y/y. In contrast, prices in the West declined 0.8% from a year ago.

Inventories of homes for sale continued to weaken in November. The number of existing homes for sale (NSA) slumped 5.9% m/m (+7.5% y/y) to 1.43 million units in November. The supply of homes on the market at the current selling rate (NSA) slid to 4.2 months, its lowest reading since March.

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


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- Existing home sales increased 0.5% m/m in November, the third consecutive monthly gain.
- Month-over-month sales increased in the Northeast and South, were unchanged in the West, and fell in the Midwest.
- Year-over-year sales were unchanged in the Northeast and South and decreased in the Midwest and West.


U.S. Existing Home Sales Edged Up in November

Andrew Cates

**Faster-than-Expected Monetary Easing**
Our first potential upside risk for 2026 is that monetary policy across most major advanced economies is loosened further and by more than markets and forecasters currently anticipate. Monetary policy cycles have a history of being underestimated in both length and magnitude—in large part because of the powerful feedback loops between interest rates, inflation, and economic behaviour. On the way up, higher policy rates feed into mortgage costs, debt-service burdens, rents, and the general cost of doing business, reinforcing wage pressures and inflation persistence. But these same channels work in reverse on the way down. As rates fall, debt servicing eases, housing and rental inflation softens, and cost pressures across the economy unwind more rapidly than expected—allowing inflation to decelerate faster and creating scope for further easing. A risk, therefore, is that if disinflation becomes self-reinforcing, central banks find themselves cutting rates more aggressively than currently priced, not because of economic distress, but because restrictive policy proves increasingly unnecessary.

251218Z1.jpg

**Energy Supply Dynamics Prove More Supportive**
The second chart reinforces the message from the first: easing monetary policy may be accompanied—and amplified—by a more benign energy backdrop. Recent projections from the EIA point to a renewed build-up in OECD crude oil and liquids inventories over the year ahead, a dynamic that has historically been associated with downward pressure on oil prices. If inventories continue to rise as supply growth outpaces demand, spot prices for crude could undershoot current forecasts, keeping energy inflation subdued. That, in turn, would reinforce disinflationary forces already in play—lowering headline CPI, easing cost pressures for firms and households, and giving central banks greater confidence to loosen policy further. In that sense, softer oil prices would not just be a standalone positive shock, but part of a reinforcing feedback loop alongside rate cuts, supporting real incomes, financial conditions, and global growth into 2026.


251218Z2.jpg

**AI-Driven Productivity Gains Materialise More Quickly** 
The third chart shows a clear pickup in US nonfinancial productivity growth, reviving the debate around whether AI-driven efficiency gains may arrive sooner than many forecasters expect. While the longer-term productivity potential of AI remains uncertain and uneven across sectors, there are reasons to think that at least some near-term gains could prove more tangible than currently assumed. Rather than transformative breakthroughs, early benefits are likely to come from incremental improvements—automation of routine processes, better scheduling and logistics, more efficient use of capital and labour, and modest reductions in overhead costs—areas where US firms are already well positioned to implement new technologies quickly. If these gains accumulate and diffuse more broadly, the implications would still be meaningful. Even a modest, sustained uplift in productivity would help contain unit labour costs, support real income growth, and raise the economy’s speed limit without generating renewed inflation pressure. In that scenario, productivity would not need to “revolutionise” the economy to matter: incremental efficiency gains could nonetheless provide a supportive backdrop for growth, earnings, and policy easing into 2026—representing a genuine upside risk to the outlook.


251218Z3.jpg

**The US Economy Proves Resilient Again**
The next chart highlights a further upside risk to the 2026 outlook: the possibility that the US economy once again outperforms its peers. Unlike the typical pre-recession backdrop, there is little evidence of meaningful financial stress in the US private sector. After a prolonged period of balance-sheet repair, private-sector debt ratios have been trending lower in recent years, while the sector as a whole is running a healthy financial surplus. This stands in stark contrast to previous late-cycle episodes, which were characterised by rising leverage, widening deficits, and growing dependence on credit expansion. The absence of private-sector excesses reduces the economy’s vulnerability to higher rates and external shocks, and helps explain why growth has remained more durable than expected. If households and firms continue to prioritise balance-sheet strength rather than forced deleveraging, the usual mechanisms that tip the economy into recession may fail to materialise. In that environment, even modest easing in financial conditions could translate into renewed spending and investment, allowing the US to sustain above-trend growth into 2026—representing another upside risk to the global outlook.


251218Z4.jpg

**India’s Growth Engine Accelerates Further** 
Chart 5 points to another potential upside risk for 2026 emanating from India’s economy. After a period of relative pessimism earlier in the year, consensus growth forecasts for 2026 have been revised modestly higher, even as inflation projections have continued to drift lower. This combination—firmer growth expectations alongside easing inflation pressures—creates scope for a more supportive policy backdrop than markets currently assume. With real interest rates no longer rising and financial conditions stabilising, India’s investment cycle, already underpinned by public infrastructure spending and improving corporate balance sheets, could prove more durable than forecast. If these trends persist, India may deliver growth that is both stronger and more internally driven than expected, providing a meaningful demand impulse to the broader global economy. Given India’s increasing weight in global growth, even small upside surprises would have outsized effects on trade, commodity demand, and regional activity—reinforcing the case that the global outlook for 2026 may be skewed to the upside.


251218Z5.jpg

**The Global South Becomes a More Independent Source of Demand** 
The final chart points to a broader upside risk for the global economy in 2026: that economies across the so-called Global South generate more durable momentum than currently assumed. With a few notable exceptions—such as China and Thailand—many emerging economies continue to benefit from stronger growth in their working-age populations and/or faster real GDP per capita growth than their advanced-economy counterparts. These demographic and income dynamics are helping to underpin domestic consumption, support labour-force expansion, and attract capital inflows, as reflected in the pattern of net FDI across countries. In contrast, much of the advanced world faces binding demographic constraints and lower steady-state growth rates, limiting the scope for demand to re-accelerate organically. If growth in the Global South proves more resilient and internally driven—rather than overly dependent on exports to advanced economies—it could provide a more stable and geographically diversified source of global demand. In that scenario, global growth in 2026 would be less reliant on a narrow set of advanced economies, reinforcing the case that risks to the outlook may be skewed to the upside.


251218Z6.jpg

_This marks our final Charts of the Week publication for 2025 The next edition will be released on Thursday 8 January._

Last week’s Charts of the Week focused on the darker tail risks hanging over the 2026 outlook: the possibility of monetary policy mis-calibration, that geopolitics and trade fragmentation further disrupt supply chains, and that elevated debt levels—particularly in the public sector—reassert themselves as a drag on growth. This week’s charts take a deliberately different tack. Taken together, they highlight a set of upside risks that are possibly underappreciated in current forecasts. For example, policy easing across advanced economies may extend further than expected as disinflation feeds on itself (chart 1); oil prices could surprise on the downside as inventories rebuild (chart 2); US productivity may deliver incremental but meaningful gains sooner than assumed (chart 3); the US economy itself could continue to benefit from an absence of private-sector financial stress (chart 4); India’s growth momentum might firm again as inflation pressures recede (chart 5); and, more broadly, parts of the Global South appear increasingly capable of generating their own demand impulse, supported by favourable demographics and income growth (chart 6). None of these forces is guaranteed, and each carries its own caveats—but together they suggest that, having spent much of the past year fixated on downside risks, the risks to global growth in 2026 may be more evenly balanced than is widely assumed.

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/6tL5l7g70DuLWxKOokuRit?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: The Upside Risks

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance dropped 13,000 to 224,000 during the week of December 13, from 237,000 during the week of December 6, revised from 236,000. The four-week moving average of initial claims was 217,500, an increase of 500 from the previous week, which was revised to 217,000 from 216,750.

Federal government employees initially filed 1091 (NSA) jobless insurance claims in the week ended December 6, after filing 643 claims in the week ended November 29.

Continuing claims for unemployment insurance rose 67,000 to 1,897,000 in the week ending December 6, following a sharp decline of 107,000 to 1,830,000 in the prior week, revised from 1,838,000. The four-week moving average was 1,902,000 in the week ending December 6, a decrease of 14,000 from 1,916,00 in the week ended November 29, revised from 1,918,000. The insured unemployment rate stood at 1.2% in the week of December 6, unchanged from the prior week.

Federal government employees’ continuing benefits rose to 14,077 (NSA) in the week of November 29 from 12,732 (NSA) in the week ended November 22.

The insured unemployment rate varied greatly across individual states and territories. In the week ending November 29, the highest unemployment rates were in Washington (2.48%), New Jersey (2.42%), California (2.26%), Minnesota (2.16%), and Massachusetts (2.10%). The lowest rates were in Florida (0.34%), South Dakota (0.40%), North Carolina (0.41%), Louisiana (0.44%), Alabama (0.46%), Virginia (0.47%), and Tennessee (0.49%). Rates in other notable states include New York (1.81%), Illinois and Pennsylvania (both 1.67%), and Texas (1.22%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.



251218C4.jpg

251218D4.jpg

- Initial claims dropped from the prior week.
- Continuing claims rebounded from the prior week sharp decline.
- The insured unemployment rate was unchanged.


U.S. Initial Claims for Unemployment Insurance Eased in Latest Week

251217A2.jpg

251217B2.jpg

Mortgage applications dropped 3.8% w/w (+40.9% y/y) in the week of December 12 after a rise of 4.8% w/w (45.4% y/y) in the week of December 5, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house fell 2.8% w/w (+12.3% y/y) in the latest week after declining 2.4% w/w (+17.2% y/y) in the week of December 5. Applications for loan refinancing dropped 3.6% w/w (+86.0% y/y) in the week of December 12, following the 14.3% (87.8% y/y) jump in the week ended December 5.

The effective interest rate on a 30-year fixed-rate loan rose 6bps to 6.56% in the week ending December 12, from 6.50% in the week ending December 5. The rate on 15-year fixed-rate mortgages rose 4bps to 5.91% in the latest week from 5.87% in the December 5 week. The rate on 30-year jumbo edged down 2bps to 6.55% in the December 12 week from 6.57% in the prior week. The rate on a 5-year ARM eased 4bps to 5.76% in the latest week from 5.80% in the December 5 week.

The share of applications for refinancing an existing loan rose to 59.0% of total applications in the December12 week from 58.2% in the week ending December 5. The adjustable-rate mortgage (ARM) share of activity rose to 7.2% in the latest week from 7.0% in the December 5 week.

The average size of a mortgage loan rose 1.5% (6.4% y/y) to $400,000 in the December 12 week, following a decline of 0.7% (+7.1% y/y) to $394,200 in the December 5 week. The average size of a purchase loan edged up 0.6% (-0.3% y/y) to $424,200 in the latest week, after dropping 0.4% (+1.3% y/y) to $421,700 in the December 5 week. The average size of a loan to refinance a mortgage rose 2.4% (19.8% y/y) to $383,300 in the week ending December 12 after rising 0.2% (19.4% y/y) to $374,500 in the December 5 week.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Purchase applications fell 2.8% w/w; refinancing loan applications fell 3.6% w/w.
- Effective interest rate on 30-year fixed loans rose to 6.56%.
- Average loan size rose moderately.

U.S. Mortgage Applications Retreated in the Week of December 12

Robert Brusca

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U.K. inflation has moderated in November, posting a 0.1% drop on the HICP, a 0.1% gain in the CPI-H headline measure as well as a 0.1% gain in the CPI-H core (excluding energy, food, alcohol, and tobacco). The sequential trend in core inflation points lower and is eroding but continues to run over the 2% mark set as a target by the Bank of England for overall inflation (over 12 months). The headline is excessive as well but also eroding.

Sequentially the CPI-H gains 3.5% over 12 months, slows to a 2.8% annual rate over six months and then dips to 1.4% annual rate over three months. The CPI-H core rises by 3.6% over 12 months, ticks down to a 3.0% pace over six months, and then runs at a 2.4% annualized pace over three months.

The trend for the CPI core, and for the headline, both are quite good and would be completely consistent with the Bank of England cutting rates, a move that is widely expected – although the 12-month pace for each is excessive.

Not only is inflation showing signs of falling into the Bank of England's target zone, but the economy has been weak although the unemployment rate currently is only hovering around the 4% mark. Still, recent economic data have been weak, and the recent monthly GDP report posted a negative reading, further unsettling the outlook. The October monthly GDP change was estimated at -0.1% while the year-over-year increase in GDP in October produced a gain of just 1.1%. These metrics have put the U.K. economy on recession watch at a time when there has been a sharp revision in the budget process that will be much more constrictive. A sharp pullback in the manufacturing of motor vehicles is blamed for the sudden weakness in GDP in October. The three-month drop in GDP is the first such drop since December 2023.

Meanwhile, the headline and the core inflation statistics are progressing. The table calculates breadth statistics on how widespread inflation acceleration has been and we see that it has not been prevalent (over 50%) in September or November, although breadth did touch the 58% mark in October. Sequentially, inflation acceleration has been tamed: over 12 months (when it is neutral), six months, and three months. Over 12 months, inflation accelerated in only 50% of the categories. And inflation according to the CPI headline and in the core over six months continues to show deceleration to accompany narrowing breadth - only 8.3%. That reading indicates that there was more inflation deceleration than acceleration by a wide margin over six months. At 50%, inflation acceleration and deceleration forces are balanced. Readings below 50% indicate relatively more deceleration, and that is now the more common condition. Inflation acceleration is extremely rare across categories over six months and three months.

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On balance, inflation by the headline and by the core measures is well disciplined and falling into line although still excessive over 12 months. The breadth statistics reinforce the view that inflation is broadly coming to heel at the same time the real economy data are showing a cooling in the economy- and perhaps an excessive slowing at that. The new budget should put the economy under additional downward pressure, further restraining inflation and causing growth to moderate. In this situation, a rate cut from the Bank of England is the odds-on bet. Perhaps the only question now is how large a cut? How much will the Bank think that circumstance have changed and that key trends have been altered in a significant way? Will policy react mostly to lower trend tempered by an excessive 12-month pace, or will it be willing to look farther forward and weight heavily the deteriorating economic trend as well?

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