Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061221i.jpg" width="353">
The number of mass layoff events rose 3.2% in November for the fifth increase in the last six months. That was enough to lift the number of layoff events to the highest level of 2006.
During the last ten years there has been a (negative) 85% correlation between the three month average level of layoff announcements and the y/y change in payroll employment.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061221j.jpg" width="353">
The number of persons affected last month by mass layoffs surged 20.0% m/m, also to the highest level of the year. Nevertheless, the number of persons affected by mass layoffs during the first eleven months of this year fell 17.6% from the first eleven months of 2005.
Increased layoffs in construction (10.4% y/y) and manufacturing (15.6% y/y) accounted for much of the recent increase while the number of layoff events in retail (-11.5% y/y) and information (-4.8% y/y) fell.
The Mass Layoff Statistics (MLS) program collects reports on mass layoff actions that result in workers being separated from their jobs. Monthly mass layoff numbers are from establishments which have at least 50 initial claims for unemployment insurance (UI) filed against them during a 5-week period.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Mass Layoffs</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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</thead>
<tbody>
<tr>
<td class="firstcol">All US Industries (# Events, SA)</td>
<td>1,208</td>
<td>1,171</td>
<td>0.2%</td>
<td>15,699</td>
<td>15,926</td>
<td>19,220</td>
</tr>
<tr>
<td class="firstcol">Total (# Persons, SA)</td>
<td>135,415</td>
<td>113,724</td>
<td>12.9%</td>
<td>1,722,452</td>
<td>1,591,081</td>
<td>1,946,548</td>
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The number of mass layoff events rose 3.2% in November for the fifth increase in the last six months. That was enough to lift the number of layoff events to the highest level of 2006. During the last ten years there has been a [...]

Mass Layoffs Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061221h.jpg" width="353">
The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago remained negative in November at -0.26. The figure was negative for the fifth month in the last seven. The three-month moving average of the CFNAI fell to -0.32, its lowest level since 2003.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The complete CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_November2006.pdf">here</a>.
The latest Survey of Professional Forecasters from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/spf/survq406.html">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">November &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">CFNAI</td>
<td>-0.26</td>
<td>-0.30</td>
<td>0.88</td>
<td>0.21</td>
<td>0.30</td>
<td>-0.17</td>
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The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago remained negative in November at -0.26. The figure was negative for the fifth month in the last seven. The three-month moving average of the CFNAI fell to [...]

Chicago Fed Nat'l Activity Index Negative

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061221g.jpg" width="353">
According to the Conference Board, the composite index of leading economic indicators edged up 0.1% last month, the same as during October which was downwardly revised. The increase in November marked the third consecutive monthly increase, the first string of three months gain since the Spring of 2005. Consensus expectations for November had been for no change.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators and the lagged change in real GDP.
The breadth of one month gain amongst the 10 components of the leading index reversed the prior month&#39;s improvement and fell to 40%, but over the last six months 55% of the component series rose.
A rising money supply, improved vendor performance and higher capital goods orders accounted for much of last month&#39;s gain in the leading index. That was offset by lower building permits, higher claims for jobless insurance and easier consumer expectations.
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061221f.jpg" width="353">
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators increased 0.2% after an upwardly revised 0.2% increase during October. Over the last ten years there has been a 91% correlation between the y/y change in the coincident indicators and real GDP growth.
The lagging indicators rose a solid 0.5%, the largest increase since June. The ratio of coincident to lagging indicators, which is a measure of actual economic performance versus excess, was unchanged. The ratio has been stuck at the current level since since July.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</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">Leading</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.0%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
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According to the Conference Board, the composite index of leading economic indicators edged up 0.1% last month, the same as during October which was downwardly revised. The increase in November marked the third consecutive monthly [...]

U.S. Leading Economic Indicators Edged Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061221d.jpg" width="353">
Initial unemployment insurance claims increased 9,000 last week to 315,000 and reversed half of the revised decline during the prior week. The increase matched Consensus expectations.
The latest figure covers the December survey period for nonfarm payrolls and claims fell 8,000 (-2.5%) from the November period.
During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims fell to 325,750 (+2.9% y/y).
Continuing claims for unemployment insurance rose 45,000 and reversed all of the prior week&#39;s decline.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061221e.jpg" width="353">
The insured rate of unemployment remained at 1.9% for the seventh consecutive week and equaled the average rate since February.
Interest Rates, Carry Trades, and Exchange Rate Movements from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-31.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</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">Initial Claims</td>
<td>315</td>
<td>306</td>
<td>1.0%</td>
<td>332</td>
<td>343</td>
<td>403</td>
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<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,520</td>
<td>-3.7%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
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Initial unemployment insurance claims increased 9,000 last week to 315,000 and reversed half of the revised decline during the prior week. The increase matched Consensus expectations. The latest figure covers the December survey [...]

Initial Unemployment Insurance Claims Rose

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061221a.jpg" width="353">
U.S. real GDP growth last quarter was revised down to 2.0% (AR). The estimate had started at 1.6% then was raised to 2.2% last month and compared to Consensus expectations for no change at 2.2%. The rise in GDP last quarter was the second slowest quarterly growth rate since 1Q 2003.
Expectations for growth this quarter call for further slowdown then improvement to 3.0% GDP growth next year. Economic forecasts from Macroeconomic Advisors are available in the Haver DLX database MA4CAST. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061221b.jpg" width="353">
Growth in corporate profitability was revised slightly lower to still-firm 3.9% (30.6% y/y) from the 4.2% gain estimated initially. (The comparison versus last year is exaggerated by the losses suffered due to Hurricane Katrina.) The downward revision was due to a lowered figure for profits earned by US financial corporations which fell 1.9% (+60.4% y/y) and a deepened decline in profits earned by foreign entities which fell 2.2% (+5.0% y/y). U.S. nonfinancial corporate profitability was revised up slightly to 8.7% (26.4% y/y).
Less inventory accumulation contributed to the downward GDP revision for 3Q and it added 0.1 percentage points to GDP rather than the 0.2 point add estimated last month.
Overall growth in final sales to domestic purchasers was reduced slightly to 2.0%. Growth in personal consumption was reduced slightly to 2.8% (2.7% y/y) and nonresidential fixed investment growth was held steady at 10.0% (8.3% y/y). <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061221c.jpg" width="353">
Residential investment was even weaker than indicated earlier and the 3Q estimate was revised slightly down to -18.6% (AR, -8.1% y/y). It was the fourth consecutive decline, the largest since 1991 and pulled 1.2 percentage points from 3Q GDP growth. That subtraction was the largest by housing since 1981.
Deterioration in the net export deficit was left unchanged at a 0.2 percentage point subtraction from GDP growth. Export growth was upwardly revised slightly to 6.8% (9.1% y/y) and import growth also was revised up slightly to 5.6% (7.2% y/y).
The GDP chain price index was revised up slightly to 1.9%, its weakest quarterly advance in over three years. The PCE chain price index grew an unrevised 2.4% (2.8% y/y). Less food &amp; energy the PCE chain price index grew 2.3% (2.4% y/y).
Milton Freidman on Inflation from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20070101/cover.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">3Q &#39;06 (Final)</th>
<th scope="col">3Q &#39;06 (Prelim.)</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">GDP</td>
<td>2.0%</td>
<td>2.2%</td>
<td>2.6%</td>
<td>3.0%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.4%</td>
<td>0.7%</td>
<td>-0.3%</td>
<td>0.4%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>1.9%</td>
<td>2.1%</td>
<td>2.1%</td>
<td>2.3%</td>
<td>3.5%</td>
<td>3.5%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>-0.5%</td>
<td>-0.3%</td>
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<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>2.0%</td>
<td>2.1%</td>
<td>1.6%</td>
<td>2.4%</td>
<td>3.6%</td>
<td>4.0%</td>
<td>2.8%</td>
</tr>
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<td class="firstcol">Chained GDP Price Index</td>
<td>1.9%</td>
<td>1.8%</td>
<td>3.3%</td>
<td>2.9%</td>
<td>3.0%</td>
<td>2.8%</td>
<td>2.1%</td>
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U.S. real GDP growth last quarter was revised down to 2.0% (AR). The estimate had started at 1.6% then was raised to 2.2% last month and compared to Consensus expectations for no change at 2.2%. The rise in GDP last quarter was the [...]

US 3Q GDP Growth Revised Lower

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061220c.jpg" width="353">
UK institutional investors added a record amount to their asset portfolios in Q3, according to the &quot;First Release&quot; of the widely followed &quot;MQ5&quot; report, which was issued this morning by the Office of National Statistics. Insurance companies, pension funds and trusts (mutual funds) acquired a net of &pound;27.8 billion in UK and overseas securities, cash, and real estate and other assets, compared with &pound;23.6 billion in Q2 and a previous record of &pound;27.7 billion in Q1 2001. Further, the sum of the first three quarters of 2006 is &pound;67.7 billion, just &pound;1.8 billion shy of the largest investment amount in any previous YEAR, which was &pound;69.5 billion in 2000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061220d.jpg" width="353">
Investment patterns have been quite interesting this year as well. In both Q2 and Q3 the firms have concentrated on additions to short-term holdings. See in the table below that such &quot;cash and equivalents&quot; are a large proportion of net investment, indeed, about 42% in Q3. In Q2 they were 40% of the total. This looks at a glance to reflect the negative yield curve in the UK -- and elsewhere, for that matter. In the second graph, we show net investment in short-term assets against the yield curve, measured as the spread between the 10-year nominal par yield on gilts and the 1-month sterling inter-bank rate. There appears to be a rough negative relationship, and indeed, why would investors put their money out long when short instruments pay more?<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061220e.jpg" width="353">
A second development of interest is the net liquidations of company shares, which are evident in our table. These groups of institutions have been net sellers of shares continuously since the spring of 2003, and off-and-on since 1999. It is important to notice here that these figures are the net of acquisitions and what in the UK are known as &quot;realisations&quot;. They are NOT net changes in market value. In fact, the latter have been positive, as seen in the third graph, which also shows the trend in stock prices. The market value of stock holdings has continued to rise, even as this important UK investor group has been selling. It&#39;s an intriguing situation.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U1/@U109/@U109.HTM">UK: MQ5 Net Investment</a><a href="http://www.haverselect.com/dlx/UK/@U1/@U109/@U109.HTM">,</a> &nbsp; &pound; Millions</th>
<th scope="col">Q3 2006</th>
<th scope="col">Q2 2006</th>
<th scope="col">Q3 2005</th>
Quarterly Averages
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Total Identified Assets</td>
<td>27,776</td>
<td>23,552</td>
<td>8,898</td>
<td>15,183</td>
<td>15,250</td>
<td>14,048</td>
</tr>
<tr class="odd">
<td class="firstcol">Short-Term</td>
<td>11,699</td>
<td>9,395</td>
<td>439</td>
<td>4,357</td>
<td>3,103</td>
<td>157</td>
</tr>
<tr>
<td class="firstcol">British Govt Securities</td>
<td>6,035</td>
<td>4,804</td>
<td>3,042</td>
<td>2,450</td>
<td>4,150</td>
<td>4,974</td>
</tr>
<tr class="odd">
<td class="firstcol">UK Company Shares</td>
<td>-8,203</td>
<td>-8,460</td>
<td>-6,044</td>
<td>-5,507</td>
<td>-5,209</td>
<td>-1,293</td>
</tr>
<tr>
<td class="firstcol">Other UK Company Securities</td>
<td>3,178</td>
<td>5,517</td>
<td>3,111</td>
<td>3,545</td>
<td>5,126</td>
<td>6,445</td>
</tr>
<tr class="odd">
<td class="firstcol">Overseas Company Shares</td>
<td>3,021</td>
<td>-1,832</td>
<td>3,253</td>
<td>3,289</td>
<td>3,594</td>
<td>924</td>
</tr>
<tr>
<td class="firstcol">Other Overseas Company Securities</td>
<td>5,530</td>
<td>6,671</td>
<td>-495</td>
<td>1,891</td>
<td>2,435</td>
<td>1,742</td>
</tr>
<tr class="odd">
<td class="firstcol">Overseas Govt Securities</td>
<td>2,266</td>
<td>2,219</td>
<td>-596</td>
<td>89</td>
<td>-1,011</td>
<td>-859</td>
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</tbody>
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UK institutional investors added a record amount to their asset portfolios in Q3, according to the "First Release" of the widely followed "MQ5" report, which was issued this morning by the Office of National Statistics. Insurance [...]

UK Institutional Investors Invest Record Amount in Q3

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061220a.jpg" width="353">
In a complete reversal of the prior week&#39;s gain, the total number of mortgage applications fell 10.2% last week after the 11.5% jump during the prior period, according to the Mortgage Bankers Association.
Purchase applications fell 5.9% following an 8.7% rise during the prior week. Notwithstanding the decline, purchase applications remained in December 9.0% above the November average which rose 6.4% from the October level.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
Applications to refinance slid 14.6% after two weeks of double digit increase. In December applications to refinance are 9.8% higher than in November.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061220b.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage increased again w/w to 6.29% but the 6.22% average so far in December is down versus 6.36% during November. The peak for 30 year financing was 7.08% late in June. Rates for 15-year financing also increased to 6.07% but has averaged 5.99% this month versus 6.13% during November. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Economic Inequality in the United States from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-33-34.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">12/15/06</th>
<th scope="col">12/08/06</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">Total Market Index</td>
<td>647.6</td>
<td>721.2</td>
<td>8.9%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>436.5</td>
<td>463.8</td>
<td>-3.7%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,968.8</td>
<td>2,304.4</td>
<td>38.8%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
</html>

In a complete reversal of the prior week's gain, the total number of mortgage applications fell 10.2% last week after the 11.5% jump during the prior period, according to the Mortgage Bankers Association. Purchase applications fell [...]

Mortgage Applications Reversed Gain

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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Andrew Cates

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

260205Z1.jpg

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

260205Z2.jpg

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

260205Z3.jpg

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

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

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

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

Charts of the Week: Balanced Policy, Resilient Data and AI Narratives

Robert Brusca

260206E.jpg

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

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

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

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

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

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

260206.jpg

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

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**Total job openings** fell 5.6% m/m (-12.9% y/y) to 6.542 million in December after a downwardly revised 7.0% decline to 6.928 million in November (previously -4.1% m/m; 7.146 million), according to the Job Openings and Labor Turnover Survey. December marked the third consecutive m/m fall and the lowest level since September 2020. The job openings rate declined to 3.9% in December, the lowest since April 2020, from 4.2% in November, remaining below a record-high 7.4% in March 2022. This rate is calculated as the ratio of job openings to total nonfarm employment plus openings. Significantly, the drop in job openings also lowered the **ratio of job openings to unemployed individuals** to 0.872 in December—the lowest since March 2021—from 0.890 in November, down from 1.085 in December 2024 and a pre-pandemic 1.211 in February 2020. A reading of 0.872 implies there were about 0.87 open jobs per unemployed person—indicating fewer openings than unemployed workers. December was the fifth time in six months that this ratio remained below 1.0.

**Private sector job openings** fell 6.8% (-12.5% y/y) to 5.804 million in December after a 6.6% fall to 6.227 million in November, registering the third successive m/m decline and the lowest level since September 2020. The private sector job openings rate fell to 4.1% in December, the lowest since April 2020, from 4.4% in November. The December m/m decline in private sector openings reflected drops of 27.7% (-36.9% y/y) in financial activities, 20.2% (-25.5% y/y) in professional & business services, 14.4% (-5.1% y/y) in trade, transportation & utilities, and 5.2% (-12.4% y/y) in private educational & health services. To the upside, private sector openings in the following categories rose m/m in December: other services (21.1%; 11.0% y/y), mining & lodging (17.6%; 0.0% y/y), information (13.5%; -4.7% y/y), manufacturing (8.5%; 0.5% y/y), leisure & hospitality (7.5%; -17.2% y/y), and construction (2.8%; 42.4% y/y). Meanwhile, government job openings rose 5.3% (-15.6% y/y) in December, the first m/m rise in three months, after a 10.6% drop in November.

**Total hiring** rebounded 3.4% (-1.5% y/y) to 5.293 million in December, the first m/m increase since September, following a 4.6% decrease to 5.121 million in November. The hiring rate edged up to 3.3% in December from 3.2% in November, though it remained below pre-pandemic levels. **Private sector hiring** rose 3.1% (-0.4% y/y) to 4.978 million in December, the third m/m rise in four months, after a 4.0% decline to 4.826 million in November. The private sector hiring rate rose to 3.7% in December from 3.5% in November, the same as in October and September. The December m/m increase in private sector hiring was led by a 32.1% jump (42.3% y/y) in information, followed by gains of 24.0% (-4.6% y/y) in financial activities, 23.5% (0.0% y/y) in mining & lodging, 6.5% (-4.8% y/y) in private educational & health services, 4.2% (-4.9% y/y) in trade, transportation & utilities, 3.6% (6.1% y/y) in construction, 3.4% (7.9% y/y) in leisure & hospitality, and 1.8% (-4.3% y/y) in manufacturing. To the downside, private sector hiring in professional & business services (-5.2%; +0.5% y/y) and other services (-4.3%; -16.5% y/y) declined m/m in December. Meanwhile, government hiring rebounded 6.4% (-16.3% y/y) in December, the first m/m rise since September, following a 13.5% drop in November.

**Total separations** rose 2.1% (3.3% y/y) to 5.251 million in December after a 1.5% rise to 5.144 million in November, marking the third m/m increase in four months and the highest level since September. The total separations rate edged up to 3.3% after holding at 3.2% in November and October. Private sector separations rose 1.6% (4.2% y/y) to 4.932 million in December, the highest level since June, while government sector separations jumped 10.4% (-9.1% y/y) to 319,000 following two consecutive m/m declines. **Total quits** (voluntary separations initiated by the employee) increased 0.3% (3.5% y/y) to 3.204 million in December, the third m/m rise in four months and the highest level since June, after a 7.4% rebound in November. The quits rate (a measure of workers’ willingness or ability to leave jobs) held at 2.0% in December and November, slightly below 2.3% in February 2020. Private sector quits eased 0.2% (+4.5% y/y) following an 8.4% November rebound. **Layoffs and discharges** (involuntary separations initiated by the employer) increased 3.6% (5.6% y/y) to 1.762 million in December, up for the third time in four months, after an 8.1% drop in November. The layoffs & discharges rate remained at 1.1% in December and November, marginally below 1.3% in February 2020. Private sector layoffs grew 4.3% (7.8% y/y) following a 7.3% November decrease.

The Job Openings and Labor Turnover Survey (JOLTS) data are available in Haver’s **USECON** database.

260205C15.jpg

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- Job openings down 5.6% (-12.9% y/y) to 6.542 mil., third straight m/m decline.
- Hiring up 3.4% (-1.5% y/y) to 5.293 mil., first m/m increase since September.
- Separations rise to a three-month high; quits reach a six-month high; layoffs rebound.

U.S. JOLTS: Openings Drop to Lowest Level Since Sept. ’20; Hiring Rebounds in December

Sandy Batten

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Initial claims for unemployment insurance jumped 22,000 to 231,000 in the week ended January 31 following an unrevised 209,000 in the prior week. The four-week average rose to 212,250 from 206,250. The Action Economics Forecast Survey looked for 213,000 claims to have been filed. Winter Storm Fern and the accompanying very cold temperatures could have provided a temporary boost. Historically speaking, claims remain at low levels.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—increased by 25,000 to 1.844 million in the week ending January 24, from a downwardly revised 1.819 million in the prior week (previously 1.827 million). The insured unemployment rate remained at 1.2% in the week of January 24, unchanged from the previous eight weeks.

The insured unemployment rate varied greatly across individual states and territories. In the week ending January 17, the highest unemployment rates were in Rhode Island (2.83%), New Jersey (2.77%), Massachusetts (2.67%), Washington (2.54%), and Minnesota (2.45%). The lowest rates were in Florida (0.30%), North Carolina (0.42%), Louisiana (0.43%), Alabama (0.46%), and Arkansas (0.47). Rates in other notable states include Illinois (2.15%), California, (2.08%), New York (2.02%), Pennsylvania (1.91%), and Texas (1.09%). 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.

260205C2.jpg

260205D2.jpg

- New claims jumped 22,000 to 231,000, the highest level since December 6.
- Continuing claims rose to 1.844 million from 1.819 million.

U.S. Initial Unemployment Claims Surged in Latest Week

260205E.jpg

German real orders in December adjusted for inflation rose strongly again, gaining 7.8% month-to-month after rising 5.7% month-to-month in November. Foreign orders were up by 5.6% in December compared to 5.2% in November. Domestic orders surged by 10.7% in December after rising 6.4% in November and 10% in October.

**Real sales**
Real sales were mixed in December with overall sales falling 1.4% month-to-month mostly on weakness in capital goods sales.

**Broad categorical acceleration**
Many flows are accelerating this month. Sequential growth rates show acceleration. Total real orders accelerate from a year ago, to the current year, to six-months, and to three-months. Sales growth rates for consumer goods, consumer nondurables, and intermediate goods all show accelerations in gear. The exceptions are foreign orders that are not as strong over six months compared to their 12-month growth. And on the sales side, consumer durables sales and capital goods sales are weak.

**Quarter-to-quarter**
Quarterly annualized growth is complete for Q4 with this report. Foreign orders are the ‘weak flow’ expanding at a 13.6% annual rate – certainly not a weak growth rate. But domestic real orders are up at an astounding 101.9% annual rate. The net impact on the total real orders growth is to lift it to a pace of 44.1%. 

**Order ranking is very strong**
The table provides two rankings: one based on the level of variables and the other based on its year-on-year growth. The rankings this month for real orders overall, foreign, and domestic orders all reside in their top 80th to 90th percentiles- extremely strong based on level or growth. Sales do not follow suit. This gives us some reason to suspect that there is some lumpiness involved in the manufacturing data as distinct from strength. That will be something to watch. Overall mining and manufacturing sales growth is essentially at its historic median at a rank of 49.8. However, capital goods, intermediate goods and manufacturing sales all have rankings at or above their medians - as high as a 61-percentile standing for capital goods.

**Industrial confidence**
Industrial confidence for Germany, France, Italy and Spain (the EU’s big-four economies) show rankings based on these survey levels that are much lower at the 11th percentile for Germany, the 42nd and 36th percentiles, for France and Italy, respectively. Spain scores better with a 61.8 percentile standing on its industrial confidence measure. 

On balance, there is now an accelerating profile that is broad in sales trends and especially strong order trends. Perhaps Europe, under the pressure to stimulate its miliary capabilities, has a core of demand to help drive output ahead more consistently. This is something to watch in the coming months.

Economy in Brief

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Mass Layoffs Up

Chicago Fed Nat'l Activity Index Negative

U.S. Leading Economic Indicators Edged Up

Initial Unemployment Insurance Claims Rose

US 3Q GDP Growth Revised Lower

US 3Q GDP Growth Revised Lower

UK Institutional Investors Invest Record Amount in Q3

Mortgage Applications Reversed Gain