Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109f.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment during November slipped 1.4% from October to 92.3 after that month&#39;s 9.6% jump. The decline slightly exceeded Consensus expectations for a decline to 93.3.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
Expectations for the economy retraced 1.9% of the prior month&#39;s 8.4% m/m surge due to a lessened expected change in personal finances which retraced all of October&#39;s gain (+5.2% y/y). Expected business conditions next year added slightly (38.6% y/y) to the sharp gains of the prior two months and over the next five years also rose a firm 1.0% (22.5% y/y) to the highest since July 2005. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109e.jpg" width="353">
The reading of current economic conditions slipped 0.7% as the current read of personal finances fell 0.8% (+13.6% y/y) and perceived buying conditions for large household goods fell 0.6% (+1.3% y/y.
Expected inflation during the next year fell to 3.4%, the lowest since early 2005. Since 1980 there has been an inverse 63% correlation between the level of sentiment and expected inflation during the next year. The five to ten year expected rate of inflation also fell m/m to 3.3%.
Consumers&#39; opinion about gov&#39;t economic policy improved 2.3% (7.2% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">November (Prelim.)</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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>92.3</td>
<td>93.6</td>
<td>13.1%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.5</td>
<td>107.3</td>
<td>6.3%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>83.2</td>
<td>84.8</td>
<td>19.5%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
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The University of Michigan's preliminary reading of consumer sentiment during November slipped 1.4% from October to 92.3 after that month's 9.6% jump. The decline slightly exceeded Consensus expectations for a decline to 93.3. During [...]

U.S. Consumer Sentiment Slipped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109c.jpg" width="353">
In October, total import prices repeated the prior month&#39;s 2.0% decline and doubled Consensus expectations for a 1.0% drop. 
Prices of petroleum imports plunged another 8.3% after the 9.7% September drop but in November the price of Brent crude oil is up from the $57.70 per bbl. averaged in October.
Less petroleum import prices fell 0.6%, the largest monthly decline since February. During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109d.jpg" width="353">
Capital goods prices slipped 0.1% (-0.1% y/y) but excluding computers, capital good prices rose 0.2% (2.0% y/y). Prices for nonauto consumer goods rose 0.1% (1.0% y/y) for the third month while prices for nonoil industrial supplies &amp; materials fell 2.7% (-0.7% y/y) due to lower selected building materials prices (-6.1% y/y).
Have U.S. Import Prices Become Less Responsive to Changes in the Dollar? from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci12-6.pdf">here</a>.
Export prices fell 0.4% for the second month as nonagricultural commodities prices dropped 0.5% (+2.6% y/y) but agricultural export prices rose 1.1% (5.4% y/y).

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">October</th>
<th scope="col">September</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">Import - All Commodities</td>
<td>-2.0%</td>
<td>-2.0%</td>
<td>-0.2%</td>
<td>7.5%</td>
<td>5.6%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-8.3%</td>
<td>-9.7%</td>
<td>-2.9%</td>
<td>37.6%</td>
<td>30.5%</td>
<td>21.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>-0.6%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>-0.4%</td>
<td>-0.4%</td>
<td>2.8%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>1.6%</td>
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In October, total import prices repeated the prior month's 2.0% decline and doubled Consensus expectations for a 1.0% drop. Prices of petroleum imports plunged another 8.3% after the 9.7% September drop but in November the price of [...]

U.S. Import Prices Down: Oil & Other Prices Off

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109a.jpg" width="353">
Lower oil prices in September caused the U.S. foreign trade to reverse the prior month&#39;s run up and fall to $64.3B. The record August deficit was revised shallower to $69.0B. The latest figure also was shallower than Consensus expectations for a deficit of $66.0B.
Imports of petroleum products fell 10.5% (+10.4% y/y) as the per barrel price of crude oil fell 5.4% to $62.52 and the quantity of crude imported per day fell 4.8% (+14.0% y/y). The price of oil in October fell another five dollars per barrel. 
Overall September imports of goods &amp; services fell 2.1% m/m and fully reversed the August gain. Imports of nonpetroleum products, however, fell only 0.7% (+9.6% y/y) after a 2.5% August rise. Imports of capital goods fell just 1.5% (10.9% y/y) after two months of gain exceeding 2% and nonauto consumer goods imports rose 1.5% (11.2% y/y), the same as during August. Automotive imports fell 1.9% (+4.1% y/y) while imports of crude materials less fuels fell 8.1% (NSA, +12.1% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109b.jpg" width="353">
Total exports added 0.5% to the firm 2.4% August gain as capital goods exports jumped another 2.0% (22.1% y/y). Exports of civilian aircraft surged by more than one third (308.2% y/y) but computer exports fell (+6.5% y/y). Exports of telecommunications equipment rose 2.3% (15.5% y/y) while exports of nonauto consumer goods fell 3.2% (+9.0% y/y) after several months of strong gain.
Service exports slipped 0.1% (+6.5% y/y) as travel exports fell 0.9% (+2.5% y/y) and passenger fares dipped 0.5% (-2.3% y/y). Imports of services ticked up 0.2% (7.9% y/y) though passenger fares fell 1.3% (-0.9% y/y).
The U.S. trade deficit in goods with China deepened to another record $23.0B in September ($201.5B in 2005) as exports fell 2.7% (+44.5% y/y) but imports rose 3.3% (18.5% y/y). With the newly industrialized Asian countries, the balance of goods trade narrowed sharply m/m to a deficit of $0.7B (-$15.8B in 2005) as exports rose 3.8% (+22.5% y/y) and imports fell 6.8% (+8.2% y/y).
Twin Deficits, Twenty Years Later from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci12-7.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">Foreign Trade&nbsp;</a></th>
<th scope="col">September</th>
<th scope="col">August</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">U.S. Trade Deficit</td>
<td>$64.3B</td>
<td>$69.0B</td>
<td>$65.0B (9/05)</td>
<td>$716.7B</td>
<td>$611.3B</td>
<td>$494.9B</td>
</tr>
<tr>
<td class="firstcol">Exports - Goods &amp; Services</td>
<td>0.5%</td>
<td>2.4%</td>
<td>15.8%</td>
<td>10.7%</td>
<td>13.4%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports - Goods &amp; Services</td>
<td>-2.1%</td>
<td>2.0%</td>
<td>9.4%</td>
<td>13.0%</td>
<td>16.7%</td>
<td>8.3%</td>
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</tbody>
</table>
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Lower oil prices in September caused the U.S. foreign trade to reverse the prior month's run up and fall to $64.3B. The record August deficit was revised shallower to $69.0B. The latest figure also was shallower than Consensus [...]

U.S. Trade Deficit Narrowed Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109a.jpg" width="353">
Lower oil prices in September caused the U.S. foreign trade to reverse the prior month&#39;s run up and fall to $64.3B. The record August deficit was revised shallower to $69.0B. The latest figure also was shallower than Consensus expectations for a deficit of $66.0B.
Imports of petroleum products fell 10.5% (+10.4% y/y) as the per barrel price of crude oil fell 5.4% to $62.52 and the quantity of crude imported per day fell 4.8% (+14.0% y/y). The price of oil in October fell another five dollars per barrel. 
Overall September imports of goods &amp; services fell 2.1% m/m and fully reversed the August gain. Imports of nonpetroleum products, however, fell only 0.7% (+9.6% y/y) after a 2.5% August rise. Imports of capital goods fell just 1.5% (10.9% y/y) after two months of gain exceeding 2% and nonauto consumer goods imports rose 1.5% (11.2% y/y), the same as during August. Automotive imports fell 1.9% (+4.1% y/y) while imports of crude materials less fuels fell 8.1% (NSA, +12.1% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109b.jpg" width="353">
Total exports added 0.5% to the firm 2.4% August gain as capital goods exports jumped another 2.0% (22.1% y/y). Exports of civilian aircraft surged by more than one third (308.2% y/y) but computer exports fell (+6.5% y/y). Exports of telecommunications equipment rose 2.3% (15.5% y/y) while exports of nonauto consumer goods fell 3.2% (+9.0% y/y) after several months of strong gain.
Service exports slipped 0.1% (+6.5% y/y) as travel exports fell 0.9% (+2.5% y/y) and passenger fares dipped 0.5% (-2.3% y/y). Imports of services ticked up 0.2% (7.9% y/y) though passenger fares fell 1.3% (-0.9% y/y).
The U.S. trade deficit in goods with China deepened to another record $23.0B in September ($201.5B in 2005) as exports fell 2.7% (+44.5% y/y) but imports rose 3.3% (18.5% y/y). With the newly industrialized Asian countries, the balance of goods trade narrowed sharply m/m to a deficit of $0.7B (-$15.8B in 2005) as exports rose 3.8% (+22.5% y/y) and imports fell 6.8% (+8.2% y/y).
Twin Deficits, Twenty Years Later from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci12-7.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">Foreign Trade&nbsp;</a></th>
<th scope="col">September</th>
<th scope="col">August</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">U.S. Trade Deficit</td>
<td>$64.3B</td>
<td>$69.0B</td>
<td>$65.0B (9/05)</td>
<td>$716.7B</td>
<td>$611.3B</td>
<td>$494.9B</td>
</tr>
<tr>
<td class="firstcol">Exports - Goods &amp; Services</td>
<td>0.5%</td>
<td>2.4%</td>
<td>15.8%</td>
<td>10.7%</td>
<td>13.4%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports - Goods &amp; Services</td>
<td>-2.1%</td>
<td>2.0%</td>
<td>9.4%</td>
<td>13.0%</td>
<td>16.7%</td>
<td>8.3%</td>
</tr>
</tbody>
</table>
U.S. Import Prices Down: Oil & Other Prices Off 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 9, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109c.jpg" width="353">
In October, total import prices repeated the prior month&#39;s 2.0% decline and doubled Consensus expectations for a 1.0% drop. 
Prices of petroleum imports plunged another 8.3% after the 9.7% September drop but in November the price of Brent crude oil is up from the $57.70 per bbl. averaged in October.
Less petroleum import prices fell 0.6%, the largest monthly decline since February. During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109d.jpg" width="353">
Capital goods prices slipped 0.1% (-0.1% y/y) but excluding computers, capital good prices rose 0.2% (2.0% y/y). Prices for nonauto consumer goods rose 0.1% (1.0% y/y) for the third month while prices for nonoil industrial supplies &amp; materials fell 2.7% (-0.7% y/y) due to lower selected building materials prices (-6.1% y/y).
Have U.S. Import Prices Become Less Responsive to Changes in the Dollar? from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci12-6.pdf">here</a>.
Export prices fell 0.4% for the second month as nonagricultural commodities prices dropped 0.5% (+2.6% y/y) but agricultural export prices rose 1.1% (5.4% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">October</th>
<th scope="col">September</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">Import - All Commodities</td>
<td>-2.0%</td>
<td>-2.0%</td>
<td>-0.2%</td>
<td>7.5%</td>
<td>5.6%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-8.3%</td>
<td>-9.7%</td>
<td>-2.9%</td>
<td>37.6%</td>
<td>30.5%</td>
<td>21.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>-0.6%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>-0.4%</td>
<td>-0.4%</td>
<td>2.8%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Slipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 9, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109f.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment during November slipped 1.4% from October to 92.3 after that month&#39;s 9.6% jump. The decline slightly exceeded Consensus expectations for a decline to 93.3.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
Expectations for the economy retraced 1.9% of the prior month&#39;s 8.4% m/m surge due to a lessened expected change in personal finances which retraced all of October&#39;s gain (+5.2% y/y). Expected business conditions next year added slightly (38.6% y/y) to the sharp gains of the prior two months and over the next five years also rose a firm 1.0% (22.5% y/y) to the highest since July 2005. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109e.jpg" width="353">
The reading of current economic conditions slipped 0.7% as the current read of personal finances fell 0.8% (+13.6% y/y) and perceived buying conditions for large household goods fell 0.6% (+1.3% y/y.
Expected inflation during the next year fell to 3.4%, the lowest since early 2005. Since 1980 there has been an inverse 63% correlation between the level of sentiment and expected inflation during the next year. The five to ten year expected rate of inflation also fell m/m to 3.3%.
Consumers&#39; opinion about gov&#39;t economic policy improved 2.3% (7.2% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

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<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">November (Prelim.)</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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>92.3</td>
<td>93.6</td>
<td>13.1%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.5</td>
<td>107.3</td>
<td>6.3%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>83.2</td>
<td>84.8</td>
<td>19.5%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
Initial Claims for Jobless Insurance Back Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 9, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109g.jpg" width="353">
Initial claims for unemployment insurance reversed the prior week&#39;s jump and fell 20,000 last week to 308,000. Consensus expectations had been for a lesser decline to 315,000 claims.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims was nearly unchanged at 311,250 (-4.2% y/y).
With a 43,000 increase, continuing claims for unemployment insurance reversed a deepened decline the prior week.
The insured rate of unemployment backed up to 1.9%.
Construction Slowdown from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/region_focus/weekly_update/archive/2006/20060920.cfm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">11/04/06</th>
<th scope="col">10/28/06</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>
<td class="firstcol">Initial Claims</td>
<td>308</td>
<td>328</td>
<td>-2.5%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,448</td>
<td>-10.3%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
UK Trade Deficit Also Eases with Oil Prices; Heightened Law Enforcement Reduces "MTIC Fraud Trade" 
by <a href="/comment/Stone.html">Carol Stone</a> November 9, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109h.jpg" width="353">
Easing oil prices also helped ease the trade deficit in the UK. It fell to &pound;4.1 billion in September from &pound;4.5 billion in August. The deficit on goods alone was &pound;6.6 billion, down from &pound;6.9 billion. Total exports of goods and services stood at &pound;29.2 billion, actually down a bit from &pound;29.3 billion in August. Imports fell more, to &pound;33.3 billion from &pound;33.8 billion. Excluding oil the balance was basically unchanged from August to September at -&pound;6.1 billion. Thus, for now, erosion in the trade accounts due to the surging value of oil imports has been stopped.
However, the interesting story to us in this month&#39;s UK trade data is the report for the first time of the amount of VAT-evasion fraud in the data. The VAT rate in the UK is 17.5% on most goods. Some unscrupulous business people want to avoid paying this amount to Her Majesty&#39;s Treasury. Using the trading system and the VAT collection system itself, they not only avoid paying the tax, but also in some cases actually pocket the revenues for themselves. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109i.jpg" width="353">
These practices first came to light about six years ago and their impact on trade data started to get notice in 2003. Last year and now again this month, Her Majesty&#39;s Revenue and Customs (HMRC) have enhanced their enforcement efforts and identified larger quantities of misrouted trade. Initially, the practice was confined to EU trade, where cross-border transactions are largely unsupervised. Now, as HMRC has picked up the fraud more there, the perpetrators have moved to other countries, specifically Dubai and Switzerland, according to the ONS press release. Cell phones and computer components are apparently the most frequent items involved in these practices.
Traders import merchandise and then sell it on, either domestically or abroad. Then they &quot;disappear&quot; without making the required VAT payments. Thus, this scheme is called &quot;Missing Trader Intra-Community [EU] fraud, known as MTIC. The &quot;customers&quot; may sometimes be their own business associates, who sell the goods again in order to pocket the VAT again. Then it is called a &quot;carousel cycle&quot;. For most of the time since 1999, this has been small: at most &pound;1 billion per month and usually &pound;200-300 million. But over the last year, it has grown much more significantly, as seen in the table below. In Q1 and Q2 particularly, it amounted to &pound;9.8 billion and &pound;12.9 billion, respectively, accounting for nearly 16% and just over 19% of reported UK exports. The decline in exports in Q3 is almost totally absorbed by a reduction in the illegal MTIC trade, which was &quot;only&quot; &pound;3.6 billion. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109j.jpg" width="353">
Probably data users who are well acquainted with the UK are aware of this issue, but others need to know. Most recently, it has greatly distorted both exports and imports and complicates interpretation of the data on them. For instance, the sharp drop in trade in Q3 could signal less rigor in the UK economy, but instead, evidently, it signals more rigorous law enforcement. The ONS is so concerned about the mixed signals in this information that its initial brief announcement of the September data consisted in more text about data reliability than about the figures themselves, much as this comment does. Note that we have highlighted the export side in our discussion, but imports are involved just as much.ONS introduced today quarterly data on the MTIC &quot;fraud trade&quot;, along with current price and chained price series of exports and imports net of this phantom activity. Haver&#39;s database managers are preparing to enter these series in the UK database. Clients can watch Data News in the Client Area of Haver.com and in HaverSelect.com for their availability.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U8/@U8.HTM">UK</a><a href="http://www.haverselect.com/dlx/UK/@U8/@U8.HTM">, Seas Adjusted</a></th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</th>
<th scope="col">July 2006</th>
<th scope="col">Year Ago</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Million &pound;Trade Balance: Goods &amp; Services</td>
<td>-4,087</td>
<td>-4,544</td>
<td>-4,699</td>
<td>-4,205</td>
<td>-3,775</td>
<td>-2,915</td>
<td>-2,454</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Goods</td>
<td>-6,560</td>
<td>-6,856</td>
<td>-7,055</td>
<td>-6,033</td>
<td>-5,723</td>
<td>-5,074</td>
<td>-4,051</td>
</tr>
<tr>
<td class="firstcol">Exports of Goods</td>
<td>19,182</td>
<td>19,396</td>
<td>18,846</td>
<td>18,596</td>
<td>17,641</td>
<td>15,906</td>
<td>15,693</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports of Goods</td>
<td>25,742</td>
<td>26,252</td>
<td>25,901</td>
<td>24,629</td>
<td>23,364</td>
<td>20,981</td>
<td>19,744</td>
</tr>
<tr>
<td class="firstcol">Goods Bal ex Oil</td>
<td>-6,101</td>
<td>-6,134</td>
<td>-6,725</td>
<td>-5,315</td>
<td>-5,541</td>
<td>-5,149</td>
<td>-4,332</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Q3 2006</td>
<td>Q2 2006</td>
<td>Q1 2006</td>
<td>Q4 2005</td>
<td colspan="3">Quarterly Averages</td>
</tr>
<tr>
<td class="firstcol">Billion &pound;Reported Exports</td>
<td>57.4</td>
<td>67.1</td>
<td>62.7</td>
<td>56.4</td>
<td>52.9</td>
<td>47.7</td>
<td>47.1</td>
</tr>
<tr class="odd">
<td class="firstcol">MTIC Fraud</td>
<td>3.6</td>
<td>12.9</td>
<td>9.8</td>
<td>4.4</td>
<td>2.8</td>
<td>0.6</td>
<td>1.1</td>
</tr>
<tr>
<td class="firstcol">Exports Net of Fraud</td>
<td>53.8</td>
<td>54.1</td>
<td>52.9</td>
<td>52.0</td>
<td>50.1</td>
<td>47.0</td>
<td>46.0</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061108b.jpg" width="353">
The total number of mortgage applications recovered 8.8% last week and more than made up the several sharp w/w declines during October, according to the Mortgage Bankers Association. The level of total applications started November 5.9% above the October average which fell 0.6% from September.
Applications to refinance jumped 11.0% to the highest level since late September. They began this month 6.7% above the October average which rose 3.5% from September.
Purchase applications in addition rose strongly, by 7.1%. The gain also was to the highest level since late September and pulled the opening level this month 5.4% ahead of the October average level. Purchase applications fell 3.6% last month from September on average.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061108a.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage was unchanged w/w at 6.46%. The peak for 30 year financing was 7.08% late in June. The rate for 15-year financing ticked up to 6.20%. The peak for 15 year financing was 6.75% during June. 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 accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/papers/2006/wp06-08bk.pdf"> here</a>.
Alternative Mortgages: Managed Risk or Gamble? from the Federal Reserve Bank of Boston can be found <a href="http://www.bos.frb.org/commdev/c&amp;b/2006/spring/alternative.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">11/03/06</th>
<th scope="col">10/27/06</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>620.9</td>
<td>570.8</td>
<td>-6.1%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>402.2</td>
<td>375.6</td>
<td>-13.6%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,897.9</td>
<td>1,709.2</td>
<td>5.5%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The total number of mortgage applications recovered 8.8% last week and more than made up the several sharp w/w declines during October, according to the Mortgage Bankers Association. The level of total applications started November [...]

Mortgage Applications Recovery Big

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107e.jpg" width="353">
By the many measures of family living expenditures the Ministry of Internal Affairs and Communications publishes, Japanese families have been reducing their living expenditures. The index of living expenditures for all households in Japan declined 2.8% in September. Those of worker households declined 3.35%. On seasonally adjusted bases, all households reduced spending on average in September by 1.97% in real terms and 2.16% in nominal terms.Comparable declines for the worker households were 2.42% and 2.32%. The September declines have, in most cases followed declines in August and July. The first chart showing the seasonally adjusted real living expenditure by all households is illustrative of declines in the various measures of household living expenditures over the recent quarter. In addition to the various indexes, data in yen are also available.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107g.jpg" width="353">
The seasonally unadjusted data give details of the composition of expenditures. For example, in September, expenditures on food, fuel, light and water charges, medical care, education and culture all rose while expenditures on housing, furniture and household utensils, clothing and foot ware, transportation and communication and miscellaneous all declined. The second chart shows expenditures on medical care and transportation,<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107h.jpg" width="353">
In addition to the seasonally adjusted data on expenditures, data are also available on income, disposable income and the propensity to consume. The propensity to consume for all households increased in August and September, in spite of the decline in expenditures since the decline in disposable income was greater than the decline in living expenditures. Even with the rise, the propensity to consume is still at a historically low level as can be seen in the third chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107f.jpg" width="353">
One would think that the living expenditure series might be a good indicator of consumer spending in the national accounts. The relationship, however, appears tenuous as can be seen in the fourth chart that compares the seasonally adjusted real living expenditures of all households with final consumption expenditures in GDP. Nevertheless, the recent trend in the real living expenditures looks ominous. (To compare the two series, we aggregated the monthly data of the living expenditure series on a quarterly basis and we put the Consumption data on an index with the same basis--(2005=100)--as the living expenditure series.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J8/@J808/@J808.HTM">Japan:&nbsp; Family Living Expenditures (2005=100)</a></th>
<th scope="col">Sep 06</th>
<th scope="col">Aug 06</th>
<th scope="col">Sep 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">All Households NSA </td>
<td>94.0</td>
<td>96.7</td>
<td>100.3</td>
<td>-2.79</td>
<td>-6.28</td>
<td>100.0</td>
<td>100.1</td>
<td>99.6</td>
</tr>
<tr>
<td class="firstcol">Worker Households&nbsp;NSA</td>
<td>92.3</td>
<td>95.5</td>
<td>99.2</td>
<td>-3.35</td>
<td>-6.96</td>
<td>100.0</td>
<td>99.8</td>
<td>98.5</td>
</tr>
<tr class="odd">
<td class="firstcol"> All Household SA </td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Real</td>
<td>94.5</td>
<td>96.4</td>
<td>100.5</td>
<td>-1.97</td>
<td>-5.97</td>
<td>100.0</td>
<td>100.5</td>
<td>100.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Nominal</td>
<td>95.2</td>
<td>97.3</td>
<td>100.5</td>
<td>-2.16</td>
<td>-5.27</td>
<td>100.0</td>
<td>100.8</td>
<td>100.4</td>
</tr>
<tr>
<td class="firstcol"> Worker Household SA </td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Real</td>
<td>92.7</td>
<td>94.9</td>
<td>99.3</td>
<td>-2.32</td>
<td>-6.65</td>
<td>100.0</td>
<td>100.3</td>
<td>98.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Nominal</td>
<td>93.2</td>
<td>95.5</td>
<td>99.1</td>
<td>-2.41</td>
<td>-5.95</td>
<td>100.0</td>
<td>100.7</td>
<td>99.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Propensity to Consume All HH (Nominal SA)(%)</td>
<td>70.3</td>
<td>69.8</td>
<td>74.7</td>
<td>0.5*</td>
<td>-4.4*</td>
<td>74.5</td>
<td>74.1</td>
<td>74.0</td>
</tr>
</tbody>
</table>
</body>
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By the many measures of family living expenditures the Ministry of Internal Affairs and Communications publishes, Japanese families have been reducing their living expenditures. The index of living expenditures for all households in [...]

Japanese Household Living Expenditures Decline Sharply: Implications for 3rd Q GDP?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107a.jpg" width="353">
 Retail prices for a gallon of regular unleaded gasoline drifted two cents lower last week to an average $2.20. On average during October, gasoline averaged $2.25 per gallon.
The spot market (NY harbor) price for a gallon of regular gasoline rose two cents yesterday to $1.53 versus an average $1.51 last week.
Oil prices have been rising recently with WTI Crude at $60.03 (0.9% y/y) yesterday, up from $58.88 averaged during October.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107b.jpg" width="353">
Natural gas prices eased d/d yesterday to $6.75 per mmbtu (-24.0% y/y) but the Henry Hub price still was up from an average of $5.77 in October and $4.90 during September.
The Department of Energy reported that gasoline demand during the latest four weeks rose 5.0% from the year earlier period. That increase, however, understated the appetite for gasoline according to estimated figures from the Oil &amp; Gas Journal which indicated a 15.5% rise. These figures are available in the Haver OILWKLY database.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107c.jpg" width="353">
The latest Short-Term Energy Outlook from the U.S. Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.
Oil Prices and the U.S. Trade Deficit from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-24.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/@S2/@S2.HTM">Weekly Energy Prices</a></th>
<th scope="col">11/06/06</th>
<th scope="col">10/30/06</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>
<td class="firstcol">US Retail Gasoline Price, Regular</td>
<td>$2.20</td>
<td>$2.22</td>
<td>-7.4%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
</tbody>
</table>


</html>

Retail prices for a gallon of regular unleaded gasoline drifted two cents lower last week to an average $2.20. On average during October, gasoline averaged $2.25 per gallon. The spot market (NY harbor) price for a gallon of regular [...]

Gasoline Prices Drift Lower

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.

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

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

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

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

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

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

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

Robert Brusca

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

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

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

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

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

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

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

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

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

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

Germany

German IP Reveals Chaotic Trends

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.

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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.

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- 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

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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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