Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107d.jpg" width="353">
Chain store sales last week recovered much of the declines during the prior two weeks with a 1.0% gain, according to the International Council of Shopping Centers (ICSC)-UBS. That pulled the opening level of sales in November 0.4% higher than the October average which fell 0.7% from September.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS fell 0.4% (+0.2% y/y) last week after an unchanged reading the prior period.
A Theory of Political Cycles from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/working_papers/pdfs/wp05-4.pdf"> here</a>.
Politics and Exchange Rate Forecasts from the Federal Reserve Bank of Kansas City is available <a href="http://www.kc.frb.org/publicat/reswkpap/rwp96-02.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">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">Total Weekly Chain Store Sales</td>
<td>466.4</td>
<td>461.8</td>
<td>2.3%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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Chain store sales last week recovered much of the declines during the prior two weeks with a 1.0% gain, according to the International Council of Shopping Centers (ICSC)-UBS. That pulled the opening level of sales in November 0.4% [...]

Chain Store Sales Recover

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107d.jpg" width="353">
Chain store sales last week recovered much of the declines during the prior two weeks with a 1.0% gain, according to the International Council of Shopping Centers (ICSC)-UBS. That pulled the opening level of sales in November 0.4% higher than the October average which fell 0.7% from September.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS fell 0.4% (+0.2% y/y) last week after an unchanged reading the prior period.
A Theory of Political Cycles from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/working_papers/pdfs/wp05-4.pdf"> here</a>.
Politics and Exchange Rate Forecasts from the Federal Reserve Bank of Kansas City is available <a href="http://www.kc.frb.org/publicat/reswkpap/rwp96-02.htm"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">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>
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<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>466.4</td>
<td>461.8</td>
<td>2.3%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Gasoline Prices Drift Lower 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 7, 2006


<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%">
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<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>
  Japanese Household Living Expenditures Decline Sharply:  Implications for 3rd Q GDP? 
by <a href="/comment/Curley.html">Louise Curley</a> November 7, 2006


<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>
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<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>


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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061106c.jpg" width="353">
September manufacturing sales and new orders for Germany were released today. Sales increased 0.17% from August but were almost 6% above September, 2005. New orders, however, fell 2.5% in September, although they were 9.6% above a year ago. The decline in new orders was attributable to foreign orders which declined 6.2% in the month. Domestic order actually increased 1.5%. Both sales and new orders--domestic and foreign--are well above year ago levels.
New orders tend to be erratic, as a result, a change in one month&#39;s orders may not be indicative. If we take a three month moving average of the data, a smoother picture emerges. The first chart compares the actual new orders with the three month moving average. The three month moving average in September shows a 1.1% gain over the August value. In the second chart, which shows domestic and foreign new orders on a three month moving average basis, foreign new orders are virtually unchanged in September and domestic orders are somewhat better.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061106d.jpg" width="353">
The NTC Economics Ltd&#39;s Purchasing Managers&#39; Survey for manufacturing in German is suggesting some cooling. The diffusion indexes continue well above the 50 mark, that is indicative of increased activity, but in several indices, the October values are below the September values. The overall index for manufacturing is 58.32 for October, compared to 58.54 in September. Comparable data for the new orders index are 59.84 and 60.09; for export new orders, 56.26 and 57.09 respectively.
Deceleration in growth is not unusual after the good expansion Germany manufacturing has experienced since the beginning of 2005.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D6/@D64/@D64.HTM">Germany</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&nbsp; %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Manufacturing&nbsp; (2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Sales&nbsp;</td>
<td>115.1</td>
<td>114.9</td>
<td>108.6</td>
<td>0.17</td>
<td>5.99</td>
<td>3.27</td>
<td>3.92</td>
<td>-0.48</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Orders&nbsp;</td>
<td>121.5</td>
<td>124.6</td>
<td>110.5</td>
<td>-2.43</td>
<td>9.56</td>
<td>5.27</td>
<td>5.56</td>
<td>0.59</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>110.3</td>
<td>108.7</td>
<td>99.5</td>
<td>1.47</td>
<td>10.85</td>
<td>2.01</td>
<td>3.11</td>
<td>-0.12</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Foreign</td>
<td>135.6</td>
<td>144.4</td>
<td>125.2</td>
<td>-6.23</td>
<td>8.15</td>
<td>8.80</td>
<td>8.29</td>
<td>1.94</td>
</tr>
<tr>
<td class="firstcol">3 Month&nbsp; Moving Averages</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Total New Orders</td>
<td>122.1</td>
<td>120.8</td>
<td>110.1</td>
<td>1.08</td>
<td>10.90</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Domestic</td>
<td>108.1</td>
<td>106.0</td>
<td>100.9</td>
<td>1.98</td>
<td>7.14</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Foreign</td>
<td>139.5</td>
<td>139.3</td>
<td>123.9</td>
<td>0.14</td>
<td>12.59</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
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September manufacturing sales and new orders for Germany were released today. Sales increased 0.17% from August but were almost 6% above September, 2005. New orders, however, fell 2.5% in September, although they were 9.6% above a [...]

Sales and New Orders and NTC's PMI Suggest Manufacturing in Germany Is Decelerating

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061106a.jpg" width="353">
The 3Q &#39;06 Composite Business Index published by the Manufacturers&#39; Alliance/MAPI fell for the second quarter to 64 from 71 the prior quarter. The figure was at the lowest level since the second quarter of 2003.
During the last ten years there has been a 69% correlation between the Composite Index Level and quarterly growth in US factory sector output.
The current orders index fell to 77 from 81 in 2Q and that was the lowest since late 2003. The 3Q export orders index, however, improved moderately to 75. During the last ten years there has been a 59% correlation between the export orders index and quarterly growth in real US exports.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061106b.jpg" width="353">
The profit margins index improved slightly to 75 from 74 in 2Q and so far in 2006 the quarters have averaged 77 versus an average 65 last year.Capital spending intentions for the coming year fell sharply 56 from the record high 86 in 2Q. During the last ten years there has been a 75% correlation between the capital spending index a q/q growth in business investment.
The survey of 60 senior financial executives representing a broad range of manufacturing industries reflects the views on current &amp; future business conditions. The business outlook index is a weighted sum of shipments, backlogs, inventories, and profit margin indexes.
For the latest US Business Outlook from the MAPI click <a href="http://www.mapi.net/html/prelease.cfm?release_id=2316">here</a>.
Confessions of a Data Dependent are Dallas Federal Reserve Bank President Richard W. Fisher Remarks before the New York Association for Business Economics and they are available <a href="http://dallasfed.org/news/speeches/fisher/2006/fs061102.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/surveys/@SE/@SE.HTM">Manufacturers&#39; Alliance/MAPI Survey</a></th>
<th scope="col">3Q &#39;06</th>
<th scope="col">2Q &#39;06</th>
<th scope="col">3Q &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Business Index</td>
<td>64</td>
<td>71</td>
<td>66</td>
<td>70</td>
<td>76</td>
<td>67</td>
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</tbody>
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The 3Q '06 Composite Business Index published by the Manufacturers' Alliance/MAPI fell for the second quarter to 64 from 71 the prior quarter. The figure was at the lowest level since the second quarter of 2003. During the last ten [...]

MAPI Business Outlook Survey Off Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061106a.jpg" width="353">
The 3Q &#39;06 Composite Business Index published by the Manufacturers&#39; Alliance/MAPI fell for the second quarter to 64 from 71 the prior quarter. The figure was at the lowest level since the second quarter of 2003.
During the last ten years there has been a 69% correlation between the Composite Index Level and quarterly growth in US factory sector output.
The current orders index fell to 77 from 81 in 2Q and that was the lowest since late 2003. The 3Q export orders index, however, improved moderately to 75. During the last ten years there has been a 59% correlation between the export orders index and quarterly growth in real US exports.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061106b.jpg" width="353">
The profit margins index improved slightly to 75 from 74 in 2Q and so far in 2006 the quarters have averaged 77 versus an average 65 last year.Capital spending intentions for the coming year fell sharply 56 from the record high 86 in 2Q. During the last ten years there has been a 75% correlation between the capital spending index a q/q growth in business investment.
The survey of 60 senior financial executives representing a broad range of manufacturing industries reflects the views on current &amp; future business conditions. The business outlook index is a weighted sum of shipments, backlogs, inventories, and profit margin indexes.
For the latest US Business Outlook from the MAPI click <a href="http://www.mapi.net/html/prelease.cfm?release_id=2316">here</a>.
Confessions of a Data Dependent are Dallas Federal Reserve Bank President Richard W. Fisher Remarks before the New York Association for Business Economics and they are available <a href="http://dallasfed.org/news/speeches/fisher/2006/fs061102.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/surveys/@SE/@SE.HTM">Manufacturers&#39; Alliance/MAPI Survey</a></th>
<th scope="col">3Q &#39;06</th>
<th scope="col">2Q &#39;06</th>
<th scope="col">3Q &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Business Index</td>
<td>64</td>
<td>71</td>
<td>66</td>
<td>70</td>
<td>76</td>
<td>67</td>
</tr>
</tbody>
</table>
 Sales and New Orders and NTC's PMI Suggest Manufacturing in Germany Is Decelerating   
by <a href="/comment/Curley.html">Louise Curley</a> November 6, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061106c.jpg" width="353">
September manufacturing sales and new orders for Germany were released today. Sales increased 0.17% from August but were almost 6% above September, 2005. New orders, however, fell 2.5% in September, although they were 9.6% above a year ago. The decline in new orders was attributable to foreign orders which declined 6.2% in the month. Domestic order actually increased 1.5%. Both sales and new orders--domestic and foreign--are well above year ago levels.
New orders tend to be erratic, as a result, a change in one month&#39;s orders may not be indicative. If we take a three month moving average of the data, a smoother picture emerges. The first chart compares the actual new orders with the three month moving average. The three month moving average in September shows a 1.1% gain over the August value. In the second chart, which shows domestic and foreign new orders on a three month moving average basis, foreign new orders are virtually unchanged in September and domestic orders are somewhat better.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061106d.jpg" width="353">
The NTC Economics Ltd&#39;s Purchasing Managers&#39; Survey for manufacturing in German is suggesting some cooling. The diffusion indexes continue well above the 50 mark, that is indicative of increased activity, but in several indices, the October values are below the September values. The overall index for manufacturing is 58.32 for October, compared to 58.54 in September. Comparable data for the new orders index are 59.84 and 60.09; for export new orders, 56.26 and 57.09 respectively.
Deceleration in growth is not unusual after the good expansion Germany manufacturing has experienced since the beginning of 2005.

<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/GERMANY/@D6/@D64/@D64.HTM">Germany</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&nbsp; %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Manufacturing&nbsp; (2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Sales&nbsp;</td>
<td>115.1</td>
<td>114.9</td>
<td>108.6</td>
<td>0.17</td>
<td>5.99</td>
<td>3.27</td>
<td>3.92</td>
<td>-0.48</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Orders&nbsp;</td>
<td>121.5</td>
<td>124.6</td>
<td>110.5</td>
<td>-2.43</td>
<td>9.56</td>
<td>5.27</td>
<td>5.56</td>
<td>0.59</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>110.3</td>
<td>108.7</td>
<td>99.5</td>
<td>1.47</td>
<td>10.85</td>
<td>2.01</td>
<td>3.11</td>
<td>-0.12</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Foreign</td>
<td>135.6</td>
<td>144.4</td>
<td>125.2</td>
<td>-6.23</td>
<td>8.15</td>
<td>8.80</td>
<td>8.29</td>
<td>1.94</td>
</tr>
<tr>
<td class="firstcol">3 Month&nbsp; Moving Averages</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Total New Orders</td>
<td>122.1</td>
<td>120.8</td>
<td>110.1</td>
<td>1.08</td>
<td>10.90</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Domestic</td>
<td>108.1</td>
<td>106.0</td>
<td>100.9</td>
<td>1.98</td>
<td>7.14</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Foreign</td>
<td>139.5</td>
<td>139.3</td>
<td>123.9</td>
<td>0.14</td>
<td>12.59</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
</body>
</html>

MAPI Business Outlook Survey Off FurtherĀĀ

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/061103f.jpg" width="353">
Canadian labor markets seem to be staging a comeback after something of a sinking spell during the summer. In October data reported this morning by StatCan, employment gained by 50,500 and the unemployment rate fell to 6.2%, the lowest since 6.1% in May and June.
Back in September we were puzzled about whether recent months&#39; job losses were a sign of sagging activity, or merely a correction after an outsized rise in May. After two months of increases, we probably can conclude that the latter is the more valid conclusion. In October, at 16,555,500, employment in Canada reached a new high.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103g.jpg" width="353">
Further, the downtrend we thought we were seeing in the goods-producing sector may also be &quot;just a phase&quot;. September and October had gains of 18,000 and 9,000, respectively, in construction, mining and utilities. We&#39;d attribute these increases to added supply efforts in Canada&#39;s energy production. It is still the case that manufacturing jobs are declining.
Service industries have mixed performances. Some, like finance, business support services and accommodation and food services, are growing vigorously. But others, including professional and technical activities and information services, are waffling after extended uptrends. The service sector as a whole is gaining, but the sources of growth seem to be different most every month.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103h.jpg" width="353">
The unemployment rate fell 0.2 point in October. Not all of that move represents good news, though. Along with the employment growth, the number of people in the labor force flattened out. The so-called participation rate, the labor force as a portion of the population over age 15, has edged lower, reaching 67.08%, the lowest since February&#39;s 67.02%; this rate peaked at 67.34% in July. These may look like small differences, but in Canada, each 0.1% in the participation rate represents about 26,000 people who are seeking work or deciding not to seek work. All these caveats aside, the decline in the unemployment rate obviously contains more good news than bad, and we are encouraged by the October labor data, which indeed seem to confirm that the declines in the summer were perhaps a &quot;vacation&quot; and labor markets have picked up once again.
These national Canadian data are contained in Haver&#39;s CANSIM database. Some detail is also available for the Provinces; those data are in CANSIMR.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CANSIM/@C6/@C6.HTM">Canada&nbsp;</a> (Seasonally Adjusted)</th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</th>
<th scope="col">Year Ago</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">Employment (000s)</td>
<td>16,555</td>
<td>16,505</td>
<td>16,488</td>
<td>16,268</td>
<td>16,169</td>
<td>15,949</td>
<td>15,672</td>
</tr>
<tr>
<td class="firstcol">Change, 000s/%</td>
<td>+50</td>
<td>+16</td>
<td>-16</td>
<td>1.8%</td>
<td>1.4%</td>
<td>1.8%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods-Producing </td>
<td>+9</td>
<td>+18</td>
<td>-18</td>
<td>-0.4%</td>
<td>0.2%</td>
<td>1.7%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Service-Producing</td>
<td>+2</td>
<td>+2</td>
<td>+30</td>
<td>2.8%</td>
<td>2.1%</td>
<td>1.8%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment (000s)</td>
<td>1,086</td>
<td>1,131</td>
<td>1,141</td>
<td>1,155</td>
<td>1,173</td>
<td>1,235</td>
<td>1,286</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>6.2</td>
<td>6.4</td>
<td>6.5</td>
<td>6.6</td>
<td>6.8</td>
<td>7.2</td>
<td>7.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Participation Rate (%)</td>
<td>67.08</td>
<td>67.14</td>
<td>67.21</td>
<td>67.20</td>
<td>67.20</td>
<td>67.54</td>
<td>67.54</td>
</tr>
</tbody>
</table>
</body>
</html>

Canadian labor markets seem to be staging a comeback after something of a sinking spell during the summer. In October data reported this morning by StatCan, employment gained by 50,500 and the unemployment rate fell to 6.2%, the [...]

Rebound in Canadian Labor Market after Summer Pause

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103d.jpg" width="353">
The Business Activity Index for the non-manufacturing sector in October recovered all of the prior month&#39;s decline and rose to 57.1. The figure from the Institute for Supply Management (ISM) exceeded Consensus expectations for a lesser rise to 54.5.
Since the series&#39; inception in 1997 there has been a 50% correlation between the level of the Business Activity Index and the q/q change in real GDP for services plus construction.
The new orders sub-index slipped to 56.5 after a sharp September increase though the employment index gave back all of its September gain. At 51.0 it was at the lowest monthly level since 2004 and just 14% of survey respondents reported higher employment. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103e.jpg" width="353">
Pricing power dropped to its worst since 2003. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates back to July 1997.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.

<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/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Oct. &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>57.1</td>
<td>52.9</td>
<td>59.2</td>
<td>60.1</td>
<td>62.5</td>
<td>58.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>51.9</td>
<td>56.7</td>
<td>74.1</td>
<td>67.9</td>
<td>68.8</td>
<td>56.6</td>
</tr>
</tbody>
</table>


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The Business Activity Index for the non-manufacturing sector in October recovered all of the prior month's decline and rose to 57.1. The figure from the Institute for Supply Management (ISM) exceeded Consensus expectations for a [...]

ISM Nonmanufacturing Index Recovered

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103a.jpg" width="353">
Nonfarm payrolls last month rose 92,000 and for the second month fell short of Consensus expectations which were for a 125,000 rise. However, again for the second month, upward revisions to prior months&#39; increases left the impression of firmness in the labor market
For September, payrolls are now estimated to have risen 148,000, nearly triple the initial estimate. In addition, the August increase is now pegged at 230,000, up from 188,000 estimated last month. The gains pulled the three month average increase in jobs to 157,000 and the ten month average to 147,000, just below last year&#39;s average monthly gain of 165,000 and an average 175,000 during 2004.
Further evidence of a firm labor market was provided by the unemployment rate which declined to a five year low of 4.4%. The drop reflected an employment gain of 437,000 and not a typo. It was the largest monthly increase since early 2005 (1.9% y/y) and followed a 271,000 September gain. The labor force increased 199,000 (1.3% y/y) and the labor force participation rate held for the fifth month at 66.2%, up from the monthly lows during 2005 of 65.8%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103b.jpg" width="353">
Government payrolls increased 34,000 (1.1% y/y). As a result private payrolls rose 58,000 (1.6% y/y) following upwardly revised gains of 120,000 and 180,000 in September and August, respectively.
The breadth of one month gain in private payrolls slipped a bit to 54.9% in October from an upwardly revised 55.9% in September but the three month diffusion index fell to 55.6%, the lowest level since early 2005. In the factory sector the one month breadth of gain fell further below break even to 40.5% from 43.5% in August. The three month diffusion index fell to 36.9%, also it&#39;s lowest in nearly a year.
Private service-producing jobs rose 118,000 (1.7% y/y) and a 126,000 September increase was double the initial estimate. Professional &amp; business services employment rose 43,000 (2.8% y/y) while temporary help services jobs recovered 15,000 (1.1% y/y). Jobs in education &amp; health rose 28,000 (2.5% y/y) while leisure &amp; hospitality jobs increased 35,000 (2.5% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103c.jpg" width="353">
Factory sector payrolls fell a hard 39,000, the seventh m/m decline this year and the largest since 2003. Jobs in motor vehicle &amp; parts industries fell 14,700 (-2.9% y/y) while jobs in furniture fell 3,300 (-3.5% y/y) and fabricated metals declined 3,700 (+2.0% y/y). Jobs in wood products also fell a sharp 5,000 (-2.4% y/y) and nondurables dropped 20,000 (-1.0% y/y) with textile industries down quite hard.
Construction employment fell 26,000 (+2.0% y/y) after a little revised 5,000 worker gain during September.
Average hourly earnings doubled the previous month&#39;s increase and rose 0.4%. Factory sector earnings rose 0.4% (1.3% y/y), the largest gain in a year.
The workweek rose to 33.9 hours, back to the highest level since 2002.
Are Two Employment Surveys Better than One? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20061101/cover.pdf"> here</a>
Money and Monetary Policy for the Twenty-First Century, also from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/06/11/Jordan.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/@EB/@EB01/@EB01.HTM">Employment</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">Payroll Employment</td>
<td>92,000</td>
<td>148,000</td>
<td>1.5%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-39,000</td>
<td>-12,000</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>-1.3%</td>
<td>-4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.9</td>
<td>33.8</td>
<td>33.8 (Oct. &#39;05)</td>
<td>33.8</td>
<td>33.7</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.4%</td>
<td>0.2%</td>
<td>3.9%</td>
<td>2.8%</td>
<td>2.1%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.4%</td>
<td>4.6%</td>
<td>5.1% (Sept. &#39;05)</td>
<td>5.1%</td>
<td>5.5%</td>
<td>6.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

Nonfarm payrolls last month rose 92,000 and for the second month fell short of Consensus expectations which were for a 125,000 rise. However, again for the second month, upward revisions to prior months' increases left the impression [...]

U.S. Payroll Report: More Upward Revisions

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.

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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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