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/061101h.jpg" width="353">
Purchasing Managers surveys for a number of large countries indicate a modest slowing of manufacturing growth through October. Changes from September are not big, but most are in the same direction and the overall indexes are reinforced by moves in the key new orders component.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101i.jpg" width="353">
In China, the total index is down 0.3 point, and at 52.15, indicates growth is still spread across a good portion of reporting companies, although it is not broadening. New orders remain firm, although down fractionally from September. More notable is a slowing of outstanding orders -- backlogs -- to 49.78, just below the 50% threshold of expansion. In light of continuing growth in new orders, the decline in backlogs may only reflect strengthening productivity, but even so, it does appear that overall momentum is waning.
Russia&#39;s manufacturing sector actually appears stronger, although the latest months have diminished more than in China. Overall activity, according to the Purchasing Manager measure, had a reading last month of 53.05, down 1.65 points from September. New orders, which run consistently higher than the composite index, slipped 2.5 points to 56.82. In August both of these reached their highest levels since 1999. So the easing in September and October may only be a correction. Backlogs in Russian factories have actually strengthened since early 2005 along with the good gains in new orders. But they too corrected in October back below 50%. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101j.jpg" width="353">
The Indian economy&#39;s service sector has received more publicity in recent years, but its manufacturing industries are experiencing broad expansion as well. The overall PMI was 59.30 in October, up from September&#39;s 59.00 reading. These data are very new, beginning only in April of last year. But certainly their behavior is internally consistent. Strong new orders, evident in the graph, are pulling up backlogs, which rose 0.63 point in October to 52.68, their highest level. So momentum in Indian manufacturing looks quite vigorous.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101k.jpg" width="353">
In the long-established UK manufacturing sector, the overall index eased 0.78 point to a still firm level of 53.73, as industry there continues a year of good expansion. However, what we see in the last graph is that output is gaining as fast as new orders, so that backlogs look weak. This suggests that while overall growth is good now, it is vulnerable to any orders slowdown going forward.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">PMI Indexes, SA</th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">China</td>
<td>52.15</td>
<td>52.45</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>53.02</td>
<td>53.39</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Backlogs</td>
<td>49.78</td>
<td>50.56</td>
</tr>
<tr>
<td class="firstcol">Russia</td>
<td>53.05</td>
<td>54.70</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Orders</td>
<td>56.82</td>
<td>59.34</td>
</tr>
<tr>
<td class="firstcol">India</td>
<td>59.30</td>
<td>59.00</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Orders</td>
<td>66.29</td>
<td>65.17</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>53.73</td>
<td>54.51</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Orders</td>
<td>54.72</td>
<td>55.00</td>
</tr>
<tr>
<td class="firstcol">Memo: US</td>
<td>51.2</td>
<td>52.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Orders</td>
<td>52.1</td>
<td>54.2</td>
</tr>
</tbody>
</table>
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Purchasing Managers surveys for a number of large countries indicate a modest slowing of manufacturing growth through October. Changes from September are not big, but most are in the same direction and the overall indexes are [...]

PMI Surveys Hint at Slower Growth in Several Countries

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101f.jpg" width="353">
The value of construction put in place fell 0.3% during September after a slight decline the prior month which was downwardly revised. Consensus expectations had been for a 0.1% gain and it was the third decline in three months.
Residential building dropped another sharp 1.1%, the sixth decline in as many months. New single family building fell an even harder 2.5% (-12.8% y/y) however spending on improvements rose 1.0%% (2.8% y/y) and recovered after two months of little change.
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.
Slowdown in Housing Won&#146;t Shut Down Economic Growth from the Federal Reserve Bank of St. Louis can be found <a href="http://stlouisfed.org/publications/re/2006/c/pages/pres_message.html"> here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101g.jpg" width="353">
Nonresidential building inched up 0.1% after a little revised 3.1% surge during August. Lodging jumped 2.8% (61.7% y/y) and office construction tacked on another 0.8% (28.0% y/y) to earlier monthly gains which ranged between two and eight percent. Multi-retail building boomed another 2.2% (44.8% y/y) though building by the factory sector slipped 0.6% (+22.2% y/y) after a 7.9% surge the prior month.
Public construction spending rose 0.9% but a previously reported 1.1% August increase was revised to just 0.3%. The 1.7% (+13.2% y/y) monthly decline in construction activity on highways &amp; streets, nearly one third of the value of public construction spending, was the fourth in a row.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.
The great turn-of-the-century housing boom from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/economicperspectives/ep_3qtr2006_part3_fisher_quayyum.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/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</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">Total</td>
<td>-0.3%</td>
<td>-0.0%</td>
<td>2.9%</td>
<td>10.7%</td>
<td>11.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.7%</td>
<td>-0.1%</td>
<td>0.6%</td>
<td>12.0%</td>
<td>14.3%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-1.1%</td>
<td>-1.6%</td>
<td>-6.9%</td>
<td>13.9%</td>
<td>18.6%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.1%</td>
<td>3.1%</td>
<td>19.2%</td>
<td>7.4%</td>
<td>5.3%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.9%</td>
<td>0.3%</td>
<td>11.6%</td>
<td>6.2%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
</body>
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The value of construction put in place fell 0.3% during September after a slight decline the prior month which was downwardly revised. Consensus expectations had been for a 0.1% gain and it was the third decline in three months. [...]

U.S. Construction Spending Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101e.jpg" width="353">
The total number of mortgage applications fell a hard 3.0% last week and pulled the average number of applications down 0.6% during October, according to the Mortgage Bankers Association. That was the first m/m decline in total applications and followed a 5.6% increase during September.
Applications to refinance skidded 4.5% after a moderate rise the prior week but rose 3.5% for the month from September..
Purchase applications also fell. The 1.8% decline was the fifth in the last seven weeks and lowered the average level of purchase apps in October 3.6% below September which rose 3.2% from August.
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. sharp increases late last month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101d.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage fell eleven basis points to 6.46%, the lowest level in about a month. The peak for 30 year financing was 7.08% late in June. The rate for 15-year financing also fell ten points to 6.19% versus 6.20% averaged during September and 6.24% averaged last month. The peak rate was 6.75%. 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>.
The latest release from the Mortgage Bankers Association indicated that 4.4% of mortgage loans were past due during the second quarter of this year, down sharply from the 4.7% past due at the end of 2005. Foreclosure had been started, however, on an increased 4.43% of loans versus 4.36% at the 2003 low.
Homeownership in a High-Cost Region from the Federal Reserve Bank of Boston is available <a href="http://www.bos.frb.org/commdev/c&amp;b/2006/fall/homeownerships.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">10/27/06</th>
<th scope="col">10/20/06</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>570.8</td>
<td>588.5</td>
<td>-11.7%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>375.6</td>
<td>382.4</td>
<td>-14.2%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,709.2</td>
<td>1,790.4</td>
<td>-8.2%</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 fell a hard 3.0% last week and pulled the average number of applications down 0.6% during October, according to the Mortgage Bankers Association. That was the first m/m decline in total [...]

Mortgage Applications Fell Hard

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101b.jpg" width="353">
The Institute for Supply Management reported that last month&#39;s composite index of manufacturing sector activity fell to 51.2 from 52.9 during September. The decline was the fifth in the last six months and was to the lowest level since July 2003. Consensus expectations had been for stability at 53.0.
During the last ten years there has been a 67% correlation between the level of the ISM index and three month growth in factory sector industrial production.
The price index, which is not included in the composite, collapsed to 47.0. The reading was the first below 50 in over one year and reflected just 18% of respondents reporting higher prices, 58% with prices unchanged and 24% indicating lower prices.
During the last ten years there has been an 89% correlation between the level of the price index and the three month change in the PPI for intermediate goods less food &amp; energy.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101c.jpg" width="353">
A lower new orders (52.1) and a lower production (51.9) component led the composite index down. In addition, the vendor performance measure fell to 50.2, indicating the quickest delivery speeds since July 2003. The inventories index rose to a low 49.2.
The new export orders index at 57.8 improved to its highest level January. The series peak was in early 2004 near 60. During the last ten years there has been a 69% correlation between the level of the export order index and the q/q growth in goods exports from the GDP accounts. The imports index rose slightly.
Employment also improved, marginally, to a barely break-even 50.8. During the last ten years there has been a 77% correlation between the level of the ISM employment Index and the three month growth in factory sector employment.
U.S. Maneuvers Through Choppy Waters from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2006/c/pages/choppy_waters.html"> here</a>.
The Yield Curve as a Leading Indicator: Some Practical Issues from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci12-5.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing 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">Composite Index</td>
<td>51.2</td>
<td>52.9</td>
<td>58.1</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index (NSA)</td>
<td>47.0</td>
<td>61.0</td>
<td>84.0</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>
</body>
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The Institute for Supply Management reported that last month's composite index of manufacturing sector activity fell to 51.2 from 52.9 during September. The decline was the fifth in the last six months and was to the lowest level [...]

ISM Composite Index Fell, Price Index Below 50

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101a.jpg" width="353">
The payroll processor ADP reported that the Nat&#39;l Employment Report indicated a rise in private nonfarm payrolls of 128,000 last month. The October figure from the U.S. Bureau of Labor Statistics will be published this Friday.
ADP&#39;s measure of private nonfarm payrolls for September indicated a weak 78,000 rise in payrolls that was accompanied by a meager 59,000 rise in private nonfarm payrolls, when published by BLS.
ADP compiled the estimate from its database of individual companies&#39; payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator.
According to ADP and Macro Advisers, the correlation between the monthly percentage change in the ADP estimate and that in the BLS data is 0.90.
The ADP National Employment Report data is maintained in Haver&#39;s USECON database; historical data go back to December 2000. The figures in this report cover only private sector jobs and exclude employment in the public sector, which rose an average 11,083 during the last twelve months.
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/report_analysis.aspx">here</a>, and the ADP methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf">here</a>.
Globalization&#39;s Effect on Interest Rates and the Yield Curve from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/eclett/2006/el0609.html">here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</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>
<td class="firstcol">Nonfarm Private Payroll Employment (Chg.)</td>
<td>128,000</td>
<td>78,000</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.3%</td>
<td>-0.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

The payroll processor ADP reported that the Nat'l Employment Report indicated a rise in private nonfarm payrolls of 128,000 last month. The October figure from the U.S. Bureau of Labor Statistics will be published this Friday. ADP's [...]

ADP Reported Hiring Improved During October

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101a.jpg" width="353">
The payroll processor ADP reported that the Nat&#39;l Employment Report indicated a rise in private nonfarm payrolls of 128,000 last month. The October figure from the U.S. Bureau of Labor Statistics will be published this Friday.
ADP&#39;s measure of private nonfarm payrolls for September indicated a weak 78,000 rise in payrolls that was accompanied by a meager 59,000 rise in private nonfarm payrolls, when published by BLS.
ADP compiled the estimate from its database of individual companies&#39; payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator.
According to ADP and Macro Advisers, the correlation between the monthly percentage change in the ADP estimate and that in the BLS data is 0.90.
The ADP National Employment Report data is maintained in Haver&#39;s USECON database; historical data go back to December 2000. The figures in this report cover only private sector jobs and exclude employment in the public sector, which rose an average 11,083 during the last twelve months.
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/report_analysis.aspx">here</a>, and the ADP methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf">here</a>.
Globalization&#39;s Effect on Interest Rates and the Yield Curve from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/eclett/2006/el0609.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</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>
<td class="firstcol">Nonfarm Private Payroll Employment (Chg.)</td>
<td>128,000</td>
<td>78,000</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.3%</td>
<td>-0.4%</td>
</tr>
</tbody>
</table>
ISM Composite Index Fell, Price Index Below 50 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 1, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101b.jpg" width="353">
The Institute for Supply Management reported that last month&#39;s composite index of manufacturing sector activity fell to 51.2 from 52.9 during September. The decline was the fifth in the last six months and was to the lowest level since July 2003. Consensus expectations had been for stability at 53.0.
During the last ten years there has been a 67% correlation between the level of the ISM index and three month growth in factory sector industrial production.
The price index, which is not included in the composite, collapsed to 47.0. The reading was the first below 50 in over one year and reflected just 18% of respondents reporting higher prices, 58% with prices unchanged and 24% indicating lower prices.
During the last ten years there has been an 89% correlation between the level of the price index and the three month change in the PPI for intermediate goods less food &amp; energy.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101c.jpg" width="353">
A lower new orders (52.1) and a lower production (51.9) component led the composite index down. In addition, the vendor performance measure fell to 50.2, indicating the quickest delivery speeds since July 2003. The inventories index rose to a low 49.2.
The new export orders index at 57.8 improved to its highest level January. The series peak was in early 2004 near 60. During the last ten years there has been a 69% correlation between the level of the export order index and the q/q growth in goods exports from the GDP accounts. The imports index rose slightly.
Employment also improved, marginally, to a barely break-even 50.8. During the last ten years there has been a 77% correlation between the level of the ISM employment Index and the three month growth in factory sector employment.
U.S. Maneuvers Through Choppy Waters from the Federal Reserve Bank of St. Louis is available <a href="http://stlouisfed.org/publications/re/2006/c/pages/choppy_waters.html"> here</a>.
The Yield Curve as a Leading Indicator: Some Practical Issues from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci12-5.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/@EF/@EF02/@EF02.HTM">ISM Manufacturing 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">Composite Index</td>
<td>51.2</td>
<td>52.9</td>
<td>58.1</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index (NSA)</td>
<td>47.0</td>
<td>61.0</td>
<td>84.0</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 1, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101f.jpg" width="353">
The value of construction put in place fell 0.3% during September after a slight decline the prior month which was downwardly revised. Consensus expectations had been for a 0.1% gain and it was the third decline in three months.
Residential building dropped another sharp 1.1%, the sixth decline in as many months. New single family building fell an even harder 2.5% (-12.8% y/y) however spending on improvements rose 1.0%% (2.8% y/y) and recovered after two months of little change.
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.
Slowdown in Housing Won&#146;t Shut Down Economic Growth from the Federal Reserve Bank of St. Louis can be found <a href="http://stlouisfed.org/publications/re/2006/c/pages/pres_message.html"> here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101g.jpg" width="353">
Nonresidential building inched up 0.1% after a little revised 3.1% surge during August. Lodging jumped 2.8% (61.7% y/y) and office construction tacked on another 0.8% (28.0% y/y) to earlier monthly gains which ranged between two and eight percent. Multi-retail building boomed another 2.2% (44.8% y/y) though building by the factory sector slipped 0.6% (+22.2% y/y) after a 7.9% surge the prior month.
Public construction spending rose 0.9% but a previously reported 1.1% August increase was revised to just 0.3%. The 1.7% (+13.2% y/y) monthly decline in construction activity on highways &amp; streets, nearly one third of the value of public construction spending, was the fourth in a row.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.
The great turn-of-the-century housing boom from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/economicperspectives/ep_3qtr2006_part3_fisher_quayyum.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/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</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">Total</td>
<td>-0.3%</td>
<td>-0.0%</td>
<td>2.9%</td>
<td>10.7%</td>
<td>11.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-0.7%</td>
<td>-0.1%</td>
<td>0.6%</td>
<td>12.0%</td>
<td>14.3%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-1.1%</td>
<td>-1.6%</td>
<td>-6.9%</td>
<td>13.9%</td>
<td>18.6%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.1%</td>
<td>3.1%</td>
<td>19.2%</td>
<td>7.4%</td>
<td>5.3%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.9%</td>
<td>0.3%</td>
<td>11.6%</td>
<td>6.2%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Mortgage Applications Fell Hard 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 1, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101e.jpg" width="353">
The total number of mortgage applications fell a hard 3.0% last week and pulled the average number of applications down 0.6% during October, according to the Mortgage Bankers Association. That was the first m/m decline in total applications and followed a 5.6% increase during September.
Applications to refinance skidded 4.5% after a moderate rise the prior week but rose 3.5% for the month from September..
Purchase applications also fell. The 1.8% decline was the fifth in the last seven weeks and lowered the average level of purchase apps in October 3.6% below September which rose 3.2% from August.
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. sharp increases late last month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101d.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage fell eleven basis points to 6.46%, the lowest level in about a month. The peak for 30 year financing was 7.08% late in June. The rate for 15-year financing also fell ten points to 6.19% versus 6.20% averaged during September and 6.24% averaged last month. The peak rate was 6.75%. 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>.
The latest release from the Mortgage Bankers Association indicated that 4.4% of mortgage loans were past due during the second quarter of this year, down sharply from the 4.7% past due at the end of 2005. Foreclosure had been started, however, on an increased 4.43% of loans versus 4.36% at the 2003 low.
Homeownership in a High-Cost Region from the Federal Reserve Bank of Boston is available <a href="http://www.bos.frb.org/commdev/c&amp;b/2006/fall/homeownerships.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">10/27/06</th>
<th scope="col">10/20/06</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>570.8</td>
<td>588.5</td>
<td>-11.7%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>375.6</td>
<td>382.4</td>
<td>-14.2%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,709.2</td>
<td>1,790.4</td>
<td>-8.2%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
PMI Surveys Hint at Slower Growth in Several Countries 
by <a href="/comment/Stone.html">Carol Stone</a> November 1, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101h.jpg" width="353">
Purchasing Managers surveys for a number of large countries indicate a modest slowing of manufacturing growth through October. Changes from September are not big, but most are in the same direction and the overall indexes are reinforced by moves in the key new orders component.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101i.jpg" width="353">
In China, the total index is down 0.3 point, and at 52.15, indicates growth is still spread across a good portion of reporting companies, although it is not broadening. New orders remain firm, although down fractionally from September. More notable is a slowing of outstanding orders -- backlogs -- to 49.78, just below the 50% threshold of expansion. In light of continuing growth in new orders, the decline in backlogs may only reflect strengthening productivity, but even so, it does appear that overall momentum is waning.
Russia&#39;s manufacturing sector actually appears stronger, although the latest months have diminished more than in China. Overall activity, according to the Purchasing Manager measure, had a reading last month of 53.05, down 1.65 points from September. New orders, which run consistently higher than the composite index, slipped 2.5 points to 56.82. In August both of these reached their highest levels since 1999. So the easing in September and October may only be a correction. Backlogs in Russian factories have actually strengthened since early 2005 along with the good gains in new orders. But they too corrected in October back below 50%. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101j.jpg" width="353">
The Indian economy&#39;s service sector has received more publicity in recent years, but its manufacturing industries are experiencing broad expansion as well. The overall PMI was 59.30 in October, up from September&#39;s 59.00 reading. These data are very new, beginning only in April of last year. But certainly their behavior is internally consistent. Strong new orders, evident in the graph, are pulling up backlogs, which rose 0.63 point in October to 52.68, their highest level. So momentum in Indian manufacturing looks quite vigorous.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061101k.jpg" width="353">
In the long-established UK manufacturing sector, the overall index eased 0.78 point to a still firm level of 53.73, as industry there continues a year of good expansion. However, what we see in the last graph is that output is gaining as fast as new orders, so that backlogs look weak. This suggests that while overall growth is good now, it is vulnerable to any orders slowdown going forward.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">PMI Indexes, SA</th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">China</td>
<td>52.15</td>
<td>52.45</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>53.02</td>
<td>53.39</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Backlogs</td>
<td>49.78</td>
<td>50.56</td>
</tr>
<tr>
<td class="firstcol">Russia</td>
<td>53.05</td>
<td>54.70</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Orders</td>
<td>56.82</td>
<td>59.34</td>
</tr>
<tr>
<td class="firstcol">India</td>
<td>59.30</td>
<td>59.00</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Orders</td>
<td>66.29</td>
<td>65.17</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>53.73</td>
<td>54.51</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Orders</td>
<td>54.72</td>
<td>55.00</td>
</tr>
<tr>
<td class="firstcol">Memo: US</td>
<td>51.2</td>
<td>52.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Orders</td>
<td>52.1</td>
<td>54.2</td>
</tr>
</tbody>
</table>
</body>
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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/061031g.jpg" width="353">
Economic sentiment in the Eurozone increased 0.9% in October to 110.3 and was 9.9% above October, 2005. For the 25 members of the EU (European Union) the comparable figures were 0,5% 111.5 and 9.9% respectively.
The Economic Sentiment Indicator is so designed that 100 represents the long term average. Values above 100 indicate above average sentiment and those below, below average sentiment. The index is a composite of indicators representing industry (40%), service (30%), consumer (20%), construction (5%), and retail (5%). The Euro Zone and EU indicators have been above the long term average since late 2005 and are currently at their highest levels since February, 2001 as can be seen in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061031h.jpg" width="353">
The components of the indicator are expressed in terms of the percent balances between those reporting increases and those reporting decreases. In the Euro Zone, with the exception of construction, all the percent balances of the components increased in October. Sentiment has been highest among those engaged in the service industry and lowest among consumers. In October the percent balance was 20.8% in the service industry while, in the case of the consumer, the percent balance was -7.8%. The second chart contrasts the percent balances in the consumer and service components. Actually the only time the consumer component of the index has shown a positive percent balance during the 21 years that the data have been available was in 2000 and early 2001.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061031i.jpg" width="353">
In addition to reporting on the Euro Zone and EU aggregates, the European Commission provides data on each of the countries within the EU. While the Economic Sentiment Indicator for Europe as a whole continued to improve in October, there were diverse trends among the individual countries. In German and France, for example, the indicator rose 1.2% and 1.5% respectively while in Italy and the U. K. the indicators declined 0.6% and 3.8% respectively. The third chart compares the Economic Sentiment Indicators of Germany and of the U.K. Confidence in the U. K. has faltered in recent months while that in Germany has continued to improve.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Oct 06</th>
<th scope="col">Sep 06</th>
<th scope="col">Oct 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EURO ZONE&nbsp;&nbsp;</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Economic Sentiment Indicator &nbsp;(Lt avg =100)&nbsp;</td>
<td>110.3</td>
<td>109.3</td>
<td>100.4</td>
<td>0.91</td>
<td>9.86</td>
<td>98.4</td>
<td>99.8</td>
<td>93.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Industry (% balance)&nbsp;</td>
<td>5.2</td>
<td>4.4</td>
<td>-5.7</td>
<td>0.8*</td>
<td>10.9*</td>
<td>-7.3</td>
<td>-4.7</td>
<td>-10.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Service&nbsp; (% balance)</td>
<td>20.8</td>
<td>18.4</td>
<td>14.0</td>
<td>2.4*</td>
<td>6.8*</td>
<td>11.0</td>
<td>10.8</td>
<td>3.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer&nbsp; (% balance)</td>
<td>-7.8</td>
<td>-8.0</td>
<td>-13.2</td>
<td>0.2*</td>
<td>5.4*</td>
<td>-13.8</td>
<td>-13.9</td>
<td>-18.0</td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Construction (% balance)</td>
<td>2.5</td>
<td>4.1</td>
<td>-5.0</td>
<td>-1.6*</td>
<td>7.5*</td>
<td>-6.8</td>
<td>-11.8</td>
<td>-16.0</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; Retail&nbsp; (% balance)</td>
<td>3.7</td>
<td>3.3</td>
<td>-5.2</td>
<td>0.4*</td>
<td>8.9*</td>
<td>-7.5</td>
<td>-8.3</td>
<td>-9.7</td>
</tr>
<tr>
<td class="firstcol">Economic Sentiment Indicator &nbsp;(Lt avg =100)</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; European Union</td>
<td>111.5</td>
<td>111.0</td>
<td>101.5</td>
<td>0.45</td>
<td>9.85</td>
<td>99.9</td>
<td>103.0</td>
<td>93.8</td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Germany</td>
<td>108.1</td>
<td>106.8</td>
<td>97.7</td>
<td>1.22</td>
<td>10.64</td>
<td>95.6</td>
<td>96.3</td>
<td>90.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; France</td>
<td>110.1</td>
<td>108.4</td>
<td>104.5</td>
<td>1.48</td>
<td>5.26</td>
<td>103.2</td>
<td>106.6</td>
<td>97.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Italy</td>
<td>112.5</td>
<td>113.2</td>
<td>102.4</td>
<td>-0.62</td>
<td>9.86</td>
<td>98.6</td>
<td>99.0</td>
<td>98.4</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; United Kingdom</td>
<td>102.5</td>
<td>106.5</td>
<td>99.4</td>
<td>-3.76</td>
<td>3.12</td>
<td>100.1</td>
<td>109.5</td>
<td>92.7</td>
</tr>
</tbody>
</table>
</body>
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Economic sentiment in the Eurozone increased 0.9% in October to 110.3 and was 9.9% above October, 2005. For the 25 members of the EU (European Union) the comparable figures were 0,5% 111.5 and 9.9% respectively. The Economic Sentiment [...]

Economic Sentiment in Europe Continues to Improve

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061031f.jpg" width="353">
Chain store sales fell another 0.2% last week on the heels of a 1.1% drop the week prior, according to the International Council of Shopping Centers (ICSC)-UBS. Average October sales, therefore, fell 0.7% following a 0.5% decline during September.
During the last ten years there has been a 47% 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 was unchanged 0.4% y/y) last week after a 0.1% slip during the prior period.

<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">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">10/28/06</th>
<th scope="col">10/21/06</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>461.8</td>
<td>462.9</td>
<td>2.3%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
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Chain store sales fell another 0.2% last week on the heels of a 1.1% drop the week prior, according to the International Council of Shopping Centers (ICSC)-UBS. Average October sales, therefore, fell 0.7% following a 0.5% decline [...]

Chain Store Sales Momentum Gone

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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PMI Surveys Hint at Slower Growth in Several Countries

U.S. Construction Spending Down

Mortgage Applications Fell Hard

ISM Composite Index Fell, Price Index Below 50

ADP Reported Hiring Improved During October

ADP Reported Hiring Improved During October

Economic Sentiment in Europe Continues to Improve

Chain Store Sales Momentum Gone