Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061024b.jpg" width="353">
 The retail price for a gallon of regular unleaded gasoline fell another two cents last week to an average $2.21 (-15.2% y/y) and was to the lowest level since December of last year.
The spot market price for a gallon of regular gasoline jumped fourteen cents yesterday. The NY harbor price for regular unleaded gasoline rose to $1.64 per gallon versus an average $1.52 last week although yesterday&#39;s market price for a gallon of premium fell eighteen cents to $1.50.
Oil prices were mixed yesterday as Brent Crude fell to $55.89 per bbl. versus $57.47 last week but WTI Crude rose slightly day/day to $57.02 (-6.7% y/y). However, that still was lower than the $58.02 averaged last week. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061024c.jpg" width="353">
Natural gas prices have jumped during October as cold temperatures set in across the U.S. The latest reading found the Henry Hub price at $7.24 per mmbtu (-44.4% y/y) versus an average of $4.90 during September.
Making Sense of High Oil Prices from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/swe/2006/swe0604e.pdf"> here</a>.
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>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">Weekly Energy Prices</a></th>
<th scope="col">10/23/06</th>
<th scope="col">10/16/06</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>$2.21</td>
<td>$2.23</td>
<td>-15.2%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
</tbody>
</table>


</html>

The retail price for a gallon of regular unleaded gasoline fell another two cents last week to an average $2.21 (-15.2% y/y) and was to the lowest level since December of last year. The spot market price for a gallon of regular [...]

Gasoline Off Another Two Cents, Natural Gas Prices Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061024a.jpg" width="353">
Chain store sales dropped 1.1% last week and gave back all of the gains of the prior two periods, according to the International Council of Shopping Centers (ICSC)-UBS. The decline lowered the change in October sales to -0.4% versus the September average.
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 slipped 0.1% (+0.1% y/y) and reversed the prior week&#39;s increase.
Taxation, Entrepreneurship, and Wealth from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/workingpapers/wp2006_07.pdf"> here</a>
Pass-through of Exchange Rates to Consumption Prices: What Has Changed and Why from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/staff_reports/sr261.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<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">10/21/06</th>
<th scope="col">10/14/06</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>462.9</td>
<td>468.1</td>
<td>2.9%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


</html>

Chain store sales dropped 1.1% last week and gave back all of the gains of the prior two periods, according to the International Council of Shopping Centers (ICSC)-UBS. The decline lowered the change in October sales to -0.4% versus [...]

Decline in Chain Store Sales Retraced All of the Recent Gains

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061024a.jpg" width="353">
Chain store sales dropped 1.1% last week and gave back all of the gains of the prior two periods, according to the International Council of Shopping Centers (ICSC)-UBS. The decline lowered the change in October sales to -0.4% versus the September average.
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 slipped 0.1% (+0.1% y/y) and reversed the prior week&#39;s increase.
Taxation, Entrepreneurship, and Wealth from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/workingpapers/wp2006_07.pdf"> here</a>
Pass-through of Exchange Rates to Consumption Prices: What Has Changed and Why from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/staff_reports/sr261.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">10/21/06</th>
<th scope="col">10/14/06</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>462.9</td>
<td>468.1</td>
<td>2.9%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Gasoline Off Another Two Cents, Natural Gas Prices Firm 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 24, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061024b.jpg" width="353">
 The retail price for a gallon of regular unleaded gasoline fell another two cents last week to an average $2.21 (-15.2% y/y) and was to the lowest level since December of last year.
The spot market price for a gallon of regular gasoline jumped fourteen cents yesterday. The NY harbor price for regular unleaded gasoline rose to $1.64 per gallon versus an average $1.52 last week although yesterday&#39;s market price for a gallon of premium fell eighteen cents to $1.50.
Oil prices were mixed yesterday as Brent Crude fell to $55.89 per bbl. versus $57.47 last week but WTI Crude rose slightly day/day to $57.02 (-6.7% y/y). However, that still was lower than the $58.02 averaged last week. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061024c.jpg" width="353">
Natural gas prices have jumped during October as cold temperatures set in across the U.S. The latest reading found the Henry Hub price at $7.24 per mmbtu (-44.4% y/y) versus an average of $4.90 during September.
Making Sense of High Oil Prices from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/swe/2006/swe0604e.pdf"> here</a>.
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>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">Weekly Energy Prices</a></th>
<th scope="col">10/23/06</th>
<th scope="col">10/16/06</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>$2.21</td>
<td>$2.23</td>
<td>-15.2%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
</tbody>
</table>
 Mixed Signals for Europe in Today's Data Releases 
by <a href="/comment/Curley.html">Louise Curley</a> October 24 , 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061024e.jpg" width="353">
A collection of releases on confidence and consumer spending in Europe were released today. Producer confidence in the Netherlands increased in October while consumer confidence held steady. In Italy consumer confidence fell in October, and in France household consumption of manufactured goods dropped sharply in September after having risen equally sharply in August.
In the Netherlands, the excess of optimists over pessimists among producers rose to 9.0% in October from 7.9% in September and was 4.7 percentage points above October 2005. Although the excess of optimists seems rather small, it is the largest excess since the series began in January, 1985. Dutch producers have shown relatively low swings in confidence ranging from minus 9% to plus 9%. Dutch consumers, on the other hand, have experience much wider mood swings. Since January, 1985, the range of consumer confidence has been between plus twenty-nine and minus forty as can be see in the first chart that shows the entire history of the two series. Confidence among Dutch consumers in October was unchanged from September at 9%, but was 31 percentage points above October, 2005. This was the fifth month that the optimists outweighed the pessimists among Dutch consumers.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061024d.jpg" width="353">
Italian consumer confidence fell 1.4% in October from September, but was 2.8% above October 2005. The Italian measure of confidence is expressed as an index with base 1980=100. Much of the decline in the overall indicator in October can be attributed to consumer concern for the future. In appraising the future situation, the October index fell 3.4% from 106.6 in September. In addition there was some loss of confidence in the current situation as evidenced in the decline of 0.8% in that index from September to October. The second chart compares consumers&#39; appraisals of the current and future situations.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061024f.jpg" width="353">
Finally, France&#39;s INSEE (Institute National de Statistique et Etude Economique) released data on what French households actually are spending on Manufactured Goods. Spending fell 2.69% from 21.040 billion 2000 euros in August to 20.8 billion 2000 euros in September, but August had shown big increase of 3.01% over July. If we take a two month moving average of the data, there is very little change from August to September, as can be seen in the third chart that compares the actual series with the two month moving average series. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></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">NETHERLANDS&nbsp;</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Confidence &nbsp;&nbsp;&nbsp;&nbsp; (% bal)&nbsp;</td>
<td>9</td>
<td>9</td>
<td>-22</td>
<td>0*</td>
<td>3.1*</td>
<td>-22</td>
<td>-25</td>
<td>-35</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Producer Confidence (% bal)&nbsp;</td>
<td>9.0</td>
<td>7.9</td>
<td>4.3</td>
<td>1.1*</td>
<td>4.7*</td>
<td>.06</td>
<td>-0.1</td>
<td>-5.6</td>
</tr>
<tr>
<td class="firstcol">ITALY</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;Consumer Confidence</td>
<td>108.6</td>
<td>110.1</td>
<td>105.6</td>
<td>-1.36</td>
<td>2.84</td>
<td>104.2</td>
<td>101.4</td>
<td>106.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Current Conditions</td>
<td>112.2</td>
<td>113.1</td>
<td>107.6</td>
<td>-0.80</td>
<td>4.28</td>
<td>106.9</td>
<td>102.1</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Future Conditions</td>
<td>103.0</td>
<td>106.6</td>
<td>101.9</td>
<td>-3.38</td>
<td>1.08</td>
<td>101.1</td>
<td>100.8</td>
<td>107.2</td>
</tr>
<tr>
<td class="firstcol">FRANCE</td>
<td>Sep 06</td>
<td>Aug 06</td>
<td>Sep 05</td>
<td>M/M %</td>
<td>Y/Y %</td>
<td>2005 Mo Avg</td>
<td>2004 Mo Avg</td>
<td>2003 Mo Avg</td>
</tr>
<tr class="odd">
<td class="firstcol">HH Consumption of Mfg. Goods (Billion 2000 Euros)</td>
<td>20.825</td>
<td>21.401</td>
<td>21.233</td>
<td>-2.69</td>
<td>2.90</td>
<td>20.012</td>
<td>19.451</td>
<td>18.746</td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Two Months Moving Avg.</td>
<td>21.113</td>
<td>21.089</td>
<td>20.261</td>
<td>-0.24</td>
<td>5.50</td>
<td>20.012</td>
<td>19.452</td>
<td>18.746</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/061023b.jpg" width="353">
The bank of Israel kept its key interest rate at 5.5% today. Speculation that the rate might have been cut was fed by the sharp decline in the September seasonally unadjusted consumer price index that declined by almost 0.9% from August, and the recent strengthening of the exchange rate.
The first chart shows the month to month changes in the consumer price index. The second, shows the exchange rate expressed as Dollars per the New Israel Shekel (NIS). This is the inverse of the typical quotation of the exchange rate--NIS per Dollar. A positive percentage change in this series represents an appreciation of the shekel against the dollar and a negative, a depreciation. In the case of the typical exchange rate--NIS per Dollar--the percentage changes show appreciation and depreciation of the dollar against the shekel.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061023a.jpg" width="353">
The Bank, however, apparently did not take into account the September decline in consumer prices. In its press release, the Bank referred only to the August consumer price index, stating that the rate of inflation over the past twelve months at 2.2% was consistent with the necessary path for meeting the inflation target. The Bank seemed to put more emphasis on data that suggested a sharp rebound in activity after the drop in activity in the third quarter resulting from the war in Lebanon.The Bank estimates that as a result of the war, Gross Domestic Product this year will be 4%, instead of the 5.4% that was expected before the fighting and in 2007 to be 4%, a tenth of a percent, above the 3.9% estimated before the fighting.
The data in the charts and other background data for Israel can be found in the Haver data base--EMERGEMA. The country sourced data in this data base are frequently more up-to-date than data for Israel found in the IFS data base. For example, the trade in goods data released to day for September are in the EMERGEMA data base and not in the IFS data base. The same is true of the exchange rate and consumer prices that were released earlier this month.

<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/EMERGEMA/@M7/@M7.HTM">Israel</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 %&nbsp;&nbsp;</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005%</th>
<th scope="col">2004 %</th>
<th scope="col">2003 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Price Index (2002=100)&nbsp;</td>
<td>103.9</td>
<td>104.7</td>
<td>103.0</td>
<td>-0.86</td>
<td>1.99</td>
<td>1.33</td>
<td>-0.41</td>
<td>0.72</td>
</tr>
<tr>
<td class="firstcol">Exchange Rate (End of Period)</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; Dollars per NIS</td>
<td>.2325</td>
<td>.2291</td>
<td>.2175</td>
<td>1.48</td>
<td>6.90</td>
<td>-6.42</td>
<td>1.62</td>
<td>8.20</td>
</tr>
<tr>
<td class="firstcol">&nbsp; NIS per Dollar</td>
<td>4.302</td>
<td>4.364</td>
<td>4.598</td>
<td>-1.42</td>
<td>-6.44</td>
<td>6.85</td>
<td>1.62</td>
<td>-7.56</td>
</tr>
</tbody>
</table>
</body>
</html>

The bank of Israel kept its key interest rate at 5.5% today. Speculation that the rate might have been cut was fed by the sharp decline in the September seasonally unadjusted consumer price index that declined by almost 0.9% from [...]

Bank of Israel Keeps Interest Rate at 5.5%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061020a.jpg" width="353">
At $58.51 yesterday for a barrel of WTI crude oil, the price has stabilized after falling below $60 early last week. Reflation probably is too strong a word for the likely, prospective path of oil prices, but several factors argue against a repeat of the near-$20 per barrel price decline that occurred in August.
Demand for petroleum products is firm. The four week average of gasoline demand, according to figures from the U.S. Department of Energy, is running 4% ahead of one year ago despite an 18% rise in gasoline prices to an average $2.67 per gallon so far this year versus an average $2.23 during all of 2005.
The earlier decline in gold has stabilized with prices yesterday rising to $597.25 per ounce. That certainly is down from the May high of $725.00 but a concerted move below $600 has been difficult since early September. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061020b.jpg" width="353">
Natural gas prices recently have backed up to $6.71/mmbtu from the early October low of $4.01. The Edison Electric Institute reports U.S. electricity output has improved to near stability versus last year versus earlier 7-8% y/y declines.
Perhaps these reflation whiffs will prove fleeting. The market for Treasury securities seem to suggest they will as evidenced by the 5-year TIPS spread which has fallen to 2.2% versus a high of 2.7% early this year and the implied forward inflation rate for the next five years is down to 2.47%. Much will depend on the economy&#39;s strength and the Fed&#39;s response to it. 
Inflation Persistence in an Era of Well-Anchored Inflation Expectations from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-27.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/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">10/19/06</th>
<th scope="col">12/30/05</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">Light Sweet Crude Oil, WTI&nbsp; (per bbl.)</td>
<td>$58.51</td>
<td>$61.04</td>
<td>-4.1%</td>
<td>$58.16</td>
<td>$41.78</td>
<td>$32.78</td>
</tr>
<tr>
<td class="firstcol">Gold: Handy &amp; Harmon (per Troy Oz.)</td>
<td>$597.25</td>
<td>$516.00</td>
<td>28.6%</td>
<td>$507.40</td>
<td>$443.40</td>
<td>$416.25</td>
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At $58.51 yesterday for a barrel of WTI crude oil, the price has stabilized after falling below $60 early last week. Reflation probably is too strong a word for the likely, prospective path of oil prices, but several factors argue [...]

Energy & Gold Prices: Whiffs of Reflation?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061019e.jpg" width="353">
The Philadelphia Federal Reserve Bank&#39;s Index of General Business Conditions in the manufacturing sector remained negative in October. The figure slipped to -0.7 from an unrevised -0.4 last month and disappointed Consensus expectations for improvement to 6.5.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 49% correlation with q/q growth in real GDP.
Sharp deterioration into negative territory by the indexes for unfilled orders, delivery times and the average workweek presumably pulled the overall index down.
The sub indexes for orders, shipments and inventories each recovered sharply back into positive territory. The employment index fell moderately m/m but remained in the positive range of the last year. During the last ten years there has been a 75% correlation between the employment index and the three month growth in factory payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061019f.jpg" width="353">
The business conditions index reflects a separate survey question, not the sub indexes.
The prices paid index fell m/m to the lowest level since April. During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months improved sharply to the highest level since May.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos1006.html">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</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>
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<td class="firstcol">General Activity Index</td>
<td>-0.7</td>
<td>-0.4</td>
<td>13.1</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>32.0</td>
<td>38.1</td>
<td>66.7</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
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The Philadelphia Federal Reserve Bank's Index of General Business Conditions in the manufacturing sector remained negative in October. The figure slipped to -0.7 from an unrevised -0.4 last month and disappointed Consensus [...]

Philadelphia Fed Index Remained Negative

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.

260206.jpg

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

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

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

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

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

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

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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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Energy & Gold Prices: Whiffs of Reflation?

Energy & Gold Prices: Whiffs of Reflation?

Philadelphia Fed Index Remained Negative