Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061017g.jpg" width="353">
The ZEW measure of economic sentiment among analysts and institutional investors regarding the economic outlook six months ahead fell from -22.2%in September to -27.4% in October, that is, the pessimists outweighed the optimists by 27.4%. This is the lowest value since March 1993. In October of last year, the optimists outweighed the pessimists by 39.4%.
At the same time, among the participants in the survey, those who appraised the current situation positively outweighed those who appraised it negatively by 42.9%, the highest value since October 2000. The October value was up from 38.9% in September and from -58.0% in October of 2005. The first chart compares the views of the ZEW participants on the current situation and the outlook six months ahead.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061017h.jpg" width="353">
The rapid and sustained rise in the appraisal of current conditions reflects the surprising strength of the German economy in the current year. The Economic Minister, Michael Glos, recently said that the ministry will raise its estimate of 2006 growth to 2.5% from 1.6% estimated last April. It is not surprising, therefore, that investors view the future with some caution. This is especially true given the inevitability of tax increases on January 1, 2007 that are likely to dampen consumer spending. The VAT (value added tax) is scheduled to rise from 16% to 19% and social security contributions will also increase.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061017i.jpg" width="353">
The other major indicator of sentiment in Germany is the IFO measure to be released October 25th. The ZEW measure is based on a small sample--some 300 participants--and represents the opinions of the financial community. The IFO measure is based on a much broader sample--some 7000 participants--and represents the opinions of businessmen engaged in manufacturing, construction, wholesale and retail trade. In the appraisal of the current situation, the two surveys reveal similar views, although the views of the financial community tend to be more volatile than those of the industrialists and trades people. The second chart compares the appraisal of the current situation by the two institutes. The correlation between the two series is fairly high .83.
In the appraisal of the outlook, there is less agreement in the views of the two sectors, represented by a lower correlation--.67--and again, the views of the financial community tend to be more volatile than those of the industrialists and trades people.The third chart compares the views on the outlook of both groups. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D8/@D8.HTM">GERMANY ZEW&nbsp; (Balance of Opinion)</a></th>
<th scope="col">Oct&nbsp; 06</th>
<th scope="col">Sep 06</th>
<th scope="col">Oct 05</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Current&nbsp;Situation</td>
<td>42.9</td>
<td>38.9</td>
<td>-58.0</td>
<td>4.0</td>
<td>100.9</td>
<td>-61.8</td>
<td>-67.7</td>
<td>-92.6</td>
</tr>
<tr>
<td class="firstcol">Outlook Six Months Ahead</td>
<td>-27.4</td>
<td>-22.2</td>
<td>39.4</td>
<td>-5.2</td>
<td>-66.8</td>
<td>34.8</td>
<td>44.6</td>
<td>38.4</td>
</tr>
</tbody>
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The ZEW measure of economic sentiment among analysts and institutional investors regarding the economic outlook six months ahead fell from -22.2%in September to -27.4% in October, that is, the pessimists outweighed the optimists by [...]

The German Financial Community Is Growing More Cautious about Economic Conditions Six Month Ahead

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061017f.jpg" width="353">
The National Association of Home Builders&#39; (NAHB) October Composite Housing Market Index rose to 31 from 30 in September. It was the first m/m increase since last year. Regardless, the latest level remained down by more than one half from the levels of 2005. 
During the last twenty years there has been a 75% correlation between the y/y change in the Composite Index and the change in single family housing starts. 
The improvement was led a sharp gain in the sub-index covering prospective sales in the next six months (10.8% m/m, -43.8% y/y). The sub-index for current sales was unchanged m/m (-56.8% y/y). 
Traffic of prospective home buyers rose modestly from the extremely low levels of the prior two months. 
Only the housing market indexes for the Northeast (-50.7% y/y) and the Midwest (-55.6% y/y) improved m/m. In the South the index fell (-51.3%) as it did out West (-64.8% y/y). 
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions good than poor. 
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</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 Housing Market Index</td>
<td>31</td>
<td>30</td>
<td>68</td>
<td>67</td>
<td>68</td>
<td>64</td>
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The National Association of Home Builders' (NAHB) October Composite Housing Market Index rose to 31 from 30 in September. It was the first m/m increase since last year. Regardless, the latest level remained down by more than one half [...]

NAHB Housing Market Index Ticked Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061017e.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS reported that chain store sales increased 0.6% last week on the heels of the prior week&#39;s 0.5% rise. The gains limited the decline in sales so far in October to 0.2% versus the September average .
The retail price for a gallon of regular unleaded gasoline fell for the tenth consecutive week. The four cent decline last week to an average $2.23 (-18.3% y/y) and was to the lowest level since December.
Last week&#39;s decline in spot market gasoline prices paused yesterday. The NY harbor price for regular unleaded gasoline rose to $1.54 per gallon versus an average $1.50 last week.
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 rose for the fifth week in the last six, by 0.1% (0.8% y/y).
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>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">10/14/06</th>
<th scope="col">10/07/06</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>468.1</td>
<td>465.4</td>
<td>3.9%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
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</tbody>
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The International Council of Shopping Centers (ICSC)-UBS reported that chain store sales increased 0.6% last week on the heels of the prior week's 0.5% rise. The gains limited the decline in sales so far in October to 0.2% versus the [...]

Lower Gasoline Prices Helped Spending at Chain Stores, Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061017c.jpg" width="353">
Total U.S. industrial output fell 0.6% last month. Though the decline followed an upwardly revised no change in August output, it again disappointed Consensus expectations which had been for just a 0.1% dip.
Factory sector output fell 0.3% and reversed all of the prior month&#39;s gain which was upwardly revised from no change. During the third quarter, factory output rose at a 4.2% annual rate versus 2Q which rose 5.1%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061017d.jpg" width="353">
Production of durable consumer goods dropped 1.8% due to a 2.6% decline 9-7.7% y/y) in the output of automotive products. Output of appliances &amp; furniture also was weak and fell 2.4% (-5.0% y/y). Nondurable consumer goods output fell 0.6% (+2.2% y/y) but nonenergy nondurables output rose 0.1% (3.1% y/y), the increase solely due to higher output of foods &amp; tobacco (3.5% y/y).
Business equipment production slipped 0.2% after the upwardly revised 0.2% August gain. Output of information processing &amp; equipment jumped 0.8% (16.7% y/y).Factory output overall less the hi-tech industries fell 0.5% (+4.8% y/y).
Overall capacity utilization fell to 81.9%, the lowest level since May.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/output.htm">Production &amp; Capacity</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">Industrial Production</td>
<td>-0.6%</td>
<td>0.0%</td>
<td>5.5%</td>
<td>3.2%</td>
<td>4.1%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Manufacturing (NAICS)</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>6.2%</td>
<td>3.9%</td>
<td>4.8%</td>
<td>0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>-0.9%</td>
<td>0.4%</td>
<td>0.5%</td>
<td>2.1%</td>
<td>2.1%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Equipment</td>
<td>-0.2%</td>
<td>0.2%</td>
<td>18.5%</td>
<td>9.1%</td>
<td>9.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>81.9%</td>
<td>82.5%</td>
<td>79.1% (9/05)</td>
<td>80.1%</td>
<td>78.6%</td>
<td>75.7%</td>
</tr>
</tbody>
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Total U.S. industrial output fell 0.6% last month. Though the decline followed an upwardly revised no change in August output, it again disappointed Consensus expectations which had been for just a 0.1% dip. Factory sector output fell [...]

Industrial Production Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061017a.jpg" width="353">
The overall producer price index dropped 1.3% last month and by far exceeded Consensus expectations for a 0.3% decline. Lower energy prices pulled down the total but excluding food &amp; energy prices rose 0.6%, an increase that fully reversed the declines during the prior two months. Expectations had been for a 0.2% increase in the core PPI.
Finished energy goods prices dropped 8.4% (-1.6% y/y), led lower by a 22.2% m/m plunge in gasoline prices (-13.3% y/y) and an 18.5% (-0.1% y/y) decline in fuel oil prices. Residential electric power prices also fell 0.1% (+7.1% y/y) but natural gas prices increased 1.8% (-1.2% y/y). 
Finished consumer goods prices less food &amp; energy reversed the prior month&#39;s decline and rose 0.5% (1.1% y/y). The gain very much reflected a 2.8% (-3.6% y/y) increase in passenger car prices that reversed an August drop. Household furniture prices fell 0.1% (+3.4% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061017b.jpg" width="353">
Capital equipment prices also were firm and rose 0.6% (1.5% y/y) for the first gain in three months. Light truck prices reversed the August drop and rose 3.5% (-4.8% y/y) while prices of pumps, compressors &amp; equipment were strong again, rising 1.2% (4.3% y/y). 
Intermediate goods prices dropped 1.4%, the first m/m decline since February, and prices less food &amp; energy were similarly tame. The 0.1% increase was the smallest since August of last year. 
The crude materials PPI dropped 3.4% due to a 13.3% (NSA, +0.8% y/y) drop in crude petroleum and a 5.5% skid in natural gas (NSA, -35.0% y/y). Less food &amp; energy crude goods prices were, however, quite strong and rose 1.0% due to higher iron &amp; steel scrap prices (4.4% y/y), higher prices for aluminum base scrap (29.2% y/y) and copper scrap prices which are up 70.9% y/y.
Why Are Yield Curves So Flat and Long Rates So Low Globally?, remarks by Federal Reserve Board Governor Randall S. Kroszner are available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060615/default.htm">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/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</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">Finished Goods</td>
<td>-1.3%&nbsp;</td>
<td>0.1%</td>
<td>&nbsp; 0.9%&nbsp;</td>
<td>&nbsp;4.9%&nbsp;</td>
<td>3.6%&nbsp;</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.6%</td>
<td>-0.4%</td>
<td>&nbsp;1.3%</td>
<td>2.4%</td>
<td>1.5%</td>
<td>0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-1.4%</td>
<td>0.4%</td>
<td>4.7%</td>
<td>&nbsp;8.0%</td>
<td>6.6%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>0.4%</td>
<td>7.4%</td>
<td>&nbsp;5.5%</td>
<td>5.7%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>&nbsp;-3.4%&nbsp;</td>
<td>2.2%</td>
<td>&nbsp;-7.8%</td>
<td>14.6%</td>
<td>&nbsp;17.5%</td>
<td>25.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.0%</td>
<td>-2.8%</td>
<td>&nbsp;19.7%</td>
<td>4.8%</td>
<td>&nbsp;26.5%</td>
<td>12.4%</td>
</tr>
</tbody>
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The overall producer price index dropped 1.3% last month and by far exceeded Consensus expectations for a 0.3% decline. Lower energy prices pulled down the total but excluding food & energy prices rose 0.6%, an increase that fully [...]

PPI Fell, Core Prices Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061017a.jpg" width="353">
The overall producer price index dropped 1.3% last month and by far exceeded Consensus expectations for a 0.3% decline. Lower energy prices pulled down the total but excluding food &amp; energy prices rose 0.6%, an increase that fully reversed the declines during the prior two months. Expectations had been for a 0.2% increase in the core PPI.
Finished energy goods prices dropped 8.4% (-1.6% y/y), led lower by a 22.2% m/m plunge in gasoline prices (-13.3% y/y) and an 18.5% (-0.1% y/y) decline in fuel oil prices. Residential electric power prices also fell 0.1% (+7.1% y/y) but natural gas prices increased 1.8% (-1.2% y/y). 
Finished consumer goods prices less food &amp; energy reversed the prior month&#39;s decline and rose 0.5% (1.1% y/y). The gain very much reflected a 2.8% (-3.6% y/y) increase in passenger car prices that reversed an August drop. Household furniture prices fell 0.1% (+3.4% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061017b.jpg" width="353">
Capital equipment prices also were firm and rose 0.6% (1.5% y/y) for the first gain in three months. Light truck prices reversed the August drop and rose 3.5% (-4.8% y/y) while prices of pumps, compressors &amp; equipment were strong again, rising 1.2% (4.3% y/y). 
Intermediate goods prices dropped 1.4%, the first m/m decline since February, and prices less food &amp; energy were similarly tame. The 0.1% increase was the smallest since August of last year. 
The crude materials PPI dropped 3.4% due to a 13.3% (NSA, +0.8% y/y) drop in crude petroleum and a 5.5% skid in natural gas (NSA, -35.0% y/y). Less food &amp; energy crude goods prices were, however, quite strong and rose 1.0% due to higher iron &amp; steel scrap prices (4.4% y/y), higher prices for aluminum base scrap (29.2% y/y) and copper scrap prices which are up 70.9% y/y.
Why Are Yield Curves So Flat and Long Rates So Low Globally?, remarks by Federal Reserve Board Governor Randall S. Kroszner are available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20060615/default.htm">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/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</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">Finished Goods</td>
<td>-1.3%&nbsp;</td>
<td>0.1%</td>
<td>&nbsp; 0.9%&nbsp;</td>
<td>&nbsp;4.9%&nbsp;</td>
<td>3.6%&nbsp;</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.6%</td>
<td>-0.4%</td>
<td>&nbsp;1.3%</td>
<td>2.4%</td>
<td>1.5%</td>
<td>0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-1.4%</td>
<td>0.4%</td>
<td>4.7%</td>
<td>&nbsp;8.0%</td>
<td>6.6%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>0.4%</td>
<td>7.4%</td>
<td>&nbsp;5.5%</td>
<td>5.7%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>&nbsp;-3.4%&nbsp;</td>
<td>2.2%</td>
<td>&nbsp;-7.8%</td>
<td>14.6%</td>
<td>&nbsp;17.5%</td>
<td>25.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.0%</td>
<td>-2.8%</td>
<td>&nbsp;19.7%</td>
<td>4.8%</td>
<td>&nbsp;26.5%</td>
<td>12.4%</td>
</tr>
</tbody>
</table>
Industrial Production Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 17, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061017c.jpg" width="353">
Total U.S. industrial output fell 0.6% last month. Though the decline followed an upwardly revised no change in August output, it again disappointed Consensus expectations which had been for just a 0.1% dip.
Factory sector output fell 0.3% and reversed all of the prior month&#39;s gain which was upwardly revised from no change. During the third quarter, factory output rose at a 4.2% annual rate versus 2Q which rose 5.1%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061017d.jpg" width="353">
Production of durable consumer goods dropped 1.8% due to a 2.6% decline 9-7.7% y/y) in the output of automotive products. Output of appliances &amp; furniture also was weak and fell 2.4% (-5.0% y/y). Nondurable consumer goods output fell 0.6% (+2.2% y/y) but nonenergy nondurables output rose 0.1% (3.1% y/y), the increase solely due to higher output of foods &amp; tobacco (3.5% y/y).
Business equipment production slipped 0.2% after the upwardly revised 0.2% August gain. Output of information processing &amp; equipment jumped 0.8% (16.7% y/y).Factory output overall less the hi-tech industries fell 0.5% (+4.8% y/y).
Overall capacity utilization fell to 81.9%, the lowest level since May.

<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/output.htm">Production &amp; Capacity</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">Industrial Production</td>
<td>-0.6%</td>
<td>0.0%</td>
<td>5.5%</td>
<td>3.2%</td>
<td>4.1%</td>
<td>0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Manufacturing (NAICS)</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>6.2%</td>
<td>3.9%</td>
<td>4.8%</td>
<td>0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>-0.9%</td>
<td>0.4%</td>
<td>0.5%</td>
<td>2.1%</td>
<td>2.1%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Equipment</td>
<td>-0.2%</td>
<td>0.2%</td>
<td>18.5%</td>
<td>9.1%</td>
<td>9.3%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>81.9%</td>
<td>82.5%</td>
<td>79.1% (9/05)</td>
<td>80.1%</td>
<td>78.6%</td>
<td>75.7%</td>
</tr>
</tbody>
</table>
NAHB Housing Market Index Ticked Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 17, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061017f.jpg" width="353">
The National Association of Home Builders&#39; (NAHB) October Composite Housing Market Index rose to 31 from 30 in September. It was the first m/m increase since last year. Regardless, the latest level remained down by more than one half from the levels of 2005. 
During the last twenty years there has been a 75% correlation between the y/y change in the Composite Index and the change in single family housing starts. 
The improvement was led a sharp gain in the sub-index covering prospective sales in the next six months (10.8% m/m, -43.8% y/y). The sub-index for current sales was unchanged m/m (-56.8% y/y). 
Traffic of prospective home buyers rose modestly from the extremely low levels of the prior two months. 
Only the housing market indexes for the Northeast (-50.7% y/y) and the Midwest (-55.6% y/y) improved m/m. In the South the index fell (-51.3%) as it did out West (-64.8% y/y). 
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions good than poor. 
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</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 Housing Market Index</td>
<td>31</td>
<td>30</td>
<td>68</td>
<td>67</td>
<td>68</td>
<td>64</td>
</tr>
</tbody>
</table>
Lower Gasoline Prices Helped Spending at Chain Stores, Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 17, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061017e.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS reported that chain store sales increased 0.6% last week on the heels of the prior week&#39;s 0.5% rise. The gains limited the decline in sales so far in October to 0.2% versus the September average .
The retail price for a gallon of regular unleaded gasoline fell for the tenth consecutive week. The four cent decline last week to an average $2.23 (-18.3% y/y) and was to the lowest level since December.
Last week&#39;s decline in spot market gasoline prices paused yesterday. The NY harbor price for regular unleaded gasoline rose to $1.54 per gallon versus an average $1.50 last week.
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 rose for the fifth week in the last six, by 0.1% (0.8% y/y).
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">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">10/14/06</th>
<th scope="col">10/07/06</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>468.1</td>
<td>465.4</td>
<td>3.9%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
 The German Financial Community Is Growing More Cautious about Economic Conditions Six Month Ahead 
by <a href="/comment/Curley.html">Louise Curley</a>  October 17, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061017g.jpg" width="353">
The ZEW measure of economic sentiment among analysts and institutional investors regarding the economic outlook six months ahead fell from -22.2%in September to -27.4% in October, that is, the pessimists outweighed the optimists by 27.4%. This is the lowest value since March 1993. In October of last year, the optimists outweighed the pessimists by 39.4%.
At the same time, among the participants in the survey, those who appraised the current situation positively outweighed those who appraised it negatively by 42.9%, the highest value since October 2000. The October value was up from 38.9% in September and from -58.0% in October of 2005. The first chart compares the views of the ZEW participants on the current situation and the outlook six months ahead.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061017h.jpg" width="353">
The rapid and sustained rise in the appraisal of current conditions reflects the surprising strength of the German economy in the current year. The Economic Minister, Michael Glos, recently said that the ministry will raise its estimate of 2006 growth to 2.5% from 1.6% estimated last April. It is not surprising, therefore, that investors view the future with some caution. This is especially true given the inevitability of tax increases on January 1, 2007 that are likely to dampen consumer spending. The VAT (value added tax) is scheduled to rise from 16% to 19% and social security contributions will also increase.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061017i.jpg" width="353">
The other major indicator of sentiment in Germany is the IFO measure to be released October 25th. The ZEW measure is based on a small sample--some 300 participants--and represents the opinions of the financial community. The IFO measure is based on a much broader sample--some 7000 participants--and represents the opinions of businessmen engaged in manufacturing, construction, wholesale and retail trade. In the appraisal of the current situation, the two surveys reveal similar views, although the views of the financial community tend to be more volatile than those of the industrialists and trades people. The second chart compares the appraisal of the current situation by the two institutes. The correlation between the two series is fairly high .83.
In the appraisal of the outlook, there is less agreement in the views of the two sectors, represented by a lower correlation--.67--and again, the views of the financial community tend to be more volatile than those of the industrialists and trades people.The third chart compares the views on the outlook of both groups. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D8/@D8.HTM">GERMANY ZEW&nbsp; (Balance of Opinion)</a></th>
<th scope="col">Oct&nbsp; 06</th>
<th scope="col">Sep 06</th>
<th scope="col">Oct 05</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Current&nbsp;Situation</td>
<td>42.9</td>
<td>38.9</td>
<td>-58.0</td>
<td>4.0</td>
<td>100.9</td>
<td>-61.8</td>
<td>-67.7</td>
<td>-92.6</td>
</tr>
<tr>
<td class="firstcol">Outlook Six Months Ahead</td>
<td>-27.4</td>
<td>-22.2</td>
<td>39.4</td>
<td>-5.2</td>
<td>-66.8</td>
<td>34.8</td>
<td>44.6</td>
<td>38.4</td>
</tr>
</tbody>
</table>


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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016h.jpg" width="353">
Growth in productivity together growth in the labor force largely determines a country&#39;s potential growth rate. Recent trends in German productivity, especially in industry, suggest that the recent increase in Germany&#39;s growth rate has solid underpinnings. Productivity in German Industry, as measured by output per employee, increased by 2.4% in August from July and was 8.0% above August, 2005. The comparable figures for productivity as measured by output per working hour are 2.5% and 11.6% respectively. The two measures differ from month to month but show the same general trends, 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/061016i.jpg" width="353">
Germany also reports productivity data in more detail on a quarterly basis. Data are currently available only through the second quarter. Productivity for the total economy in the quarterly series is much lower than that of the productivity in industry in the monthly series, as can be seen in the second chart. Part of the difference in the two series is due to the fact that agriculture and public and personal service, both with low productivity are included in the quarterly series but not in the monthly series.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016g.jpg" width="353">
The growth in productivity in the manufacturing industry in Germany is now above that of the United States, as can be seen in the third chart. Moreover, when both indexes are compared on a common base year--2000--the current level of the German index is higher than that of the U. S.--meaning that the level of manufacturing productivity in Germany has now risen more than that of the U. S. since 2000. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">PRODUCTIVITY&nbsp; (2000=100)</th>
<th scope="col">Q2 06</th>
<th scope="col">Q1 06</th>
<th scope="col">Q2 05</th>
<th scope="col">Q/Q %</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"> Manufacturing</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany&nbsp;</td>
<td>131.25</td>
<td>117.29</td>
<td>123.94</td>
<td>11.94</td>
<td>5.93</td>
<td>5.47</td>
<td>3.59</td>
<td>3.58</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; United States&nbsp;</td>
<td>126.35</td>
<td>125.53</td>
<td>121.86</td>
<td>0.65</td>
<td>3.69</td>
<td>4.10</td>
<td>18.5</td>
<td>6.21</td>
</tr>
<tr>
<td class="firstcol">Total Economy&nbsp;</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; Quarterly Series</td>
<td>108.55</td>
<td>107.80</td>
<td>106.52</td>
<td>0.66</td>
<td>1.91</td>
<td>1.32</td>
<td>0.69</td>
<td>1.21</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Monthly Series &nbsp; (Aggregated on a qtrly basis)</td>
<td>119.7</td>
<td>119.6</td>
<td>114.3</td>
<td>0.11</td>
<td>4.78</td>
<td>4.68</td>
<td>4.72</td>
<td>1.83</td>
</tr>
<tr class="odd">
<td class="firstcol">Monthly Series Total Economy</td>
<td>Aug 06</td>
<td>Jul 06</td>
<td>Aug 05</td>
<td>M/M %</td>
<td>Y/Y %</td>
<td>2005 %</td>
<td>2004 %</td>
<td>2003 %</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Output per employee</td>
<td>125.0</td>
<td>122.1</td>
<td>115.7</td>
<td>2.38</td>
<td>8.04</td>
<td>5.05</td>
<td>5.13</td>
<td>2.78</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; Output per working hour</td>
<td>124.0</td>
<td>121.0</td>
<td>118.5</td>
<td>2.48</td>
<td>4.64</td>
<td>4.68</td>
<td>4.72</td>
<td>1.83</td>
</tr>
</tbody>
</table>
</body>
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Growth in productivity together growth in the labor force largely determines a country's potential growth rate. Recent trends in German productivity, especially in industry, suggest that the recent increase in Germany's growth rate [...]

German Productivity Growth in Manufacturing Tops That of the United States

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016d.jpg" width="353">
The U.S. federal government&#39;s budget deficit for FY 2006 fell to $247.7B following deficits near $300B during 2005 and $400B during 2004. The full year figure compared favorably to the August estimate from the Congressional Budget Office of a $260B deficit. CBO expects the FY 2007 deficit to total $286B.
As a percentage of GDP, the U.S. budget deficit fell to 1.9% from 2.6% in FY2005 but may return to 2.5% during the current year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016f.jpg" width="353">
Net revenues grew 11.8% during FY2006. Individual income tax receipts (44% of total receipts) registered 12.6% growth after a 14.6% surge the prior year. Withheld taxes rose 7.9% due to growth in employment, nearly double the 4.4% gain during the prior fiscal year, and that was up from 2.5% growth during FY2004. Non-withheld taxes (primarily on capital gains) surged 20.7%, slightly slower than the 31.9% gain during FY2005. Corporate income taxes (13% of total receipts) surged 27.2% as corporate profits grew. Estate &amp; gift taxes increased by 12.6% while higher employment levels raised social insurance &amp; retirement receipts by 5.5%.
As a percentage of GDP revenues rose to 18.1%, the highest level in five years.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061016e.jpg" width="353">
U.S. net outlays grew 7.4% last year versus 7.8% growth during FY2005. Defense spending (19% of total outlays) grew 6.8%, down from 8.6% growth during FY2005. Medicare expenditures (12% of outlays) advanced 10.5%, about stable with the prior year&#39;s growth, and social security spending (21% of outlays) rose a diminished 4.8%. Higher interest rates boosted the government&#39;s interest expense by 23.2% y/y.
As a percentage of GDP outlays rose to 19.9%, up more than one percentage point since 2000.
The Budget Results for Fiscal Year 2006 from the U.S. Treasury Department can be found <a href="http://www.treas.gov/press/releases/hp135.htm"> here</a>.
CBO&#39;s baseline projections of the U.S. budget are available <a href="http://www.cbo.gov/budget/08-17-budproj.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/@E1/@E106/@E10602/@E106021.HTM">US Government Finance</a> &nbsp;</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2006</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$56.0B</td>
<td>-$64.9B</td>
<td>$35.2B (9/05)</td>
<td>-$247.7</td>
<td>-$318.7B</td>
<td>-$412.7B</td>
</tr>
<tr>
<td class="firstcol">Net Revenues</td>
<td>$283.3B</td>
<td>$153.9B</td>
<td>12.6%</td>
<td>11.8%</td>
<td>14.5%</td>
<td>5.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Outlays</td>
<td>$227.3B</td>
<td>$218.8B</td>
<td>5.0%</td>
<td>7.4%</td>
<td>7.8%</td>
<td>6.2%</td>
</tr>
</tbody>
</table>
</body>
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The U.S. federal government's budget deficit for FY 2006 fell to $247.7B following deficits near $300B during 2005 and $400B during 2004. The full year figure compared favorably to the August estimate from the Congressional Budget [...]

Higher Receipts Lower U.S. Budget Deficit

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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Andrew Cates

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

260205Z1.jpg

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

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

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

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

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

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

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

Robert Brusca

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

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

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

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

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

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

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

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

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

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

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

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

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

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

Sandy Batten

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

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

The insured unemployment rate varied greatly across individual states and territories. In the week ending January 17, the highest unemployment rates were in Rhode Island (2.83%), New Jersey (2.77%), Massachusetts (2.67%), Washington (2.54%), and Minnesota (2.45%). The lowest rates were in Florida (0.30%), North Carolina (0.42%), Louisiana (0.43%), Alabama (0.46%), and Arkansas (0.47). Rates in other notable states include Illinois (2.15%), California, (2.08%), New York (2.02%), Pennsylvania (1.91%), and Texas (1.09%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.

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

U.S. Initial Unemployment Claims Surged in Latest Week

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

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

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

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

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

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

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

Economy in Brief

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