Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823c.jpg" width="353">
At -0.12 for July, the National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago was negative for the second month in the last three. Moreover, the three-month moving average of the CFNAI fell to 0.07, its lowest level in over a year.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_August2006.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823d.jpg" width="353">
The Federal Reserve Bank of Richmond reported that its August Composite Index from the manufacturing survey at 3 was at its lowest level since May. During the last ten years there has been a 38% correlation between the diffusion index level and the one month change in U.S. manufacturing industrial production. The August report can be found <a href="http://www.richmondfed.org/research/regional_conditions/manufacturing_conditions/index.cfm">here</a>.
The Richmond Fed&#39;s survey of the service sector, conversely, improved. In August, the percentage of firms reporting increasing revenues returned to positive territory and the percentage of employees was at its highest in a year. The latest report is available <a href="http://www.richmondfed.org/research/regional_conditions/service_sector/index.cfm">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/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July &#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">CFNAI</td>
<td>-0.12</td>
<td>0.43</td>
<td>0.10</td>
<td>0.20</td>
<td>0.35</td>
<td>-0.15</td>
</tr>
</tbody>
</table>
</body>
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At -0.12 for July, the National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago was negative for the second month in the last three. Moreover, the three-month moving average of the CFNAI fell to 0.07, its lowest level [...]

Chicago Fed Nat'l Activity & Richmond Fed Mfg. Indexes Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823a.jpg" width="353">
The total number of mortgage applications ticked up 0.1% last week after firms gains during the prior two weeks. As a result of the earlier increases, the average level of applications in August is up 3.0% from July.
Again, recent gains were led by higher applications to refinance which rose 1.3% for the fifth consecutive weekly increase. Refis in August are 12.6% higher than in July.
Moving in the other direction, purchase applications fell 1.0% last week for the fifth decline in the last six weeks. Purchase apps in August are 2.9% below the July average.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The effective interest rate on a conventional 30-year mortgage fell sharply to 6.58% from 6.73% the prior week. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also fell ten basis points to 6.32% and the peak rate was 6.75%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
A Trend and Variance Decomposition of the Rent-Price Ratio in Housing Markets from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/feds/2006/200629/200629abs.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/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">08/18/06</th>
<th scope="col">08/11/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>561.5</td>
<td>561.2</td>
<td>-25.7%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>382.2</td>
<td>385.9</td>
<td>-21.7%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,608.5</td>
<td>1,587.5</td>
<td>-30.5%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
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The total number of mortgage applications ticked up 0.1% last week after firms gains during the prior two weeks. As a result of the earlier increases, the average level of applications in August is up 3.0% from July. Again, recent [...]

Mortgage Applications Lackluster, Rates Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823e.jpg" width="353">
 The National Association of Realtors reported that total existing home sales fell 4.1% during July to 6.330M, the fourth consecutive m/m decline. The decline compared to Consensus expectations for a lesser decline to 6.55M.
Sales of single-family homes fell 5.0%, the sixth m/m decline this year. Versus the first seven months of 2005 sales this year are down 5.4%.
The data cover sales closed in the latest and previous months and contrast to the new home sales data which count sales at the signing of a contract.
Sales in the Northeast fell 8.5% m/m (-12.8% y/y) and in the Midwest sales fell 6.7% (-11.3% y/y). In the South sales slipped 2.1% (-6.9% y/y) and in the West (-14.1% y/y) sales dropped 6.3% (-18.4% y/y).
The median price of an existing single-family home ticked up 0.5% m/m and prior year&#39;s figures were revised up. The price figures are not seasonally adjusted.
The inventory of unsold existing homes surged another 3.2% (39.9% y/y). The supply of unsold single family homes rose 2.5% (40.4% y/y) and the supply of condos &amp; coops for sale rose 7.3% m/m (36.9% y/y).
The latest release from the National Association of Realtors is available <a href="http://www.realtor.org/research.nsf/pages/EHSPage?OpenDocument">here</a>.
Reflections on monetary policy: Flexibility, transparency and inflation from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/fedletter/cflseptember2006_230.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E905/@E90501/@E90501.HTM">Existing Home Sales (000, AR)</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Home Sales</td>
<td>&nbsp;6,330</td>
<td>6,600</td>
<td>-11.2%</td>
<td>7,064</td>
<td>6,722</td>
<td>6,176</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single Family Home Sales</td>
<td>5,510</td>
<td>5,800</td>
<td>-11.4%</td>
<td>6,170</td>
<td>5,912</td>
<td>5,443</td>
</tr>
<tr class="odd">
<td class="firstcol">Single Family Median Home Price (000) </td>
<td>$231.2 </td>
<td>$230.1 </td>
<td>1.5% </td>
<td>$217.5</td>
<td>$192.8 </td>
<td>$178.3 </td>
</tr>
</tbody>
</table>


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The National Association of Realtors reported that total existing home sales fell 4.1% during July to 6.330M, the fourth consecutive m/m decline. The decline compared to Consensus expectations for a lesser decline to 6.55M. Sales of [...]

U.S. Existing Home Sales Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823e.jpg" width="353">
 The National Association of Realtors reported that total existing home sales fell 4.1% during July to 6.330M, the fourth consecutive m/m decline. The decline compared to Consensus expectations for a lesser decline to 6.55M.
Sales of single-family homes fell 5.0%, the sixth m/m decline this year. Versus the first seven months of 2005 sales this year are down 5.4%.
The data cover sales closed in the latest and previous months and contrast to the new home sales data which count sales at the signing of a contract.
Sales in the Northeast fell 8.5% m/m (-12.8% y/y) and in the Midwest sales fell 6.7% (-11.3% y/y). In the South sales slipped 2.1% (-6.9% y/y) and in the West (-14.1% y/y) sales dropped 6.3% (-18.4% y/y).
The median price of an existing single-family home ticked up 0.5% m/m and prior year&#39;s figures were revised up. The price figures are not seasonally adjusted.
The inventory of unsold existing homes surged another 3.2% (39.9% y/y). The supply of unsold single family homes rose 2.5% (40.4% y/y) and the supply of condos &amp; coops for sale rose 7.3% m/m (36.9% y/y).
The latest release from the National Association of Realtors is available <a href="http://www.realtor.org/research.nsf/pages/EHSPage?OpenDocument">here</a>.
Reflections on monetary policy: Flexibility, transparency and inflation from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/fedletter/cflseptember2006_230.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E905/@E90501/@E90501.HTM">Existing Home Sales (000, AR)</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Home Sales</td>
<td>&nbsp;6,330</td>
<td>6,600</td>
<td>-11.2%</td>
<td>7,064</td>
<td>6,722</td>
<td>6,176</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single Family Home Sales</td>
<td>5,510</td>
<td>5,800</td>
<td>-11.4%</td>
<td>6,170</td>
<td>5,912</td>
<td>5,443</td>
</tr>
<tr class="odd">
<td class="firstcol">Single Family Median Home Price (000) </td>
<td>$231.2 </td>
<td>$230.1 </td>
<td>1.5% </td>
<td>$217.5</td>
<td>$192.8 </td>
<td>$178.3 </td>
</tr>
</tbody>
</table>
Mortgage Applications Lackluster, Rates Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 23, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823a.jpg" width="353">
The total number of mortgage applications ticked up 0.1% last week after firms gains during the prior two weeks. As a result of the earlier increases, the average level of applications in August is up 3.0% from July.
Again, recent gains were led by higher applications to refinance which rose 1.3% for the fifth consecutive weekly increase. Refis in August are 12.6% higher than in July.
Moving in the other direction, purchase applications fell 1.0% last week for the fifth decline in the last six weeks. Purchase apps in August are 2.9% below the July average.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.
The effective interest rate on a conventional 30-year mortgage fell sharply to 6.58% from 6.73% the prior week. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also fell ten basis points to 6.32% and the peak rate was 6.75%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
A Trend and Variance Decomposition of the Rent-Price Ratio in Housing Markets from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/feds/2006/200629/200629abs.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/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">08/18/06</th>
<th scope="col">08/11/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>561.5</td>
<td>561.2</td>
<td>-25.7%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>382.2</td>
<td>385.9</td>
<td>-21.7%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,608.5</td>
<td>1,587.5</td>
<td>-30.5%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
Chicago Fed Nat'l Activity & Richmond Fed Mfg. Indexes Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 23, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823c.jpg" width="353">
At -0.12 for July, the National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago was negative for the second month in the last three. Moreover, the three-month moving average of the CFNAI fell to 0.07, its lowest level in over a year.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_August2006.pdf">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823d.jpg" width="353">
The Federal Reserve Bank of Richmond reported that its August Composite Index from the manufacturing survey at 3 was at its lowest level since May. During the last ten years there has been a 38% correlation between the diffusion index level and the one month change in U.S. manufacturing industrial production. The August report can be found <a href="http://www.richmondfed.org/research/regional_conditions/manufacturing_conditions/index.cfm">here</a>.
The Richmond Fed&#39;s survey of the service sector, conversely, improved. In August, the percentage of firms reporting increasing revenues returned to positive territory and the percentage of employees was at its highest in a year. The latest report is available <a href="http://www.richmondfed.org/research/regional_conditions/service_sector/index.cfm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">July &#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">CFNAI</td>
<td>-0.12</td>
<td>0.43</td>
<td>0.10</td>
<td>0.20</td>
<td>0.35</td>
<td>-0.15</td>
</tr>
</tbody>
</table>
Mass Layoffs Up Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 23, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823b.jpg" width="353">
The number of mass layoff events in July increased 2.6% after a 2.1% gain during June. Despite the increases, layoff events during the first seven months of 2006 remained down 11.4% from the year earlier period.
During the last ten years there has been a (negative) 85% correlation between the three month average level of layoff announcements and the y/y change in payroll employment.
The number of persons affected in July by mass layoffs fell 4.0% m/m and were 14.4% lower during the first seven months of 2006 versus last year.
Increased layoffs in manufacturing (-3.6% y/y) and in real estate (-17.4% y/y) dominated the increase in claimants for unemployment last month. Declines elsewhere were widespread.
The Mass Layoff Statistics (MLS) program collects reports on mass layoff actions that result in workers being separated from their jobs. Monthly mass layoff numbers are from establishments which have at least 50 initial claims for unemployment insurance (UI) filed against them during a 5-week period.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Mass Layoffs</a></th>
<th scope="col">July</th>
<th scope="col">June</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">All US Industries (# Events, SA)</td>
<td>1,125</td>
<td>1,097</td>
<td>-9.9%</td>
<td>15,699</td>
<td>15,926</td>
<td>19,220</td>
</tr>
<tr>
<td class="firstcol">Total (# Persons, SA)</td>
<td>114,895</td>
<td>119,662</td>
<td>-12.4%</td>
<td>1,722,452</td>
<td>1,591,081</td>
<td>1,946,548</td>
</tr>
</tbody>
</table>
Japan Trade Surplus Helped by More Car Exports, Flatter Oil Imports 
by <a href="/comment/Stone.html">Carol Stone</a> August 23, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823f.jpg" width="353">
 Japan&#39;s trade balance appears to have stabilized after a surge in petroleum imports cut it back last year. In July, the balance was &yen;800 billion, up from &yen;624 billion a year ago and an average of &yen;726 billion for 2005. Obviously, though, as the three months of data in the table below show, the balance moves around a good bit. But a six-month moving average makes the stabilization clearer, as illustrated in the first graph.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823g.jpg" width="353">
 The role of fuels imports in the erosion of the traditionally sizable Japanese trade surplus is indicated in the second graph. Since late 2004, right at half of the year-on-year yen increase in imports has come from &quot;mineral fuels&quot;. No other single major category has a significant share of the growth. At the same time, both petroleum and total imports have leveled out in the last few months, easing the pressure on the trade balance.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060823h.jpg" width="353">
 Exports have also helped the trade balance. Also a bit erratic from month-to-month, foreign sales have picked up, with a 14.2% increase on the last year, nearly double the average growth in 2005. Several sectors have contributed, with good gains in machinery, non-automotive transport equipment and &quot;other&quot; exports. However, the biggest increase has been in motor vehicles, which are up a whopping 26.2% in July from July 2005. Details from the Ministry of Finance show that the number of passenger cars exported was a record last month, 569,000. This is an extraordinary development. The last time figures were nearly as high was in the mid-1980s, as seen in graph 3. At that time, Japanese makers produced a relatively small number of their cars in the US compared to the present and until just the last few months, truck sales have dominated motor vehicle demand, at least in the US. The move back to more fuel-efficient cars is well along, giving an ironic boost to the Japanese trade surplus.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J9/@J909/@J909.HTM">Japan, Bil.&yen;, Seas Adj.*</a></th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">July 2005</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Trade Balance</td>
<td>800</td>
<td>639</td>
<td>854</td>
<td>624</td>
<td>726</td>
<td>996</td>
<td>849</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>6335</td>
<td>6139</td>
<td>6124</td>
<td>5410</td>
<td>5471</td>
<td>5097</td>
<td>4546</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>3.2</td>
<td>0.2</td>
<td>1.3</td>
<td>14.2</td>
<td>7.3</td>
<td>12.1</td>
<td>4.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>5535</td>
<td>5499</td>
<td>5271</td>
<td>4786</td>
<td>4746</td>
<td>4101</td>
<td>3697</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.6</td>
<td>4.3</td>
<td>-6.9</td>
<td>16.8</td>
<td>15.7</td>
<td>10.9</td>
<td>5.1</td>
</tr>
</tbody>
</table>


</html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822f.jpg" width="353">
Confidence among the German investors and analysts who participate in the ZEW survey, deteriorated sharply in August. Those expecting economic conditions to worsen six months from now outnumbered those expecting improvement by 5.6% in contrast to July when the optimists outnumbered the pessimists by 15.1%. The decline in sentiment was not only greater than the consensus had expected, but has brought confidence to a level well below the long term average (35%) 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/060822g.jpg" width="353">
While becoming more pessimistic about the outlook, these same investors and analysts continue to view current conditions more favorably. In August, those viewing current conditions as &quot;good&quot; outnumbered those viewing current conditions as &quot;bad&quot; by 33.6% versus 23.3% in July. July was the first month since early 2001 in which the appraisal of current conditions was better than that of expectations. In general the investors and analysts tend to be more optimistic about the future than they are about present conditions as can be seen in the second chart.

<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 Survey of Investors and Analysts</a></th>
<th scope="col">Aug 06</th>
<th scope="col">Jul 06</th>
<th scope="col">Aug 05</th>
<th scope="col">M/M Dif&nbsp;&nbsp;</th>
<th scope="col">Y/Y&nbsp;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 Conditions (% balance)</td>
<td>33.6</td>
<td>23.3</td>
<td>-61.1</td>
<td>10.3</td>
<td>94.7</td>
<td>-61.8</td>
<td>-67.7</td>
<td>-97.6</td>
</tr>
<tr>
<td class="firstcol">Expectations of Conditions 6 Months Ahead (% balance)</td>
<td>-5.6</td>
<td>15.1</td>
<td>50.0</td>
<td>-20.7</td>
<td>-55.6</td>
<td>34.8</td>
<td>44.6</td>
<td>38.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Confidence among the German investors and analysts who participate in the ZEW survey, deteriorated sharply in August. Those expecting economic conditions to worsen six months from now outnumbered those expecting improvement by 5.6% in [...]

Confidence in the Future among German Investors and Analysts Dips Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822b.jpg" width="353">
The above quote from a wise bond trader has been voiced for years by skeptics who wonder why anything as important as the price for energy, food, etc. should be taken out of an inflation measure.
The short answer is that some supply shocks will be short lived. The &quot;core&quot; inflation rate is the rate which will be returned to.
The risk is of this analysis is that it misses two important definitions of the future rate of price inflation. 1) Inflation is governed by the growth of money (demand). 2) Inflation results from too much money chasing too few goods.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822c.jpg" width="353">
Since 1970 there has been a 67% correlation between the annual growth in the money supply (M2) and the growth in the GDP price deflator two years later.
Inflationary expectations will embody all of the forces that are affecting prices. So while it may be valid to exclude some short term price spike, the calculation misses the lingering effect of how those higher prices affect psychology. And there&#39;s always the possibility of some &quot;policy mistake.&quot; During the 1970s, it was argued that the wealth lost (to OPEC) due to the quadrupling of oil prices needed to be replaced. Money growth was ramped up, and we learned how inflation could be &quot;monetized.&quot;<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822d.jpg" width="353">
The inflation in home prices certainly is an area for study. The price measure of a &quot;constant quality&quot; house published by the Office of Federal Housing Enterprise Oversight (OFFEO) indicated that through the first quarter, home prices rose 12.5% y/y. The consumer price index rental equivalence, however, indicated only a 2.6% gain though that did accelerate last quarter to 3.3%.
Click <a href="http://www.haver.com/COMMENT/Owners%20Equivalent%20Rent%20and%20the%20Cost%20of%20Living.pdf">here</a> for a discussion of Owners Equivalent Rent and the Cost of Living by Federal Reserve Bank of New York economist Charles Steindel. <span style="FONT-SIZE: 10pt; FONT-FAMILY: Verdana; mso-fareast-font-family: &#39;Times New Roman&#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-font-family: &#39;Times New Roman&#39;">This paper was presented at the Annual Meeting of the National Association for Business Economics (<a href="http://www.nabe.com/">www.nabe.com</a>) and later published in the January 2006 issue of the NABE journal Business Economics.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822e.jpg" width="353">
Indeed, the &quot;core&quot; rate of Consumer Price Inflation of 2.7% in July was higher than the 2.2% gain in the measure less homeowners equivalent rent. The divergence certainly would have been higher if the price appreciation in the OFFEO measure were fully reflected in the CPI, but ...
The core issue (pardon the pun) is whether home price inflation, however measured, is impacting the prices of other goods and services. Mortgage Equity Withdrawal (MEW) is a measure available in the Mortgage Market section of Haver&#39;s USECON database and it provides an indication of how money balances (demand) are being impacted by home price inflation.
Estimates of home mortgage originations, repayments, and debt on one-to-four-family residences from the Board of Governors of the Federal Reserve System can be found <a href="http://www.federalreserve.gov/pubs/feds/2005/200541/200541abs.html"> here</a>. 
Reflections on Four Decades of Central Banking, today&#39;s speech by Atlanta Fed President Jack Guynn, can be found <a href="http://www.frbatlanta.org/invoke.cfm?objectid=367F1CC5-5056-9F12-1235F3179BF494D8&amp;method=display">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/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.4%</td>
<td>0.2%</td>
<td>4.2%</td>
<td>3.4%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less Homeowners&#39; Rent</td>
<td>0.5%</td>
<td>0.1%</td>
<td>4.3%</td>
<td>3.7%</td>
<td>2.8%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.7%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less Homeowners&#39; Rent</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.1%</td>
<td>1.6%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
</body>
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The above quote from a wise bond trader has been voiced for years by skeptics who wonder why anything as important as the price for energy, food, etc. should be taken out of an inflation measure. The short answer is that some supply [...]

"For the CPI excluding everything, inflation is zero."

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<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822a.jpg" width="353">
Last week, chain store sales slipped 0.2% again. The decline was the third consecutive week of lackluster sales, according to the International Council of Shopping Centers (ICSC)-UBS survey, and lowered the latest week&#39;s total 0.4% below the end of July.
Sales in August on average are 0.3% above July due to a strong gain at the end of last month.
During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS was unchanged (-2.3% y/y) in the latest week after several weeks of decline.
Retail gasoline prices fell for the second consecutive week. The eight cent decline to an average $2.92 (+11.9% y/y) for regular unleaded gas compared to a July average of $2.98. In spot market trading yesterday, regular unleaded gasoline prices dropped sharply $1.78, down 60 cents from the daily high reached late last month.
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">08/19/06</th>
<th scope="col">08/12/06</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>469.1</td>
<td>470.1</td>
<td>2.7%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


</html>

Last week, chain store sales slipped 0.2% again. The decline was the third consecutive week of lackluster sales, according to the International Council of Shopping Centers (ICSC)-UBS survey, and lowered the latest week's total 0.4% [...]

Weekly Chain Store Sales Slip With Gasoline Prices

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822b.jpg" width="353">
The above quote from a wise bond trader has been voiced for years by skeptics who wonder why anything as important as the price for energy, food, etc. should be taken out of an inflation measure.
The short answer is that some supply shocks will be short lived. The &quot;core&quot; inflation rate is the rate which will be returned to.
The risk is of this analysis is that it misses two important definitions of the future rate of price inflation. 1) Inflation is governed by the growth of money (demand). 2) Inflation results from too much money chasing too few goods.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822c.jpg" width="353">
Since 1970 there has been a 67% correlation between the annual growth in the money supply (M2) and the growth in the GDP price deflator two years later.
Inflationary expectations will embody all of the forces that are affecting prices. So while it may be valid to exclude some short term price spike, the calculation misses the lingering effect of how those higher prices affect psychology. And there&#39;s always the possibility of some &quot;policy mistake.&quot; During the 1970s, it was argued that the wealth lost (to OPEC) due to the quadrupling of oil prices needed to be replaced. Money growth was ramped up, and we learned how inflation could be &quot;monetized.&quot;<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822d.jpg" width="353">
The inflation in home prices certainly is an area for study. The price measure of a &quot;constant quality&quot; house published by the Office of Federal Housing Enterprise Oversight (OFFEO) indicated that through the first quarter, home prices rose 12.5% y/y. The consumer price index rental equivalence, however, indicated only a 2.6% gain though that did accelerate last quarter to 3.3%.
Click <a href="http://www.haver.com/COMMENT/Owners%20Equivalent%20Rent%20and%20the%20Cost%20of%20Living.pdf">here</a> for a discussion of Owners Equivalent Rent and the Cost of Living by Federal Reserve Bank of New York economist Charles Steindel. <span style="FONT-SIZE: 10pt; FONT-FAMILY: Verdana; mso-fareast-font-family: &#39;Times New Roman&#39;; mso-ansi-language: EN-US; mso-fareast-language: EN-US; mso-bidi-language: AR-SA; mso-bidi-font-family: &#39;Times New Roman&#39;">This paper was presented at the Annual Meeting of the National Association for Business Economics (<a href="http://www.nabe.com/">www.nabe.com</a>) and later published in the January 2006 issue of the NABE journal Business Economics.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822e.jpg" width="353">
Indeed, the &quot;core&quot; rate of Consumer Price Inflation of 2.7% in July was higher than the 2.2% gain in the measure less homeowners equivalent rent. The divergence certainly would have been higher if the price appreciation in the OFFEO measure were fully reflected in the CPI, but ...
The core issue (pardon the pun) is whether home price inflation, however measured, is impacting the prices of other goods and services. Mortgage Equity Withdrawal (MEW) is a measure available in the Mortgage Market section of Haver&#39;s USECON database and it provides an indication of how money balances (demand) are being impacted by home price inflation.
Estimates of home mortgage originations, repayments, and debt on one-to-four-family residences from the Board of Governors of the Federal Reserve System can be found <a href="http://www.federalreserve.gov/pubs/feds/2005/200541/200541abs.html"> here</a>. 
Reflections on Four Decades of Central Banking, today&#39;s speech by Atlanta Fed President Jack Guynn, can be found <a href="http://www.frbatlanta.org/invoke.cfm?objectid=367F1CC5-5056-9F12-1235F3179BF494D8&amp;method=display">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/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.4%</td>
<td>0.2%</td>
<td>4.2%</td>
<td>3.4%</td>
<td>2.7%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less Homeowners&#39; Rent</td>
<td>0.5%</td>
<td>0.1%</td>
<td>4.3%</td>
<td>3.7%</td>
<td>2.8%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.7%</td>
<td>2.2%</td>
<td>1.8%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less Homeowners&#39; Rent</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.2%</td>
<td>2.1%</td>
<td>1.6%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
Weekly Chain Store Sales Slip With Gasoline Prices 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 22, 2006


<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822a.jpg" width="353">
Last week, chain store sales slipped 0.2% again. The decline was the third consecutive week of lackluster sales, according to the International Council of Shopping Centers (ICSC)-UBS survey, and lowered the latest week&#39;s total 0.4% below the end of July.
Sales in August on average are 0.3% above July due to a strong gain at the end of last month.
During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS was unchanged (-2.3% y/y) in the latest week after several weeks of decline.
Retail gasoline prices fell for the second consecutive week. The eight cent decline to an average $2.92 (+11.9% y/y) for regular unleaded gas compared to a July average of $2.98. In spot market trading yesterday, regular unleaded gasoline prices dropped sharply $1.78, down 60 cents from the daily high reached late last month.
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">08/19/06</th>
<th scope="col">08/12/06</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>469.1</td>
<td>470.1</td>
<td>2.7%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Confidence in the Future among German Investors and Analysts Dips Sharply    
by <a href="/comment/Curley.html">Louise Curley</a> August 22, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060822f.jpg" width="353">
Confidence among the German investors and analysts who participate in the ZEW survey, deteriorated sharply in August. Those expecting economic conditions to worsen six months from now outnumbered those expecting improvement by 5.6% in contrast to July when the optimists outnumbered the pessimists by 15.1%. The decline in sentiment was not only greater than the consensus had expected, but has brought confidence to a level well below the long term average (35%) 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/060822g.jpg" width="353">
While becoming more pessimistic about the outlook, these same investors and analysts continue to view current conditions more favorably. In August, those viewing current conditions as &quot;good&quot; outnumbered those viewing current conditions as &quot;bad&quot; by 33.6% versus 23.3% in July. July was the first month since early 2001 in which the appraisal of current conditions was better than that of expectations. In general the investors and analysts tend to be more optimistic about the future than they are about present conditions as can be seen in the second chart.

<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 Survey of Investors and Analysts</a></th>
<th scope="col">Aug 06</th>
<th scope="col">Jul 06</th>
<th scope="col">Aug 05</th>
<th scope="col">M/M Dif&nbsp;&nbsp;</th>
<th scope="col">Y/Y&nbsp; 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 Conditions (% balance)</td>
<td>33.6</td>
<td>23.3</td>
<td>-61.1</td>
<td>10.3</td>
<td>94.7</td>
<td>-61.8</td>
<td>-67.7</td>
<td>-97.6</td>
</tr>
<tr>
<td class="firstcol">Expectations of Conditions 6 Months Ahead (% balance)</td>
<td>-5.6</td>
<td>15.1</td>
<td>50.0</td>
<td>-20.7</td>
<td>-55.6</td>
<td>34.8</td>
<td>44.6</td>
<td>38.4</td>
</tr>
</tbody>
</table>


</html>

"For the CPI excluding everything, inflation is zero."ĀĀ

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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Andrew Cates

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

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

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

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

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

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

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

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

Robert Brusca

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

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

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

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

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

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

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

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

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

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

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

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

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

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

Sandy Batten

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

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

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

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

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

U.S. Initial Unemployment Claims Surged in Latest Week

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

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

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

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

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

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

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

Economy in Brief

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