Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060811b.jpg" width="353">
US retail sales in July increased 1.4% from the previous month beating consensus expectations of 0.8%. Nonauto retail sales were also larger than expected, increasing 1.0% on a monthly basis. Consensus expectations for nonauto retail sales had been for a 0.5% increase in sales last month.
Leading the increase was sales by motor vehicle &amp; parts dealers which rose 3.06% in July reversing the previous month&#39;s sales decline of 2.48%.
Building material sales jumped 1.85% (10.89% y/y) after three consecutive months of decline.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060811a.jpg" width="353">
Sales at gasoline stations went up 2.55% (19.23% y/y) boosted by an increase in gasoline prices from an average of $2.89 per gallon in June to $2.98 per gallon in July.
Less gasoline, nonauto retail sales rose 1.26% from the previous month and 3.32% from a year ago.
Sales of discretionary items were also higher last month. Sales of furniture, electronics &amp; appliances increased 1.18% (8.89% y/y) after a 0.8% gain during June. General merchandise stores rose 0.3% (5.05% y/y) while apparel store sales rose 0.7% (7.6% y/y). Sales of nonstore retailers (internet &amp; catalogue) were up 2.05% (15.6% y/y).

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<th scope="col" class="firstcol">&nbsp;</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>
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</thead>
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<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>1.40%</td>
<td>-0.40%</td>
<td>4.8%</td>
<td>7.2%</td>
<td>6.2%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.98%</td>
<td>0.13%</td>
<td>9.2%</td>
<td>8.2%</td>
<td>7.2%</td>
<td>4.7%</td>
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US retail sales in July increased 1.4% from the previous month beating consensus expectations of 0.8%. Nonauto retail sales were also larger than expected, increasing 1.0% on a monthly basis. Consensus expectations for nonauto retail [...]

U.S. Retail Sales Larger than Expected

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060810e.jpg" width="353">
The U.S. federal government ran a budget deficit of $33.2 billion in July, somewhat better than consensus expectations of $44 billion. The July shortfall brought the fiscal year 2006 ten-month total deficit to $239.7 billion compared with a deficit of $302.8B for the same period in FY2005. The budget deficit for the full FY2006 was estimated last month at $295.8B by the Office of Management and Budget in its Mid-Session Review.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060810d.jpg" width="353">
Growth in FYTD 2006 net revenues versus the first ten months of FY2005 was 12.8%. Individual income tax receipts (44% of total receipts) were 14.6% higher FYTD as withheld taxes rose 9.0% and non-withheld taxes soared 21.6%. Corporate income taxes (13% of total receipts) rose a strong 26.9% and estate and gift taxes increased by 15.3%.
U.S. net outlays rose 7.8% FYTD compared with the first ten months of FY 2005. Defense spending (19% of total outlays) was up 5.8%. Medicare expenditures (12% of outlays) advanced 12.7% and social security spending (21% of outlays) rose 5.8%.

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<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">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">FY 2005</th>
<th scope="col">FY 2004</th>
<th scope="col">FY 2003</th>
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<td class="firstcol">Budget Balance</td>
<td>-$33.2B</td>
<td>$20.5B</td>
<td>-$53.4B (7/05)</td>
<td>-$318.3B</td>
<td>-$412.7B</td>
<td>-$377.6B</td>
</tr>
<tr>
<td class="firstcol">Net Revenues</td>
<td>$159.8B</td>
<td>$264.4B</td>
<td>+12.4%</td>
<td>+14.5%</td>
<td>+5.5%</td>
<td>-3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Outlays</td>
<td>$193.0B</td>
<td>$243.9B</td>
<td>-1.3%</td>
<td>+7.8%</td>
<td>+6.2%</td>
<td>+7.4%</td>
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The U.S. federal government ran a budget deficit of $33.2 billion in July, somewhat better than consensus expectations of $44 billion. The July shortfall brought the fiscal year 2006 ten-month total deficit to $239.7 billion compared [...]

July U.S. Budget Deficit Better Than Expected

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060810b.jpg" width="353">
The U.S. foreign trade deficit improved slightly in June to $64.8 billion from a revised $65.0 billion in May. Consensus expectations had been for a $65.7 billion deficit in June.
Total exports rose 2.0% in June (+14.0% y/y) after a downward revised 2.1% gain in May, while imports were 1.2% higher in June (+12.9% y/y) after an upward revised rise of 2.3% in the previous month.
The value of goods exports was $86.6 billion (+3.0% in June) with the largest increases in capital goods (+2.6%), industrial supplies and materials (+3.2%) and automotive vehicles and parts (+4.7%). June imports of goods rose 1.2% from May to $156.9 billion with gains in consumer goods (+3.4%), and in automotive vehicles and parts (+5.8%). Decreases were evident in imports of industrial supplies and materials (-1.2%) and in capital goods (-0.3%).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060810c.jpg" width="353">
While the goods deficit decreased by $0.7 billion to $70.4 billion in June, the services surplus was $0.5 billion lower than in May at $5.6 billion. Services exports for the month (mostly in travel and other private services) were down by $0.2 billion and imports of services advanced $0.3 billion (largely in royalties, license fees and passenger fares.
The U.S. trade deficit in goods with China rose to $19.7 billion in June (the third highest on record) from $17.7 billion in May. The deficit with Mexico increased $0.6 billion to surpass $6 billion for the first time.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM"> Foreign Trade&nbsp;</a></th>
<th scope="col">Jun</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">Trade Deficit</td>
<td>$64.8B</td>
<td>$65.0B</td>
<td>$58.4B (6/05)</td>
<td>$716.7B</td>
<td>$611.3B</td>
<td>$494.9B</td>
</tr>
<tr>
<td class="firstcol">Exports - Goods &amp; Services</td>
<td>+2.0%</td>
<td>+2.1%</td>
<td>+14.0%</td>
<td>10.7%</td>
<td>13.4%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports - Goods &amp; Services</td>
<td>+1.2%</td>
<td>+2.3%</td>
<td>+12.9%</td>
<td>13.0%</td>
<td>16.7%</td>
<td>8.3%</td>
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The U.S. foreign trade deficit improved slightly in June to $64.8 billion from a revised $65.0 billion in May. Consensus expectations had been for a $65.7 billion deficit in June. Total exports rose 2.0% in June (+14.0% y/y) after a [...]

U.S. Foreign Trade Deficit Improved Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060810a.jpg" width="353">
Initial unemployment insurance claims increased 7,000 to 319,000 last week versus consensus expectations of 315,000 but the prior week was revised from 315,000 to 312,000. July claims averaged 314,000 while June averaged 308,000.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims, a less volatile measure, dropped to 308,750 (-1.91% y/y).
Continuing claims for unemployment insurance rose 48,000 following a 33,000 decline the previous week which was revised from an 11,000 increase reported initially.
The insured rate of unemployment is unchanged at 1.9% where it has been since February.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">8/5/06</th>
<th scope="col">7/29/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">Initial Claims</td>
<td>319</td>
<td>312</td>
<td>1.92%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,480</td>
<td>-3.91%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
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Initial unemployment insurance claims increased 7,000 to 319,000 last week versus consensus expectations of 315,000 but the prior week was revised from 315,000 to 312,000. July claims averaged 314,000 while June averaged 308,000. [...]

U.S. Initial Jobless Claims Up Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060809a.jpg" width="353">
The job openings rate in June as reported by the Bureau of Labor Statistics in the Job Openings &amp; Labor Turnover Survey (JOLTS) was about unchanged at 2.9%. The rate for the previous month was revised down to 2.8% from 2.9% . The job openings rate is the number of job openings on the last business day of the month as a percent of total employment plus job openings.
The actual number of job openings increased 1.5% to 4.004 million from a downwardly revised 3.945 million in May.
The hires rate fell to 3.5% from 3.7% in May. The hires rate is the number of hires during the month divided by employment. The actual number of hires fell 4.0% (-1.0% y/y) to 4.758 million from May&#39;s 4.949 million.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060809b.jpg" width="353">
The job separations rate fell to 3.4% from 3.6% in May. Separations include quits, layoffs, discharges, and other separations as well as retirements. The total separations, or turnover, rate is the total number of separations during the month divided by employment. The level of job separations dropped 5.43% (-0.87% y/y) to 4.550 million.
The survey dates only to December 2000 but has since followed the movement in nonfarm payrolls.
A description of the Jolts survey and the latest release from the U.S. Department of Labor is available <a href="http://www.bls.gov/news.release/jolts.nr0.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB14/@EB14.HTM">JOLTS</a> (Job Openings &amp; Labor Turnover Survey)</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">Job Openings Rate: Total</td>
<td>2.9%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>2.7%</td>
<td>2.4%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Hires Rate: Total</td>
<td>3.5%</td>
<td>3.7%</td>
<td>3.6%</td>
<td>3.6%</td>
<td>3.5%</td>
<td>3.2%</td>
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The job openings rate in June as reported by the Bureau of Labor Statistics in the Job Openings & Labor Turnover Survey (JOLTS) was about unchanged at 2.9%. The rate for the previous month was revised down to 2.8% from 2.9% . The job [...]

JOLTS: Job Hires and Separations Down

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060808j.jpg" width="353">
Contrary to expectations, industrial production in Germany fell 0.4% to 108.2 (2000=100) in June from 108.6 in May. While there is reason to believe that high oil prices and the strength of the euro will eventually, slow world demand for German goods and hence, production, the decline in production in June has not been large enough to change the underlying positive trend. The trend in production computed and published by the German Statistical Office is shown in the first chart together with the seasonally and working day adjusted data. The trend value for June is 108.3, compared with 107.9 for May.
In the emerging countries, Hungary, Slovakia and Turkey, industrial production continues to forge ahead. Production in Slovakia was up 0.21% in June from May, in Hungary, 1.78% and in Turkey, 2.20%. In all three countries, industrial production in June averaged 10-12% above June, 2005 in contrast with Germany&#39;s whose year over year growth in production was 4.5%. The contrast between the growth in industrial production in Turkey and in Germany is shown in the second chart and the similarity between the growth in production in Slovakia and Hungary is shown in the third chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060808f.jpg" width="353">
Indexes only tell us how a particular level of a series varies from a base value. Thus, the 108.2 of industrial production in Germany in June only tells us that production is 8.2% above whatever the average level of production in 2000 was. If we want absolute values that are comparable, we have to look elsewhere. To compare the sizes of these four countries we have chosen to use the GDP expressed in constant prices and constant exchange rates.. For the three emerging countries this value is listed in the National Account Section of each country in terms of 1995 prices and 1995 exchange rate. In the case of Germany, this value is given in the G10 Data Base and is in terms of 2000 prices and exchange rate.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060808g.jpg" width="353">
In 2005, the dollar value at constant exchange rates of real GDP in Germany was $1,972 billion; for Turkey, $259 billion; Hungary, $67 billion; and Slovakia, $26 billion. In 2000, the comparable dollar values were $1,904 billion for Germany; Turkey, $210 billion; Hungary, $55 billion; and Slovakia, $20 billion. The percentage changes between 2000 and 2005 were 3.6% for Germany, 23.5% for Turkey, 22.7% for Hungary and 23.2% for Slovakia. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol">Industrial Production (2000=100)</th>
<th scope="col">Jun&nbsp; 06</th>
<th scope="col">May 06</th>
<th scope="col">Jun 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany&nbsp;</td>
<td>108.2</td>
<td>108.6</td>
<td>103.5</td>
<td>-0.37</td>
<td>4.54</td>
<td>103.7</td>
<td>100.8</td>
<td>98.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Trend</td>
<td>108.3</td>
<td>107.9</td>
<td>102.3</td>
<td>0.37</td>
<td>4.84</td>
<td>103.6</td>
<td>100.9</td>
<td>98.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Slovakia</td>
<td>142.6</td>
<td>142.3</td>
<td>127.4</td>
<td>0.21</td>
<td>11.93</td>
<td>129.1</td>
<td>124.6</td>
<td>119.6</td>
</tr>
<tr>
<td class="firstcol">Hungary</td>
<td>143.1</td>
<td>140.6</td>
<td>129.5</td>
<td>1.78</td>
<td>10.50</td>
<td>129.9</td>
<td>120.9</td>
<td>113.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Turkey *</td>
<td>139.1</td>
<td>136.1</td>
<td>125.0</td>
<td>2.20</td>
<td>11.29</td>
<td>125.7</td>
<td>119.3</td>
<td>108.7</td>
</tr>
</tbody>
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Contrary to expectations, industrial production in Germany fell 0.4% to 108.2 (2000=100) in June from 108.6 in May. While there is reason to believe that high oil prices and the strength of the euro will eventually, slow world demand [...]

Industrial Production Falters in Germany: Forges Ahead in Turkey, Hungary and Slovakia

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060808i.jpg" width="353">
The Federal Open Market Committee held steady the target interest rate for Federal funds at 5.25% at today&#39;s meeting. Voting against the decision, after seventeen 25 basis point increases since June 2004, was Jeffrey M. Lacker who preferred an increase of 25 basis points in the federal funds rate target.
The discount rate also held steady at 6.25%.
Today&#39;s decision was widely expected by analysts.
The Fed&#39;s rationale for leaving rates unchanged was that &quot;Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060808h.jpg" width="353">
Moreover, &quot;... inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.&quot;
For the complete text of the Fed&#39;s latest press release please follow this <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2006/20060808/default.htm">link</a>.
The accompanying chart plots the U.S. economy&#39;s actual rate of growth versus its so called &quot;potential&quot;, i.e., growth in the labor force plus the growth in labor&#39;s productivity. The figures are updated for this morning&#39;s downward revisions to recent productivity and indicate that GDP growth of 3.5% trailed its potential of 4.0%.
The Taylor Rule: A Guidepost for Monetary Policy? from the Federal Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/Research/Com2003/0703.pdf">here</a>.
Monetary Policy in a Global Environment from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-12-13.html">here</a>.

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The Federal Open Market Committee held steady the target interest rate for Federal funds at 5.25% at today's meeting. Voting against the decision, after seventeen 25 basis point increases since June 2004, was Jeffrey M. Lacker who [...]

Federal Funds Rate Steady at 5.25%

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<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060808e.jpg" width="353">
Weekly chain store sales slipped 0.2% last week after two weeks of moderate increase, according to the International Council of Shopping Centers (ICSC)-UBS survey.
Sales in early August started the month 0.4% above the July average which fell 0.6% from June.
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 fell another 0.4% (-2.2% y/y) in the latest week. It was the third decline in the last four weeks.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060808d.jpg" width="353">
Retail gasoline prices opened the month with a three cent rise to $3.04 (28.3% y/y) for regular unleaded gas compared to a July average of $2.98. In spot market trading yesterday, gasoline prices fell moderately but the shutdown of supplies from Prudhoe Bay lifted Alaskan North Slope prices $2.22 to $75.68 per barrel (22.4% y/y).
The new 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">08/05/06</th>
<th scope="col">07/29/06</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>470.2</td>
<td>471.2</td>
<td>2.5%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


</html>

Weekly chain store sales slipped 0.2% last week after two weeks of moderate increase, according to the International Council of Shopping Centers (ICSC)-UBS survey. Sales in early August started the month 0.4% above the July average [...]

Weekly Chain Store Sales Slipped As Gasoline Prices Rose

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

Our global data offering is unparalleled in terms of coverage, quality, and organization. We offer 290+ databases from 2500 government and private sources, a wealth of key survey and forecast data covering the world’s economies, and a robust offering of archive databases that drive machine learning for big data applications.

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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

260206E.jpg

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

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

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

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

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

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

260206.jpg

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

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

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

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

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

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

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

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

Sandy Batten

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

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

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

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

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

U.S. Initial Unemployment Claims Surged in Latest Week

260205E.jpg

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.