Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727d.jpg" width="353">
Sales of new single family home sales fell 3.0% during June to 1.131M (SAAR) and the prior month&#39;s increase was revised down sharply to just 0.5%. Consensus expectations had been for June sales of 1.17M.
New home sales during the first six months of this year fell 10.9% from the first six months of 2005 and during June were 17.3% below the monthly peak last July.
Sales in the Northeast were the weakest last month showing an 11.3% (-33.7% y/y) decline. Sales in the Midwest also fell, by 7.9% (-24.5% y/y) and sales in the South declined 6.0% (-5.2% y/y). Sales out West posted the only regional gain with an 8.2% increase but nevertheless were off 7.0% y/y.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727e.jpg" width="353">
The number of new homes for sale advanced 0.7% m/m in June and rose 24.4% y/y. The year to year breakdown by region is as follows: Northeast, 42.1%; West, 28.7%; South, 32.6%; Midwest, -1.9%.
The median sales price of a new single family home fell for the third month in the last four. The 1.6% decline to $231,300 followed a 7.4% drop during May.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E904.HTM">U.S. New Homes</a></th>
<th scope="col">June</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>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Sales (AR, 000&#39;s)</td>
<td>1,131</td>
<td>1,166</td>
<td>-11.1%</td>
<td>1,280</td>
<td>1,201</td>
<td>1,091</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA)</td>
<td>$231,300</td>
<td>$235,000</td>
<td>2.3%</td>
<td>$234,208</td>
<td>$217,817</td>
<td>$191,383</td>
</tr>
</tbody>
</table>
U.S. Durable Goods Orders Surged 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 27, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727b.jpg" width="353">
New orders for durable goods surged 3.1% in June after an upwardly revised 0.3% increase during the prior month. Consensus expectations had been for a somewhat lesser 2.0% jump.
An 8.8% rise in orders for nondefense aircraft &amp; parts recovered not quite half of the 19.2% drop during May. Orders for defense aircraft jumped 12.9% (25.4% y/y).
Less the transportation sector altogether durable goods orders rose a firm 1.0%.
During the last ten years there has been a 69% correlation between the y/y change in durable goods orders and the change in output of durable goods.
Orders for nondefense capital goods recovered nearly all of the prior month&#39;s decline with a 1.3% gain. Less aircraft, orders rose a more moderate 0.4% during June but the prior month&#39;s increase was upwardly revised to 1.3%. During the last ten years there has been an 86% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment &amp; software from the GDP accounts.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727c.jpg" width="353">
Higher orders for computers &amp; electronic products led last month&#39;s strength with a 3.4% (0.8% y/y) spurt though computer orders alone rose just 1.5% (-2.3% y/y) after a downwardly revised 3.0% slip during May. Machinery orders slipped 0.3% (+10.5% y/y) after an upwardly revised 4.3% May increase. Orders for electrical equipment &amp; appliances fell 1.0% (+15.0% y/y) but the prior month was very much upwardly revised to show a 2.7% increase.
Shipments of durable goods ticked up 0.1% (8.4% y/y) after an upwardly revised 3.0% May jump. Shipments less the transportation sector rose 0.4% (9.9% y/y) but the May jump was revised up to 2.1%. During the last ten years there has been an 82% correlation between the y/y change in durable goods shipments and the change in industrial production of durable goods.
Order backlogs gained 1.7% (19.4% y/y) again reflecting the strength in nondefense aircraft &amp; parts (53.7% y/y). Unfilled orders less transportation gained another 1.3% (14.1% y/y).
Durable inventories rose 0.6% (4.9% y/y) after an upwardly revised 0.7% May rise. Less transportation inventories also rose 0.6% (5.4% y/y). The inventory to sales ratio outside of the transportation sector rose slightly.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">June</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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>3.1%</td>
<td>0.3%</td>
<td>5.8%</td>
<td>9.0%</td>
<td>6.4%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>1.0%</td>
<td>1.5%</td>
<td>9.1%</td>
<td>9.4%</td>
<td>7.6%</td>
<td>-1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>1.3%</td>
<td>-1.9%</td>
<td>3.5%</td>
<td>21.4%</td>
<td>5.6%</td>
<td>-3.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>0.4%</td>
<td>1.3%</td>
<td>7.7%</td>
<td>12.3%</td>
<td>2.8%</td>
<td>-2.0%</td>
</tr>
</tbody>
</table>
Initial Jobless Insurance Claims Fell Further 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 27, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727a.jpg" width="353">
A 7,000 worker decline last week in initial claims for unemployment insurance to 298,000 followed a little revised 129,000 slide during the prior period and pulled claims to the lowest level in six weeks. Consensus expectations had been for 310,000 claims.
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 fell to 312,750 (-2.7% y/y).
Continuing claims for unemployment insurance fell 23,000 after a little revised 78,000 jump the prior week.
The insured rate of unemployment held steady at 1.9% where it has been since February.
The latest Beige Book from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/FOMC/BeigeBook/2006/20060726/default.htm">here</a>.

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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">07/22/06</th>
<th scope="col">07/15/06</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>298</td>
<td>305</td>
<td>-4.8%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,475</td>
<td>-5.2%</td>
<td>2,663</td>
<td>2,923</td>
<td>3,530</td>
</tr>
</tbody>
</table>
Help-Wanted Advertising Remained Low 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 27, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727f.jpg" width="353">
The Conference Board&#39;s Index of Help-Wanted Advertising remained at its forty five year low of 33 in June.
During the last ten years there has been a 57% correlation between the level of help-wanted advertising and the three month change in non-farm payrolls.
The proportion of labor markets with rising want-ad volume improved to 49% from the low 27% in May and an average 48% last year.
The Conference Board surveys help-wanted advertising volume in 51 major newspapers across the country every month.
The latest help wanted report from the Conference Board is available <a href="http://www.conference-board.org/economics/helpwanted.cfm">here</a>.
Should the Decline in the Personal Saving Rate Be a Cause for Concern? from the federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/2Q06garn.pdf"> here</a>. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CBDB/@C3/@C3.HTM">Conference Board</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;05</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">National Help Wanted Index</td>
<td>33</td>
<td>33</td>
<td>39</td>
</tr>
</tbody>
</table>
Low Unemployment in Nordic Countries 
by <a href="/comment/Stone.html">Carol Stone</a> July 27, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727g.jpg" width="353">
Unemployment is falling in Europe. With the notable exception of the UK, unemployment rates are moving lower in most European countries. In May, the rates in Germany and France were both at their lowest since late 2002. Today, the three Scandinavian countries reported their latest rates. Denmark&#39;s labor force survey set records. In the 18-1/2 years of the Danish data, June saw the smallest number unemployed, 123,100, and the lowest unemployment rate, 4.5%, which was first reached in May. The number unemployed is down 23.7% from a year ago, before seasonal adjustment. (The other monthly figures are seasonally adjusted by Denmarks Statistiks.)<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727h.jpg" width="353">
In Norway, the government&#39;s public employment service tallies its number of &quot;registered&quot; unemployed. These data are not seasonally adjusted, so they show a monthly increase for July. But the year-to-year comparisons are impressively favorable: the number unemployed is down more than 20,000 to 67,800 and the unemployment rate reached 2.8% from 3.7% in July 2005; this is the lowest July figure since 2001.
Sweden&#39;s data are a bit muddled, but they still show improvement. Statistics Sweden switched to the EU Harmonized structure of labor force data in April 2005, so data prior to that are not totally comparable with current results. Indeed, the graph shows a change in the pattern of the monthly evolution beginning at that time. However, we can still make a valid year-on-year comparison for June, and we see that the rate then was 6.5%, down from 7.0% in June 2005; the number unemployed is off 10.2%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727i.jpg" width="353">
A similar story can be told for Finland, which published its June data on Tuesday. The current unemployment rate is 8.1%, the lowest rate for June since 1991.
In all these countries, these rates are falling because employment is rising. The release of data for employment lags or is compiled only quarterly, so comparisons aren&#39;t so clear, but what is clear is that through the latest available data, however counted, the number of jobs is increasing faster than the number of people seeking work. As we point out often to highlight the important distinction, unemployment can fall if jobs are tight and people give up seeking work altogether. But this is not the case now: jobs are up and joblessness is down.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/G10/@GZ/@GZ6/@GZ601/@GZ601.HTM">Thous.</a></th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">Apr 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Denmark LFS*, Seas Adj</td>
<td>--</td>
<td>123.1</td>
<td>124.9</td>
<td>133.0</td>
<td>161.2</td>
<td>153.4</td>
<td>172.9</td>
<td>167.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>--</td>
<td>4.5</td>
<td>4.5</td>
<td>4.8</td>
<td>5.8</td>
<td>5.6</td>
<td>6.3</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Norway Reg.*, NSA</td>
<td>67.8</td>
<td>62.3</td>
<td>60.6</td>
<td>66.6</td>
<td>89.3</td>
<td>76.2</td>
<td>84.9</td>
<td>91.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>2.8</td>
<td>2.6</td>
<td>2.5</td>
<td>2.8</td>
<td>3.7</td>
<td>3.0</td>
<td>3.6</td>
<td>3.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Sweden LFS*, NSA</td>
<td>--</td>
<td>297.6</td>
<td>216.8</td>
<td>247.5</td>
<td>331.4</td>
<td>263.1</td>
<td>246.1</td>
<td>217.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>--</td>
<td>6.5</td>
<td>4.8</td>
<td>5.1</td>
<td>7.0</td>
<td>5.7</td>
<td>5.5</td>
<td>4.9</td>
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Sales of new single family home sales fell 3.0% during June to 1.131M (SAAR) and the prior month's increase was revised down sharply to just 0.5%. Consensus expectations had been for June sales of 1.17M. New home sales during the [...]

New Home Sales & Prices Fell

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726e.jpg" width="353">
Yesterday, Louise Curley wrote about improving business confidence in three European nations, France, Italy and the Netherlands. In the UK the situation is somewhat ambiguous, according to the July survey of the Confederation of British Industries (CBI). The key monthly series, the total order book in volume terms, improved modestly, as it moved to -11 for July from -12 in June and May. At the same time these are obviously still negative, but they are all better readings than prevailed during much of 2005, which averaged -20. Export orders faltered this month. They reached 0 in May, the first non-negative reading since February 1996, but have drifted off in the two succeeding months to -6 for July. This appears to reverse the situation that had seemed to be in place in which domestic demand was fading while the export sector improved.
The CBI also published their quarterly data, which query companies&#39; general sentiment and strategic plans. The measure on overall business sentiment deteriorated to -6 for Q3 from -2 in Q2. Even so, conditions are viewed less negatively than most of the time over the last five years. Sentiment about exports actually turned positive during last quarter and this, suggesting the downturn in orders reported above may be temporary.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726f.jpg" width="353">
Another favorable turn comes in the area of plant capacity. The proportion of companies that believe their capacity is adequate for their production plans in the coming year fell to 83%, the lowest reading since Q4 1997. In the interim, this share has run as high as 94% and that as recently as Q3 2003. When that many companies believe they have enough capacity, it&#39;s hard to anticipate there would be much capital expenditure. Now, as the adequacy ratio has fallen, the outlook for plant and equipment outlays has improved to a -9% balance in Q2 and -10% in Q3 from -23% back in 2003 when the adequacy ratio was near its recent peak. (The all-time high adequacy ratio was 99% during the 1980 recession.)<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726g.jpg" width="353">
Thus, British industry managers see their outlook in fairly murky terms. Orders are improved but still falling. Export markets look stronger, but then they fade. Capital spending plans look better, but they are still declining at more companies than rising. In the Q2 GDP report last week, we saw the manufacturing sector with its first year-on-year increase since late 2004. But there are still numerous questions about demand prospects, energy prices and other uncertainties to presume this outcome will improve further or even be sustained. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U9/@U9.HTM">UK: % Balance</a></th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">Year Ago</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">CBI Total Orders</td>
<td>-11</td>
<td>-12</td>
<td>-12</td>
<td>-20</td>
<td>-21</td>
<td>-9</td>
<td>-29</td>
</tr>
<tr>
<td class="firstcol">Export Orders</td>
<td>-6</td>
<td>-3</td>
<td>0</td>
<td>-17</td>
<td>-20</td>
<td>-13</td>
<td>-33</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Q3 2006</td>
<td>Q2 2006</td>
<td>Q1 2006</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Overall Business Optimism</td>
<td>-6</td>
<td>-2</td>
<td>-14</td>
<td>-16</td>
<td>-19</td>
<td>7</td>
<td>-17</td>
</tr>
<tr class="odd">
<td class="firstcol">Optimism re Exports</td>
<td>5</td>
<td>3</td>
<td>-5</td>
<td>-8</td>
<td>-6</td>
<td>7</td>
<td>-15</td>
</tr>
<tr>
<td class="firstcol">Adequate Capacity</td>
<td>83</td>
<td>86</td>
<td>90</td>
<td>88</td>
<td>90</td>
<td>89</td>
<td>93</td>
</tr>
<tr class="odd">
<td class="firstcol">Plant &amp; Machinery Expenditures next 12 months</td>
<td>-10</td>
<td>-9</td>
<td>-14</td>
<td>-15</td>
<td>-17</td>
<td>-3</td>
<td>-21</td>
</tr>
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Yesterday, Louise Curley wrote about improving business confidence in three European nations, France, Italy and the Netherlands. In the UK the situation is somewhat ambiguous, according to the July survey of the Confederation of [...]

UK CBI Industrial Trends Survey Yields Mixed Picture

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726c.jpg" width="353">
The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago rose to the highest level (0.34) since March. The gain, nevertheless, failed to prevent the 2Q average from falling to 0.11 from 0.24 in 1Q.
The three-month moving average of the CFNAI remained stable with May at that 0.11 level which is the lowest since October.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726d.jpg" width="353">
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_July2006.pdf">here</a>.
The Federal Reserve Bank of Richmond reported that its July Composite Index from the manufacturing survey rose to the highest level (12) since April. 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 July 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, deteriorated in July. The percentage of firms reporting increasing revenues was negative (-3) for the first month in nearly two years. The latest report is available <a href="http://www.richmondfed.org/research/regional_conditions/service_sector/index.cfm"> here</a>.
Economy on cruise control through 2007 from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/fedletter/cflaugust2006_229a.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></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">CFNAI</td>
<td>0.34</td>
<td>-0.14</td>
<td>0.36</td>
<td>0.20</td>
<td>0.37</td>
<td>-0.11</td>
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The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago rose to the highest level (0.34) since March. The gain, nevertheless, failed to prevent the 2Q average from falling to 0.11 from 0.24 in 1Q. The three-month [...]

Chicago Fed Nat'l Activity & Richmond Fed Factory Indexes Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726b.jpg" width="353">
The total number of mortgage applications fell another 1.3% last week and pulled applications so far in July down 1.0% from the prior month&#39;s average. Applications in June fell 1.5% from May.
Purchase applications added 2.4% to the prior week&#39;s 6.2% steep decline. Therefore, in July the average number of applications are 0.3% below June which fell 0.8% from May.
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.
Applications to refinance recovered 0.6% of the 1.6% declines during the prior two weeks. The small increase left the July average 2.3% below the prior month and refis during all of June fell 3.1% from the May average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726a.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage fell five basis points w/w to 6.91%. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also fell six basis points to 6.57% 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>.

<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">07/21/06</th>
<th scope="col">07/14/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>533.8</td>
<td>540.8</td>
<td>-29.2%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>389.0</td>
<td>398.5</td>
<td>-19.8%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,385.2</td>
<td>1,377.6</td>
<td>-40.3%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
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The total number of mortgage applications fell another 1.3% last week and pulled applications so far in July down 1.0% from the prior month's average. Applications in June fell 1.5% from May. Purchase applications added 2.4% to the [...]

Mortgage Applications Wilt Under Summer Heat

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726b.jpg" width="353">
The total number of mortgage applications fell another 1.3% last week and pulled applications so far in July down 1.0% from the prior month&#39;s average. Applications in June fell 1.5% from May.
Purchase applications added 2.4% to the prior week&#39;s 6.2% steep decline. Therefore, in July the average number of applications are 0.3% below June which fell 0.8% from May.
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.
Applications to refinance recovered 0.6% of the 1.6% declines during the prior two weeks. The small increase left the July average 2.3% below the prior month and refis during all of June fell 3.1% from the May average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726a.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage fell five basis points w/w to 6.91%. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also fell six basis points to 6.57% 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>.

<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">07/21/06</th>
<th scope="col">07/14/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>533.8</td>
<td>540.8</td>
<td>-29.2%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>389.0</td>
<td>398.5</td>
<td>-19.8%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,385.2</td>
<td>1,377.6</td>
<td>-40.3%</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 Factory Indexes Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 26, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726c.jpg" width="353">
The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago rose to the highest level (0.34) since March. The gain, nevertheless, failed to prevent the 2Q average from falling to 0.11 from 0.24 in 1Q.
The three-month moving average of the CFNAI remained stable with May at that 0.11 level which is the lowest since October.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726d.jpg" width="353">
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_July2006.pdf">here</a>.
The Federal Reserve Bank of Richmond reported that its July Composite Index from the manufacturing survey rose to the highest level (12) since April. 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 July 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, deteriorated in July. The percentage of firms reporting increasing revenues was negative (-3) for the first month in nearly two years. The latest report is available <a href="http://www.richmondfed.org/research/regional_conditions/service_sector/index.cfm"> here</a>.
Economy on cruise control through 2007 from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/fedletter/cflaugust2006_229a.pdf"> 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/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></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>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>0.34</td>
<td>-0.14</td>
<td>0.36</td>
<td>0.20</td>
<td>0.37</td>
<td>-0.11</td>
</tr>
</tbody>
</table>
UK CBI Industrial Trends Survey Yields Mixed Picture 
by <a href="/comment/Stone.html">Carol Stone</a> July 26, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726e.jpg" width="353">
Yesterday, Louise Curley wrote about improving business confidence in three European nations, France, Italy and the Netherlands. In the UK the situation is somewhat ambiguous, according to the July survey of the Confederation of British Industries (CBI). The key monthly series, the total order book in volume terms, improved modestly, as it moved to -11 for July from -12 in June and May. At the same time these are obviously still negative, but they are all better readings than prevailed during much of 2005, which averaged -20. Export orders faltered this month. They reached 0 in May, the first non-negative reading since February 1996, but have drifted off in the two succeeding months to -6 for July. This appears to reverse the situation that had seemed to be in place in which domestic demand was fading while the export sector improved.
The CBI also published their quarterly data, which query companies&#39; general sentiment and strategic plans. The measure on overall business sentiment deteriorated to -6 for Q3 from -2 in Q2. Even so, conditions are viewed less negatively than most of the time over the last five years. Sentiment about exports actually turned positive during last quarter and this, suggesting the downturn in orders reported above may be temporary.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726f.jpg" width="353">
Another favorable turn comes in the area of plant capacity. The proportion of companies that believe their capacity is adequate for their production plans in the coming year fell to 83%, the lowest reading since Q4 1997. In the interim, this share has run as high as 94% and that as recently as Q3 2003. When that many companies believe they have enough capacity, it&#39;s hard to anticipate there would be much capital expenditure. Now, as the adequacy ratio has fallen, the outlook for plant and equipment outlays has improved to a -9% balance in Q2 and -10% in Q3 from -23% back in 2003 when the adequacy ratio was near its recent peak. (The all-time high adequacy ratio was 99% during the 1980 recession.)<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726g.jpg" width="353">
Thus, British industry managers see their outlook in fairly murky terms. Orders are improved but still falling. Export markets look stronger, but then they fade. Capital spending plans look better, but they are still declining at more companies than rising. In the Q2 GDP report last week, we saw the manufacturing sector with its first year-on-year increase since late 2004. But there are still numerous questions about demand prospects, energy prices and other uncertainties to presume this outcome will improve further or even be sustained. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U9/@U9.HTM">UK: % Balance</a></th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">Year Ago</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">CBI Total Orders</td>
<td>-11</td>
<td>-12</td>
<td>-12</td>
<td>-20</td>
<td>-21</td>
<td>-9</td>
<td>-29</td>
</tr>
<tr>
<td class="firstcol">Export Orders</td>
<td>-6</td>
<td>-3</td>
<td>0</td>
<td>-17</td>
<td>-20</td>
<td>-13</td>
<td>-33</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Q3 2006</td>
<td>Q2 2006</td>
<td>Q1 2006</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Overall Business Optimism</td>
<td>-6</td>
<td>-2</td>
<td>-14</td>
<td>-16</td>
<td>-19</td>
<td>7</td>
<td>-17</td>
</tr>
<tr class="odd">
<td class="firstcol">Optimism re Exports</td>
<td>5</td>
<td>3</td>
<td>-5</td>
<td>-8</td>
<td>-6</td>
<td>7</td>
<td>-15</td>
</tr>
<tr>
<td class="firstcol">Adequate Capacity</td>
<td>83</td>
<td>86</td>
<td>90</td>
<td>88</td>
<td>90</td>
<td>89</td>
<td>93</td>
</tr>
<tr class="odd">
<td class="firstcol">Plant &amp; Machinery Expenditures next 12 months</td>
<td>-10</td>
<td>-9</td>
<td>-14</td>
<td>-15</td>
<td>-17</td>
<td>-3</td>
<td>-21</td>
</tr>
</tbody>
</table>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060725a.jpg" width="353">
Italy and the Netherlands reported today on surveys of business and consumer confidence and France reported on business confidence. Despite slight dips in consumer confidence in the Netherlands and in business confidence in Italy, confidence measures in these three countries show improving trends
Consumers are still not very confident. In the Netherlands, the balance of optimists over pessimists dropped from 5% in June to 2% in July. What improvement that has taken place in the Netherlands has been due largely to a decline in the number of pessimists rather than an increase in optimists. In July 2005, the balance was -23%. Although there was an improvement in consumer confidence in Italy in July as the index of consumer confidence rose 1.7% from 89.5 (2000=100) in June to 91.0 in July, confidence continues well below the levels of 2000. (We have used the index function in the advanced functions to change the reported index base of 1980 to 2000) The first chart shows consumer confidence in Italy and the Netherlands.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060725b.jpg" width="353">
Business confidence, in contrast to that of consumers, has improved significantly over the past year. Although confidence in Italy dropped 1.6% in July from June, it was 11.5% above July, 2005. In the Netherlands, business confidence increased by 2.8 percentage points in July to 9.2% from 6.4% in June and was 12.9 percentage points above July, 2005. This is the highest percent balance on record and is above the recent peak of 8.2% in October, 2000. Measures of business confidence in Italy and the Netherlands are shown in the second chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060725c.jpg" width="353">
Business confidence also rose in France in July to 109 from 107 in June and from 101 in July, 2005. The French measure of business confidence is a composite of the balance of opinions on the following issues: production over the past three months, forecasts of production over the next three months, inventories, total order books, foreign order books and selling price expectations over the next three months. The indicator is constructed such that it has an average of 100 and a standard deviation of 10.
In addition to the business climate indicator INSEE (Institut Nationale de las Stastiques et des Etudes Economiques) also computes a qualitative indicator--Business Cycle Turning Point--that attempts to detect as soon as possible a turning point in the business cycle. The series tracks the difference between the probability that the economy is growing versus the probability that it is contracting. It is evaluated between -1 and +1. A value close to -1 suggests that the economy is contracting significantly; a value close to +1 suggests that the economy is expanding rapidly. A value close to 0 suggests that the economy is operating close to its long term growth rate. In July this indicator had a high value of .68, up from .36 in June and .17 in July, 2005. The Business Cycle Turning Point indicator and the Business Climate indicator are shown in the third 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/G10/@GZ/@GZ8/@GZ8.HTM">Measures of Confidence</a></th>
<th scope="col">Jul&nbsp; 06</th>
<th scope="col">Jun 06</th>
<th scope="col">Jul 05</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">The Netherlands&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer % Balance</td>
<td>2</td>
<td>5</td>
<td>-23</td>
<td>-3</td>
<td>25</td>
<td>-22</td>
<td>-25</td>
<td>-35</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Business % Balance</td>
<td>9.2</td>
<td>6.4</td>
<td>-3.7</td>
<td>2.8</td>
<td>12.9</td>
<td>0.6</td>
<td>-0.1</td>
<td>-5.6</td>
</tr>
<tr>
<td class="firstcol">Italy&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer (2000=100)</td>
<td>91.0</td>
<td>89.5</td>
<td>84.7</td>
<td>1.7*</td>
<td>7.52*</td>
<td>87.3</td>
<td>85.0</td>
<td>88.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business&nbsp; (2000=100)</td>
<td>96.7</td>
<td>98.3</td>
<td>86.7</td>
<td>-1.6*</td>
<td>11.5*</td>
<td>87.5</td>
<td>89.5</td>
<td>88.0</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Climate Indicator&nbsp;</td>
<td>109</td>
<td>107</td>
<td>101</td>
<td>2</td>
<td>8</td>
<td>101</td>
<td>104</td>
<td>95</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Business Cycle Turning Point&nbsp;</td>
<td>0.68</td>
<td>0.36</td>
<td>0.17</td>
<td>0.32</td>
<td>0.51</td>
<td>-0.02</td>
<td>0.36</td>
<td>-0.15</td>
</tr>
</tbody>
</table>
</body>
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Italy and the Netherlands reported today on surveys of business and consumer confidence and France reported on business confidence. Despite slight dips in consumer confidence in the Netherlands and in business confidence in Italy, [...]

Consumer and Business Confidence Measures in France, Italy and the Netherlands

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060725e.jpg" width="353">
Weekly chain store sales edged up 0.2% last week but the rise failed to recover the prior week&#39;s 0.6% decline, according to the International Council of Shopping Centers (ICSC)-UBS survey. 
Together with a similar 0.2% up tick in weekly sales early in the month, these modest increases did not recoup larger w/w declines at the end of June and in mid-July. As a result, sales this month are running 0.7% below the June average. 
Both the June &amp; May average sales levels fell 0.4% from the prior 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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060725d.jpg" width="353">
The leading indicator of chain store sales from ICSC-UBS fell another 0.2% (-2.2% y/y) in the latest week, the fourth decline in the last five periods.
The weakness in sales undoubtedly is related to continued gains in gasoline prices. During the third week of July the average retail price for regular gas settled at $3.00 per gallon (31.2% y/y) and prices so far in July have averaged $2.98.
A continued gain yesterday in the spot market price of gasoline to $2.89 per gallon (45.3% y/y) portends further gains in retail gas prices. 

<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">07/22/06</th>
<th scope="col">07/15/06</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>467.1</td>
<td>466.2</td>
<td>1.9%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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Weekly chain store sales edged up 0.2% last week but the rise failed to recover the prior week's 0.6% decline, according to the International Council of Shopping Centers (ICSC)-UBS survey. Together with a similar 0.2% up tick in [...]

Modest Gains in Weekly Chain Store Sales Leave Month Short

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060725f.jpg" width="353">
 Total existing home sales fell 1.3% during June to 6.620M. The decline, however, was slightly less than Consensus expectations for a fall in sales to 6.60M. In addition, it followed a 0.6% May drop that was shallower than originally reported by the National Association of Realtors.
Support for home sales may have derived from an easing in home price inflation. The median price of an existing single-family home did rise 1.3% m/m but the y/y gain fell to 1.1% from a 12.8% annual increase last year. The price figures are not seasonally adjusted.
Sales of single-family homes fell 0.9%, the fifth m/m decline this year. Versus the first six months of 2005 sales this year are down 4.3%
The data cover sales closed in the latest and previous months and contrast to the new home sales (up in May) data which count sales at the signing of a contract.
Sales in the Northeast rose 1,2% m/m (-5.7% y/y) and in the Midwest sales were unchanged (-6.3% y/y). In the South sales fell 2.9% (-4.9% y/y) and in the West (-14.1% y/y) sales rose 0.8% (-16.2% y/y).
The inventory of unsold existing homes surged another 3.8% (39.1% y/y). The supply of unsold single family homes rose 4.9% (35.7% y/y) though the supply of condos &amp; coops for sale fell slightly m/m (+63.1% 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>.
Texas Housing: A Boom With No Bubble? from the Federal Reserve Bank of Dallas is available <a href="http://dallasfed.org/research/swe/2006/swe0603b.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">June</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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Home Sales</td>
<td>&nbsp;6,620</td>
<td>6,710</td>
<td>-8.9%</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>5,810</td>
<td>5,860</td>
<td>-8.2%</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>$231.5 </td>
<td>$228.5 </td>
<td>1.1% </td>
<td>$206.3</td>
<td>$182.8 </td>
<td>$169.1 </td>
</tr>
</tbody>
</table>


</html>

Total existing home sales fell 1.3% during June to 6.620M. The decline, however, was slightly less than Consensus expectations for a fall in sales to 6.60M. In addition, it followed a 0.6% May drop that was shallower than originally [...]

Price Concessions Support U.S. Existing Home Sales

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

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.

Economy in Brief

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New Home Sales & Prices Fell

UK CBI Industrial Trends Survey Yields Mixed Picture

Chicago Fed Nat'l Activity & Richmond Fed Factory Indexes Up

Mortgage Applications Wilt Under Summer Heat

Mortgage Applications Wilt Under Summer Heat

Consumer and Business Confidence Measures in France, Italy and the Netherlands

Modest Gains in Weekly Chain Store Sales Leave Month Short

Price Concessions Support U.S. Existing Home Sales