Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030212a.jpg" width="353">
The index of mortgage applications, compiled by the Mortgage Bankers Association, fell last week for the fourth week in the last five. Nevertheless, applications remained up 22.9% so far this year versus December and were up 86.2% y/y.
Mortgage applications to refinance fell for the fourth week in five but remained up 33.9% so far in 2003 versus December. Applications to refinance were well more than double last year&#39;s level.
Mortgage applications for home purchase also fell but much harder than did applications to refinance. So far this year, purchase applications were barely higher than December (+0.4%) and were up 4.5% y/y.
Interest rates on conventional 30 Year mortgages fell to 5.68%.

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<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">2/07/03</th>
<th scope="col">1/31/03</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Total Market Index</td>
<td>1,083.1</td>
<td>1,141.4</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
</tr>
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<td class="firstcol">&nbsp; Purchase</td>
<td>328.8</td>
<td>371.1</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
</tr>
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<td class="firstcol">&nbsp; Refinancing</td>
<td>5,470.3</td>
<td>5,621.6</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
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OECD Leaders Up Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 12, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030212b.jpg" width="353">
The OECD Index of Leading Indicators rose in December for the third consecutive month. Leaders in the Major Seven countries rose but gains were largely limited to the US.
Leading indicators in the European Union have barely budged since the Summer. Japan leaders did manage modest gains in October and November. However, through December Japan&#39;s leaders rose just 1.6% y/y and not at all since April.
Despite these scattered signs of improvement, economic slack remains great in the Major Seven OECD countries. Industrial production in the Big Seven was roughly 7.5% below trend as of December. The shortfall in the EU was 4.7% but production in the US was 11.9% below trend.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/OECDMEI/OECDMEI.HTM">OECD Main Economic Indicators</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">OECD Total - Leading Index (Trend Restored)</td>
<td>121.3</td>
<td>120.6</td>
<td>4.0%</td>
<td>4.1%</td>
<td>-2.1%</td>
<td>3.7%</td>
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<tr>
<td class="firstcol">&nbsp;</td>
<td>3Q02</td>
<td>2Q02</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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<td class="firstcol">OECD Total - GDP (Mil. 95 US$, SAAR)</td>
<td>3.1%</td>
<td>2.2%</td>
<td>2.4%</td>
<td>n.a.</td>
<td>0.8%</td>
<td>3.8%</td>
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<td class="firstcol">Major Seven - GDP (Mil. 95 US$, SAAR)</td>
<td>3.1%</td>
<td>1.8%</td>
<td>2.2%</td>
<td>n.a.</td>
<td>0.7%</td>
<td>3.4%</td>
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<td class="firstcol">European Union - GDP (Mil. 95 US$, SAAR)</td>
<td>1.7%</td>
<td>1.7%</td>
<td>1.1%</td>
<td>n.a.</td>
<td>1.6%</td>
<td>3.6%</td>
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<td class="firstcol">&nbsp; Germany - GDP (Bil. 95 Euros, SAAR)</td>
<td>1.1%</td>
<td>0.6%</td>
<td>0.4%</td>
<td>n.a.</td>
<td>0.7%</td>
<td>3.1%</td>
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<td class="firstcol">&nbsp; United Kingdom - GDP (Mil. 95 Pounds, SAAR)</td>
<td>3.8%</td>
<td>2.6%</td>
<td>2.1%</td>
<td>n.a.</td>
<td>2.0%</td>
<td>3.1%</td>
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<td class="firstcol">Japan - GDP (Bil. 95 Yen, SAAR)</td>
<td>3.2%</td>
<td>3.8%</td>
<td>1.3%</td>
<td>n.a.</td>
<td>0.3%</td>
<td>2.4%</td>
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The index of mortgage applications, compiled by the Mortgage Bankers Association, fell last week for the fourth week in the last five. Nevertheless, applications remained up 22.9% so far this year versus December and were up 86.2% [...]

Mortgage Applications Still Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030211a.jpg" width="353">
Chain store sales were about flat during the first full week of February according to the BTM-UBSW survey.
February sales started the month down 0.2% from the January average. The year-to-year comparison weakened appreciably because of strong sales gains in February 2002.
During the last ten years there has been a 56% correlation between the year-to-year percent change in monthly chain store sales and the change in nonauto retail sales less gasoline.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">BTM-UBSW (SA, 1977=100)</a></th>
<th scope="col">2/08/03</th>
<th scope="col">2/01/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>408.9</td>
<td>408.8</td>
<td>0.6%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>3.4%</td>
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Crude Oil Prices and Economic Uncertainty 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 11, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030211b.jpg" width="353">
Prices for West Texas Intermediate crude oil neared $35.00 per barrel as War worries intensified and added to the continuing labor strike in Venezuela, lean inventory conditions and a severe Winter as sources for price strength.
Federal Reserve Chairman Alan Greenspan addressed the impact of higher energy prices and war worries in his semi-annual testimony before Congress. &quot;The intensification of geopolitical risks makes discerning the economic path ahead especially difficult. If these uncertainties diminish considerably in the near term, we should be able to tell far better whether we are dealing with a business sector and an economy poised to grow more rapidly--our more probable expectation--or one that is still laboring under persisting strains and imbalances that have been misidentified as transitory.&quot; To view the entire text of Greenspan&#39;s testimony click <a href="http://www.federalreserve.gov/BoardDocs/HH/2003/february/testimony.htm">here</a>
Wholesale gasoline prices surged through early February, topping $1.00 per gallon (up 90% y/y). Wholesale fuel oil prices have been even stronger moving well over $1.00 per gallon and are more than double last year at this time.
Wholesale natural gas prices rose above $6.00/mmbtu and are nearly triple last year&#39;s levels.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/daily/@D3/@D306/@D30604/@D30604.HTM">Daily Crude Oil Prices</a></th>
<th scope="col">2/10/03</th>
<th scope="col">12/31/02</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">West Texas Intermediate Crude Oil</td>
<td>$34.48</td>
<td>$31.23</td>
<td>60.9%</td>
<td>$26.17</td>
<td>$25.97</td>
<td>$30.34</td>
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Chain store sales were about flat during the first full week of February according to the BTM-UBSW survey. February sales started the month down 0.2% from the January average. The year-to-year comparison weakened appreciably because [...]

Chain Store Sales Flat Last Week

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030210a.jpg" width="353">
The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) rose through January to its highest level since August.
The six-month growth rate of the index remained negative at -0.7% in the latest week, but that was much improved from the lows of this past October.
Construction of the ECRI Leading Index differs from the Index of Leading Economic Indicators published by the Conference Board. Nevertheless there has been an 80% correlation between the annual percent change in the two over the last 20 years.
The components of the index are money supply plus stock &amp; bond mutual funds, the JOC-ECRI industrial materials price index, mortgage applications, bond quality spreads, stock prices, bond yields, and initial jobless insurance claims.
The median lead of the ECRI index at business cycle peaks has been 10.5 months and at cycle troughs 3.0 months. The sideways movement of the leading index in 2002 may or may not signal something about the economy&#39;s growth rate.
For more on ECRI and the Weekly Leading Index click <a href="http://www.businesscycle.com/">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/weekly/@W8/@W801/@W801.HTM">ECRI</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Leading Index</td>
<td>119.2</td>
<td>117.9</td>
<td>-1.4%</td>
<td>1.0%</td>
<td>-5.2%</td>
<td>1.0%</td>
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The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) rose through January to its highest level since August. The six-month growth rate of the index remained negative at -0.7% in the [...]

ECRI Leading Indicators Recover Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030207a.jpg" width="353">
Nonfarm payrolls rose roughly twice Consensus expectations for a 70,000 worker rise. The decline in December payrolls was deepened by about half from a 101,000 decline reported last month.
The rise in January payrolls was the largest since November 2000 and may have reflected difficulty in seasonally adjusting employment in the retail and construction industries.
Diffusion indexes for nonfarm payrolls suggested genuine labor market improvement. The one-month index rose to 50.1, the highest level since May and the three month diffusion index also rose to 45.4. These indexes are leading indicators of employment growth.
The unemployment rate fell unexpectedly to 5.7%. Employment rose 1,097,000 (0.8%) following three months of decline. The labor force rose 688,000.
Amongst industries, the number of factory sector jobs continued down, falling 16,000 (-3.0% y/y). It was the smallest monthly decline in manufacturing jobs since July. The one-month diffusion index for the factory sector improved sharply to 44.1, the highest level since July. Construction jobs rose 21,000 (-0.7% y/y) following an upwardly revised December gain. Jobs in service producing industries rose 143,000 (0.5% y/y). Retail hiring rose 101,000 (-0.6% y/y). Services rose 35,000 and government employment rose 4,000.
Aggregate hours worked rose 0.3% following three months of decline. The index of aggregate hours worked (employment times hours worked) started 1Q03 slightly ahead of 4Q02.
Over the last ten years there has been a 54% correlation between the quarterly change in aggregate hours worked and real GDP. That correlation is down from 89% in the 1980s. The decline is due to the recent acceleration in productivity growth.
Average hourly earnings were unexpectedly weak.
The nonfarm payroll employment figures are based on reports provided to the US Labor Department by businesses, while the figures from which the unemployment rate is derived are based on a survey of US households.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Payroll Employment</td>
<td>143,000</td>
<td>-156,000</td>
<td>-0.1%</td>
<td>-0.9%</td>
<td>0.2%</td>
<td>2.2%</td>
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<td class="firstcol">&nbsp; Manufacturing</td>
<td>-16,000</td>
<td>-80,000</td>
<td>-3.0%</td>
<td>-5.5%</td>
<td>-4.2%</td>
<td>-0.4%</td>
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<td class="firstcol">Average Weekly Hours</td>
<td>34.2</td>
<td>34.1</td>
<td>34.1</td>
<td>34.2</td>
<td>34.2</td>
<td>34.4</td>
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<td class="firstcol">Average Hourly Earnings</td>
<td>0.0%</td>
<td>0.3%</td>
<td>2.7%</td>
<td>3.2%</td>
<td>4.0%</td>
<td>3.8%</td>
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<td class="firstcol">Unemployment Rate</td>
<td>5.7%</td>
<td>6.0%</td>
<td>n.a.</td>
<td>5.9%</td>
<td>n.a</td>
<td>n.a.</td>
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Consumer Credit Usage Weakest Since 1991 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 7, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030207b.jpg" width="353">
Consumer credit outstanding fell unexpectedly in December. Consensus expectations had been for a $4.5B rise. The preliminary report of a decline in November was revised to positive due to a raised figure for revolving credit. The gain in consumer credit outstanding last year was the weakest since the recession year of 1991.
Revolving credit plummeted 1.2%, the sharpest one month drop since 1974. The annual gain in 2001 was the weakest on record.
Nonrevolving credit managed a 0.4% gain following a drop in November, but for the quarter, growth of 0.5% was the weakest since 1998.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E103/@E10308/@E10308.HTM">Consumer Credit Outstanding</a></th>
<th scope="col">Dec m/m</th>
<th scope="col">Nov m/m</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Total</td>
<td>$-4.0B</td>
<td>$-0.1B</td>
<td>3.3%</td>
<td>3.3%</td>
<td>6.9%</td>
<td>10.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Revolving</td>
<td>$-8.4B</td>
<td>$1.7B</td>
<td>1.6%</td>
<td>1.6%</td>
<td>5.0%</td>
<td>11.5%</td>
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<td class="firstcol">&nbsp; Nonrevolving</td>
<td>$4.4B</td>
<td>$-1.8B</td>
<td>4.4%</td>
<td>4.4%</td>
<td>8.3%</td>
<td>9.2%</td>
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Nonfarm payrolls rose roughly twice Consensus expectations for a 70,000 worker rise. The decline in December payrolls was deepened by about half from a 101,000 decline reported last month. The rise in January payrolls was the largest [...]

Nonfarm Payrolls Up Twice Expectations

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030206a.jpg" width="353">
Nonfarm labor productivity last quarter fell for the first quarter since 2Q01. Consensus estimates were for a rise of 1.0%. The annual gain of 4.7% in productivity was the strongest since 1950.
The slowdown in output growth to 0.8% from 5.2% in 3Q accounted for most of the decline in productivity. Hours worked rose 1.0% following six consecutive quarters of decline.
Unit Labor costs rose more than expectations for a 3.0% gain. The annual decline in unit costs was the first since 1983. Compensation growth moderated slightly from 3Q and for the year was just about equal to 2001 despite faster productivity growth.
Manufacturing sector productivity grew 0.7% following the strong 5.5% 3Q gain. The annual gain in factory sector productivity of 4.6% was the fastest since 1999 despite a 1.0% annual decline in output. Unit labor costs surged 4.6%, the strongest gain since 2Q01. For the year, unit labor costs in the factory sector fell 0.7%.
Analysis by the New York Federal Reserve detecting improvement in trend productivity growth can be found <a href="http://www.newyorkfed.org/rmaghome/staff_rp/2003/sr159.html">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Nonfarm Business Sector</a> (SAAR)</th>
<th scope="col">4Q &#39;02 Prelim</th>
<th scope="col">3Q &#39;02 Final</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Output per Hour</td>
<td>-0.2%</td>
<td>5.5%</td>
<td>3.8%</td>
<td>4.7%</td>
<td>1.1%</td>
<td>2.9%</td>
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<td class="firstcol">Compensation</td>
<td>4.6%</td>
<td>5.4%</td>
<td>4.2%</td>
<td>2.8%</td>
<td>2.7%</td>
<td>7.0%</td>
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<td class="firstcol">Unit Labor Costs</td>
<td>4.8%</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>-1.8%</td>
<td>1.6%</td>
<td>3.9%</td>
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</tbody>
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Initial Jobless Insurance Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 6, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030206b.jpg" width="353">
Initial claims for unemployment insurance were about as expected last week. Claims fell 2.7% from the prior week&#39;s level which was revised up.
The four-week moving average of initial claims fell slightly to 384,750 (-4.1% y/y), the lowest level since late November.
Continuing claims for unemployment insurance rose 1.8% and the prior week&#39;s level was revised up.
The insured rate of unemployment was stable at 2.6% for the fourth consecutive week.

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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">2/01/03</th>
<th scope="col">1/25/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>391.0</td>
<td>402.0</td>
<td>0.5%</td>
<td>405.0</td>
<td>405.8</td>
<td>299.8</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,353</td>
<td>-1.7%</td>
<td>3,588</td>
<td>3,021</td>
<td>2,114</td>
</tr>
</tbody>
</table>
</body>
</html>

Nonfarm labor productivity last quarter fell for the first quarter since 2Q01. Consensus estimates were for a rise of 1.0%. The annual gain of 4.7% in productivity was the strongest since 1950. The slowdown in output growth to 0.8% [...]

Productivity Fell in 4Q, Annual Gain Strongest Since 1950

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030205a.jpg" width="353">
The index of mortgage applications, compiled by the Mortgage Bankers Association, fell a slight 2.5% last week (+101.2% y/y). For the month of January, applications rose 23.2% from December and were up 89.1% from last January.
Mortgage applications to refinance fell slightly for the week but were up by one third from December and were nearly triple last year&#39;s level.
Mortgage applications for home purchase rose for the second week and for the month were up 1.4% (1.8% y/y).
Interest rates on conventional 30 Year mortgages remained stable for the week at 5.72% and were down from 7.04% a year ago.
For analysis by the Federal Reserve of mortgage refinancing trends, click <a href="http://www.federalreserve.gov/pubs/bulletin/2002/1202lead.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><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">1/31/03</th>
<th scope="col">1/24/03</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>1,141.4</td>
<td>1,171.2</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>371.1</td>
<td>365.5</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>5,621.6</td>
<td>5,858.1</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
</tr>
</tbody>
</table>
ISM Nonmanufacturing Index Rose Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 5, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030205b.jpg" width="353">
The Institute for Supply Management business activity index of the nonmanufacturing sector rose last month from a downwardly revised December level. Consensus expectations were for a decline to 54.0.
Of the seasonally adjusted subgroups, the employment and new orders indexes rose modestly.
Business activity for the nonmanufacturing sector is a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index weights the components.
The seasonally adjusted index of prices rose slightly.
During the last five years, there has been a 66% correlation between the level of the Business Activity Index from the ISM nonmanufacturing survey and quarterly growth in real GDP in the service sector plus structures.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The nonmanufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively. 

<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/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>54.5</td>
<td>54.2</td>
<td>49.5</td>
<td>55.1</td>
<td>49.0</td>
<td>59.3</td>
</tr>
</tbody>
</table>
</body>
</html>

The index of mortgage applications, compiled by the Mortgage Bankers Association, fell a slight 2.5% last week (+101.2% y/y). For the month of January, applications rose 23.2% from December and were up 89.1% from last January. [...]

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030204b.jpg" width="353">
Unit sales of light vehicles fell sharply in January. The 11.5% m/m decline reversed virtually all of the sharp gain the prior month. January sales were slightly below Consensus expectations for a 16.4 mil. unit sales rate.
Sales of domestically built vehicles fell 13.8% m/m. Auto sales fell a moderate 4.3% m/m (+8.1% y/y) but sales of light trucks plunged 20.4% (-4.3% y/y).
Imported vehicle sales were relatively strong, falling only 1.5% m/m. Imported auto sales fell 0.5% (+0.3% y/y) but truck sales fell 3.5% (+1.8% y/y).
Imports&#39; share of the US light vehicle market rose to 20.5% in January versus 19.5% for all of last year. 

<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/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil.Units)</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.21</td>
<td>18.32</td>
<td>1.0%</td>
<td>16.80</td>
<td>17.26</td>
<td>17.40</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Domestic</td>
<td>12.88</td>
<td>14.94</td>
<td>1.0%</td>
<td>13.54</td>
<td>14.19</td>
<td>14.58</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imported</td>
<td>3.33</td>
<td>3.38</td>
<td>0.7%</td>
<td>3.26</td>
<td>3.07</td>
<td>2.82</td>
</tr>
</tbody>
</table>
Factory Inventories Rose 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 4, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030204c.jpg" width="353">
Manufacturing inventories rose last month for the third monthly gain in the last five months. The declines follow a brief two months of accumulation.
An end to factory inventory decumulation had been heralded by a rising ISM inventory index. Over the last five years there has been a 72% correlation between the level of the ISM inventory index and the month to month change in factory inventories.
Inventory decumulation in December was limited to the transportation sector (aircraft, light trucks and ships). Outside of transportation, inventories fell for the third straight month (-1.9% y/y) following three months of accumulation.
Inventory declines also continued in a broad range of durable goods industries including computers and electronic products, electrical equipment and furniture. Inventories of machinery rose for the first month since March of 2001.
Nondurable goods inventories fell 0.3% (+0.8% y/y).
Factory shipments fell sharply for the second consecutive month. Excluding transportation, shipments rose 0.2% (2.8% y/y) following a moderate 0.4% November decline.
Factory orders rose slightly. The advance report that durable goods orders rose 0.2% was revised to show a 0.2% decline.

<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/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.5%</td>
<td>-0.2%</td>
<td>-2.0%</td>
<td>-2.0%</td>
<td>-8.0%</td>
<td>4.5%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>0.4%</td>
<td>-0.8%</td>
<td>2.7%</td>
<td>-0.8%</td>
<td>-7.2%</td>
<td>5.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-0.6%</td>
<td>-1.1%</td>
<td>-0.6%</td>
<td>-1.1%</td>
<td>-5.3%</td>
<td>4.4%</td>
</tr>
</tbody>
</table>
Chain Store Sales Down Last Week 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 4, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030204a.jpg" width="353">
Chain store sales fell last week following three consecutive weeks of gain according to the BTM-UBSW survey.
For the full month, January sales rose 2.3% (2.9% y/y) from December.
During the last ten years there has been a 56% correlation between the year-to-year percent change in monthly chain store sales and the change in nonauto retail sales less gasoline.

<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">BTM-UBSW (SA, 1977=100)</a></th>
<th scope="col">2/01/03</th>
<th scope="col">1/25/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>408.8</td>
<td>412.7</td>
<td>2.7%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
Challenger Survey of Layoff Announcements Rose 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 4, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030204d.jpg" width="353">
According to Challenger, Gray &amp; Christmas, announced job cuts surged last month.
The three month moving average of job cut announcements nevertheless fell 10.3% from the prior month and was 31.1% below the year ago level.
Job cut announcements differ from layoffs in that many are achieved through attrition or just never occur.
Announcements of job cuts rose sharply in the aerospace, media, commodities and retail industries. Job cut announcements in a wide range of other industries fell.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Announced Job Cuts</td>
<td>132,222</td>
<td>92,917</td>
<td>-37.8%</td>
<td>1,431,052</td>
<td>1,956,876</td>
</tr>
</tbody>
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Unit sales of light vehicles fell sharply in January. The 11.5% m/m decline reversed virtually all of the sharp gain the prior month. January sales were slightly below Consensus expectations for a 16.4 mil. unit sales rate. Sales of [...]

U.S. Light Vehicle Sales Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030203a.jpg" width="353">
The ISM Composite Index of manufacturing sector activity fell modestly last month from an upwardly revised December level. It was the third consecutive month the index was above 50, thus indicating expansion in factory sector activity.
The level of the index was about as expected. Updated seasonal factors were the source of revision to past data.
Each of the five component series declined moderately.
The separate index of inflation pressure rose slightly but remained well off the Spring highs.
Over the last ten years there has been a 72% correlation between the ISM Composite Index and the three month growth in factory production.

<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/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>53.9</td>
<td>55.2</td>
<td>49.8</td>
<td>52.4</td>
<td>44.0</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>57.5</td>
<td>56.9</td>
<td>41.5</td>
<td>57.9</td>
<td>42.9</td>
<td>64.8</td>
</tr>
</tbody>
</table>
Construction Spending Up Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 3, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030203b.jpg" width="353">
The value of construction put in place rose much more than expected in December and November figures were revised up across the board. Consensus expectations were for a very slight rise.
In constant 1996 dollars, overall construction spending rose 0.7% (-0.2% y/y). Real residential spending surged 2.2% (7.2% y/y). Real nonresidential activity fell 2.3% (-15.2% y/y).
In nominal terms, residential building rose for the fifth month in six. Spending on one-unit structures surged 2.8% (12.2% y/y). 
Nonresidential building activity fell hard again, last month led lower by widespread category declines except industrial. Spending on industrial buildings rose for the third consecutive month (-34.8% y/y).
Public construction rose led by notable increases in housing &amp; redevelopment, industrial and highways &amp; streets.

<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/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1.2%</td>
<td>0.9%</td>
<td>2.0%</td>
<td>0.7%</td>
<td>2.5%</td>
<td>7.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Residential</td>
<td>2.9%</td>
<td>1.1%</td>
<td>10.0%</td>
<td>6.9%</td>
<td>3.3%</td>
<td>7.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-1.9%</td>
<td>0.9%</td>
<td>-14.0%</td>
<td>-16.3%</td>
<td>-3.1%</td>
<td>7.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Public</td>
<td>1.0%</td>
<td>2.6%</td>
<td>4.7%</td>
<td>6.4%</td>
<td>7.4%</td>
<td>5.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

The ISM Composite Index of manufacturing sector activity fell modestly last month from an upwardly revised December level. It was the third consecutive month the index was above 50, thus indicating expansion in factory sector [...]

ISM Index Down

PMIs showing widespread revival of global economy

Crude oil price has returned to pre-conflict level but traffic through Hormuz still subpar

Surging orders for computers and electronics propelling durable goods orders

Next year's inflation forecasts are on the rise and above target

Disrupted global supply chains placing upward pressure on US goods prices

Construction of data centers has overtaken transportation construction in US

Elevated energy prices putting intense upward pressure on input prices around the globe

US is big leader in global surge in private AI investment

Larger-than-usual income tax refunds this year are supporting consumer spending

Sharply rising share of AI-related jobs

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

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

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Michael J. Moran

260714A.jpg

260714B.jpg

Most analysts were looking for a dip in the CPI because of a likely retreat in gasoline prices, but the published decline of 0.4% in the headline index was noticeably softer than the consensus estimate of -0.1%. Gasoline prices did not disappoint, with a drop of 9.7% offsetting approximately one-quarter of the cumulative surge in the prior three months. Prices of fuel oil fell almost as much as gasoline prices, and electricity charges contributed to the softness with a decline of 1.0%. The price of natural gas services was the only major energy item to increase in June (0.5%). All told, the energy component of the CPI fell 5.7% after climbing 19.6% in the prior three months.

The drop in energy prices was notable, but the core component provided a bigger surprise by posting a decline, the first since a series of three consecutive decreases during the pandemic. Before the pandemic-related retreat, the core component fell only twice from 1990 to 2019. The drop in June was minuscule (-0.02%), but the fact that it carried a minus sign was striking.

Both the goods and services components of the core index contributed to the restraint. Prices of goods other than food and energy fell 0.1%. The Bureau of Labor Statistics publishes six key subcategories of core goods, and five of them fell in June. Apparel prices stood out with a decline of 0.6%. Prices of core services were nearly unchanged at 0.03%, restrained by declines in medical services and motor vehicle insurance. Airfares, which showed upward pressure from rising fuel prices in the prior three months, posted a nondescript increase of 0.2%. The modest increase in the prices of core services led to a dip in the 12-month average increase after stepping up in April and May. The trend in core goods prices continued its gradual deceleration (chart, below right).

Food prices in June rose 0.2%, a reading comfortably within the range of the past few years.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

260714C.jpg

260714D.jpg

- The energy component retraced a portion of its surge in the prior three months.
- Prices excluding food and energy provided a surprise by posting a rare decline.

June CPI: Cooling Energy Prices and a Restrained Core Component

Winnie Tapasanun

260714T36.jpg

260714U36.jpg

The NFIB Small Business Optimism Index rose to 97.4 in June, the highest level since February, after a 0.6-point decline to 95.3 in May, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. The index was slightly below its 52-year average of 98.0 for the fourth consecutive month and down from a peak of 105.1 in December 2024, albeit above a low of 88.5 in March 2024. Seven of the 10 index components rose, while three fell. Meanwhile, the NFIB Small Business Uncertainty Index edged down to 89 in June following a three-point increase to 91 in May, remaining well above its historical average of 68. The index was below its record high of 110 in October 2024 but above its recent low of 84 in December 2025 and a low of 65 in November 2023.

The outlook for business conditions in the next six months remained positive for the 20th straight month in the latest survey. The net balance of respondents expecting the economy to improve advanced to 13% in June, a four-month high, following a one-point decline to 3% in May; these readings were far below a high of 52% in December 2024 but significantly above a record low of -61% in June 2022. Expected real sales climbed to a net 9% in June, a five-month high, from 1% in May; the latest figure was below a high of 22% in December 2024 but above a low of -18% in August 2024. A net -4% of respondents reported higher nominal sales in the past three months, up from -5% in May and marking the highest reading in four months; the latest result remained above a low of -20% in October 2024 but below the recent positive reading of 1% in February and a peak of 9% in June 2021.

Plans to expand the business inched up to 8% in June from 7% in May and April; the latest figure was down from a high of 20% in December 2024 but up from a low of 2% in March 2023. Plans to make capital outlays rebounded to 20% in June from 16% in May; these numbers were still below a high of 28% in November 2024 and a peak of 31% in October 2021. Expected credit conditions slipped to -5% in June, a three-month low, from -3% in May; this result was slightly below a high of -2% in December 2024 but above a low of -11% in November 2023. Meanwhile, a net 0% of respondents viewed current inventory stocks as “too low” in June, up from -4% in May and matching the highest reading since August 2025 (also 0%); the positive reading of 1% was recorded in May 2025.

On the labor front, 51% of respondents reported that qualified workers to fill job openings were hard to find in June, up from 46% in May and registering the highest level since September 2024. These numbers were above a low of 43% in August 2025 but below a high of 56% in August 2024 and a peak of 62% in September 2021. A net 11% planned to increase employment in June, up from 9% in May; it matched a low of 11% in March 2024 but remained below its recent high of 19% in November 2025 and a peak of 32% in August 2021. Notably, 32% reported positions not able to be filled in June, up from 29% in May (the lowest level since May 2020); these figures remained below a high of 51% in May 2022.

Overall earnings trends had remained in negative territory since December 2019. The measure fell to -20% in June, the lowest level in three months, following a four-point increase to -15% in May. These readings were below the most recent high of -14% in February and a high of -5% in June 2021 but above a low of -37% in August 2024,

On the pricing front, actual and expected selling prices remained at an inflationary level, indicating continued inflationary pressures. The net percent of firms raising their average selling prices rose to 38% in June, the highest reading since February 2023, after a six-point increase to 36% in May. The latest reading was up from a low of 20% in August 2024 but well below a peak of 66% in March 2022. The percentage planning to raise prices eased to a still-elevated 32% in June following a seven-point rise to 34% in May (the highest level since November 2023); these readings remained above a low of 21% in April 2023.

Wage inflation remained relatively high in the June survey. A net 28% of respondents raised compensation during the last three months, down from 31% in May and marking the lowest since November 2025. It was also below a high of 46% in February 2023 and a peak of 50% in January 2022. A net 17% of firms planned to raise worker compensation in the next three months, slightly down from 18% in May and matching the lowest reading since July 2025; this remained below highs of 28% in November 2024, 30% in November 2023, and 32% in October 2022.

Inflation was cited as the single most important problem facing small businesses, as reported by 21% of NFIB members in June, up from 18% in May and representing the highest since October 2024; these readings were well below a peak of 37% in July 2022. Taxes ranked second as the next most important problem (alongside labor quality), as reported by 19% of respondents in June, unchanged from May. Labor quality also remained a key challenge for small businesses, as reported by 19% of respondents in June—the highest since December—compared with 13% in May (the lowest level since December 2016). Other concerns (in June vs. May) included labor costs (8% vs. 14%), government requirements (8% vs. 10%), insurance cost/availability (8% vs. 8%), poor sales (7% vs. 7%), and competition from large businesses (5% vs. 6%).

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s **SURVEYS** database.

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- Uncertainty Idx down 2 pts. to 89, remaining well above the historical avg. of 68.
- Expectations for economy up 10 pts. to 13%, a four-month high.
- Expected real sales up 8 pts. to 9%, a five-month high.
- Plans to expand business up 1 pt. to 8%, highest in three mths.
- Firms raising avg. selling prices up 2 pts. to 38%, highest since Feb. ’23.
- Top three business concerns: inflation (21%), taxes (19%), and labor quality (19%).

U.S. NFIB Small Business Optimism Rebounds in June to a Four-Month High

Robert Brusca

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Industrial production in Japan fell by 0.5% in May after rising by 0.7% in April and declining by 0.2% in March. Manufacturing output rose by 0.1% in May after rising by 0.4% in April and declining by 0.3% in March. Total industrial output shows a 0.7% gain over 12 months, a 3.4% annual rate gain over six months, and zero change in output over three months. For manufacturing, 12-month output is up 0.7%; over six months, output is up at a 6.1% annual rate; and over three months, output is up by 0.8% at an annual rate.

These trends show that output continues to grow for manufacturing as well for total industry, but not by a great margin. In fact, there are still a number of industries still fighting off negative trends, such as textiles, where output falls over three months, six months, and 12 months, as well as investment goods and mining, both of which show declines over three months, six months and 12 months. One year ago, all of these sectors were showing year-over-year declines except for manufacturing, which was up by 0.5% over 12 months. Manufacturing output is now up by 0.7% year-over-year, with consumer goods up by 1.8%, intermediate goods output up by 2%, and investment goods falling by 3%. Japan is currently trying to fight off a legacy of weakness. The strength of the rebound is being borne by consumer goods and intermediate goods, with investment goods undergoing significant contractive effects.

Manufacturing is showing gains on all three sequential horizons. Utilities output is showing growth on each horizon, and actually shows gathering strength, rising by 0.9% over 12 months, at a 1.4% annual rate over six months, and at a very strong 7.9% annual rate over three months.

In the quarter-to-date (QTD) basis, most of these sectors are losing the battle against weakness, with most industry or sectors showing declines two months into the new quarter. Overall output declines at a 0.2% annual rate. Manufacturing output falls at a 2.2% annual rate, intermediate goods output falls at a 0.2% annual rate, and investment goods output falls at a 7.2% annual rate. The only exception is consumer goods output, which is rising at a solid 5.3% annual rate, but that's not strong enough to drag all of industrial output or even manufacturing into the plus column.

Manufacturing output currently is at about 87.7% of its past peak. Activity in electric and gas utilities are at 90.4% of their past peak, while mining is only at 59.6% of its past peak of activity. Comparing levels of output to where they were in January 2020, manufacturing is at 94% of that value, with total industry also at 94% of that value. Consumer goods are at 98% of that value, intermediate goods at 92%, and investment goods at 93%. Mining is only at 74% of its January 2020 value, while electric and gas utilities have moved beyond the January 2020 level and are 3.3% higher than they were and early 2020.

Since 2020, it has been a relatively difficult time for the global economy. The Japanese statistics show only one sector that has managed to create positive growth compared to its level in January 2020. The current month is a mix of plus-and-minus activity changes. Sequential trends generally show more positives than negatives, but there are still a lot of negatives in train that keep Japanese manufacturing from reaching clearly solid footing. When the Strait of Hormuz opened, it appeared that Japan would be in a position to build on its recovery, but now, with the failed peace agreement and failed ceasefire, the strait once again has been closed and the outlook is shrouded in negativity.

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Japan

Japan’s IP Is Fighting Off Weak Trends

Industrial output in Norway fell by 1% in May after rising by 0.6 in April and falling by 1.1% in March. The seesaw act for output continues. Over broader horizons, however, output is falling. It falls by 0.1% over 12 months, falls at a 1.1% annual rate over six months, and falls at a 6.2% annual rate over three months, giving us a clear sequential trend toward falling and decelerating output. Utilities output has chaotic trends, as do mining and quarrying; however, manufacturing shows a clear trend toward output acceleration, with a 2.1% output increase over 12 months, a 2.6% annual rate rise over six months, and a 9% annual rate increase over three months.

Manufacturing sectors show consumer goods output increasing in May, also showing secular acceleration from 12 months to six months to three months. Durable goods, however, are the fly in the ointment, with output up 2.2% over 12 months, accelerating over six months, and then dropping at a 20.4% annual rate over three months. However, consumer nondurables show growth and acceleration, with a 12-month gain of 1.8%, rising to a 3.6% annual rate increase over six months and a 10.9% annual rate increase over three months. Intermediate goods output trends return to more difficult times and show declines over 12 months, six months, and three months, but not a clear path of deceleration. Capital goods output is up 5.4% over 12 months and at an 8.5% annual rate over three months, but there is an intervening soft spot with output up at only a 3.4% annual rate over six months.

Against this background, inflation in Norway showed solid increases in May, rising by 0.2% overall and by 0.3% for the core HICP. However, sequentially inflation gains 3% over 12 months, rises at a 3.8% annual rate over six months, and then backs down to a 1.2% annual rate over three months. The core HICP is steadier, with a 3.4% gain over 12 months, rising to a 3.8% annual rate over six months, and then backing down to 3.2% at an annual rate over three months. That's a set of growth rates that are more stable than either accelerating or decelerating.

In the quarter-to-date (QTD) basis, industrial production is falling 4.6%; this is two months into the second quarter. On the other hand, manufacturing output is rising QTD at a 4.9% annual rate, with consumer nondurables showing strong positive growth along with intermediate goods output. There is a solid gain of 3.1% at an annual rate from capital goods. The QTD inflation trends remain somewhat mixed, with a weak headline showing a 1.6% annual rate, against a core HICP at a 3.4% annual rate rise, the latter gain being well in step with its sequential results.

The far right-hand column compares industrial production over the broad period from just before COVID (in January 2020) looking at the ratio of the level of output in May 2026 to its index value in January 2020. Remember that IP data are inflation-adjusted, so these are real data. Over this span, industrial production excluding construction is up by approximately 10%, with utilities output up at about 21%, mining and quarrying up about 5%, and manufacturing up a little more than 7%. This is a 5½-year period. Consumer goods output is up by 2.7%, led by consumer nondurables which rise 4.1% on the period and against durable goods output where there is a decline of about 13% on that timeline. Intermediate goods output drops slightly on the timeline by less than half a percentage point, while capital goods output is up at a solid and strong 23% gain. Looking at prices over the same period, the headline HICP is higher by 27% while the core is higher by 24%.

The weakened output shows the stresses and strains of the period, with weak gains in place over the last 5½ years and with the consumer showing considerable wear and tear, leaving consumer goods output lower on balance over this 5½-year span. It hasn't been such a bad time for capital goods, where output rose by 23% over the period. Inflation got out-of-the-box and grew quite strongly. The headline HICP grew by 27% since January 2020, a duration of time during which, sticking to its target, would have implied a gain in the price level of only 11.5%.

**Ongoing overshooting**
Even now central banks are trying to decide how to come to grips with the inflation pressures from that. Pressures continue to linger and threaten the economies. Of course, there are some new factors in place, but that's the nature of inflation: if it's not one thing, it's something else. And failing to respond to the one thing means that you're going to get hit even worse when it becomes something else. This is the lesson the central banks haven't learned during this period. 

**Have central banks learned their lesson?**
Noting that inflation is over target and then forecasting that it's going to come back down to target over some period ahead puts the inflation performance at risk to whatever happens between now and the end of that period ‘ahead.’ If that forecast isn't perfectly right and if there's something else that disturbs the path of prices, what will happen is that an inflation that is already over the top of the target will push even farther over the top of the target and the dilemma faced by the central bank will become even worse. This is why kicking the can down the road generally is not a very good strategy, but it's one that virtually all the central banks pursued in the wake of COVID. So, will central bankers come to see inflation that is here and now as a here-and-now problem to be addressed here and now, or as a candidate for tomorrow land? The ECB seems to be changing, and the Fed has formed task forces. What about Norway and the rest of the world? Norway did push its target rate up as the ECB hiked. But what is its plan?

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Norway

Norwegian IP Struggles, but Manufacturing Shows Some Strength

Tian Yong Woon

In this week's Letter, we examine the underbelly of the AI boom, the risks that sit beneath its optimism. Start with the public mood: American concern about AI has grown alongside adoption over the past three to four years (chart 1). Those worries span mass job displacement, misuse of top-end models by bad actors, and fears of being left behind. The first of these is already surfacing: in June, AI was again the most cited reason for announced US layoffs, with year-to-date AI-linked cuts above 100,000 (chart 2). Technology led all sectors in overall cuts, though the data do not isolate how many were AI-driven. Among those hit, the young are arguably the most exposed to these labour effects. They enter a labour pool swollen by displaced professionals, just as AI masters the entry-level tasks where they would start. India and Indonesia illustrate the stakes on youth NEET, the share not in education, employment, or training, both above 20% and among Asia's highest (chart 3). Beyond the labour market, the same optimism reshapes asset prices. The rally has lifted AI-related valuations to historic highs and concentrated a few names in cap-weighted indexes (chart 4). That raises correlation and the risk of a sharper index fall should the rally unravel. The same concentration runs through economies via exports, from Taiwan's advanced chips to South Korea's memory (chart 5). Its footprint is physical too, and cuts both ways: data-centre investment has lifted growth in Johor, Malaysia (chart 6) while straining local power and water. None of this argues against riding the AI wave, which still promises real productivity and welfare gains. Rather, these are caveats that investors and policymakers must keep in view, since the story is not all upside.

**AI-related concerns**
AI adoption has exploded over the past three to four years, and Americans' concerns have risen alongside it (chart 1). That is understandable, given how advanced and broad AI's proven applications have become. They now span everyday tasks and subject-specific work across fields such as finance and production, as well as tech and development, the sector AI was born in. Major concerns run from mass AI-induced job displacement to a more recent fear, that top-end models fall into the wrong hands and are used by bad actors. A further worry is distributional: AI advances are powerful and could deliver leaps in productivity, yet they may also leave many people behind. Those most exposed include workers already displaced from their jobs and people facing scarcer basic resources as AI demand competes for them. Others simply lack equitable access to AI tools or their benefits.

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**AI-driven job displacement**
Some of the fears US workers first had about AI-driven job displacement are already playing out. In June, AI was again the most cited reason for announced job cuts in the US (chart 2). That pushed year-to-date job cuts attributed to AI above 100,000, more than half of all AI-tagged cuts since AI became a selectable reason in 2023. The data come from the latest survey by Challenger, Gray & Christmas. This likely reflects AI's disproportionately heavy impact on certain industries such as technology, which again led all sectors in cuts. At the same time, announced hiring plans stayed subdued, leaving laid-off workers with limited opportunities to find new roles. All of this is occurring even as market valuations remain elevated on the broader wave of AI optimism.

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**AI and youth unemployment**
Arguably among those bearing the brunt of these labour-related effects are the youth. Many have graduated on a curriculum built largely for a pre-AI era. They now enter a labour pool swollen by experienced professionals whom AI has displaced. At the same time, AI is proving especially capable at the entry-level tasks on which young workers usually start. An elevated youth unemployment rate only intensifies the competition young people face for gainful employment. On the broader NEET measure, which also captures youth who are neither working nor studying, India and Indonesia stand out. On the latest available WDI data, both have youth NEET rates above 20%, among the highest in Asia and above the global average (chart 3). Should employers in these economies adopt AI aggressively across processes and production, including physical AI such as humanoid robots, the problem could worsen. Yet firms that stay purely labour-intensive risk losing out to rivals using more efficient, and perhaps cheaper, AI-driven methods.

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**Concentration risk**
The recent wave of AI optimism has pushed the equity valuations of major AI developers and AI-related goods producers to historically high levels. These gains are partly backed by strong earnings and upbeat forward guidance. Most major indexes are weighted by market capitalisation, so a counter's weight tracks its price. As these counters have outperformed their peers (chart 4), their index weight has risen close to mechanically, when holding the number of shares constant. This raises concentration risk, since a small group of counters now carries more of the index and moves it more closely. So, if the rally in these counters were to unravel deeply, it would drag the broader index down more heavily with it.

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AI-related concentration risk is not confined to equity indexes; it also shows up in the growth of major economies. In Asia, that risk usually runs through a country's exports. Take Taiwan, the world's largest advanced semiconductor exporter, as an example. As chart 5 shows, its recent export growth has come more than entirely from integrated circuits and from infocomm and audiovisual equipment. Other goods categories have often contributed negatively in recent months. This is good news for the Taiwanese economy, which sits right at the centre of the global AI boom. Yet it is also a source of concentration risk, should AI-related goods demand collapse or substantial alternative supply emerge elsewhere. A similar story applies to South Korea, through its role in supplying high-end memory chips.

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**Data centres, energy, and water**
Finally, rapidly advancing AI promises major productivity gains and broad improvements to daily life. Yet AI infrastructure rests on resource-intensive inputs: the energy needed for data centre compute, and the water needed to cool those centres. Both may deprive real people of the very resources they need to survive. One recent hotspot is Malaysia, which has courted a wave of foreign direct investment to expand its data centre footprint in the state of Johor. These capital inflows are welcome, and have lifted state-level growth through the construction sector (chart 6). But they have also raised concerns about straining local grids and water supplies, possibly leaving less for residents. Among estimates, a recent one puts data centres at around 40% of Johor's electricity demand by 2035. That is pressuring the state to expand generation capacity and grid access to match the data centre pipeline already in place. Its neighbour Singapore faced similar strains earlier, and has since repositioned itself as a hub for the most advanced and efficient data centres, partly because of its severe land constraints. 

Economy in Brief

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