Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019a.jpg" align="right" border="0" height="265" width="353">The U.S. government ran a
budget deficit of $1.417 trillion
during Fiscal Year 2009. The figure was by far a record and more than
tripled the 2008 deficit of $454.8 billion. While somewhat below the
Congressional Budget Office's recent estimate for a deficit of $1.7
trillion, it nevertheless reached roughly 10% of GDP, the largest since
1945.
The recession in the U.S. economy drove the deficit higher
last year as revenues lagged sharply and spending increased. Net
revenues during FY09 were down 16.6% from FY08. Individual income tax
receipts fell 20.1% reflecting higher unemployment while corporate tax
receipts fell by more than one-half as profits dried up. Social
security contributions fell for the first time since 1995 and estate
&amp; gift taxes fell 18.6% after 10.8% growth last fiscal year.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019b.jpg" align="right" border="0" height="265" width="353">
The wars in Iraq &amp; Afghanistan and the U.S. recession
boosted overall Federal spending by 18.2% versus FY08, double last
year's growth. Defense spending (19% of total outlays) rose 7.1% during
FY09. Though outlays for military personnel rose just 6.1% last year
after 8.9% growth during FY08, Army procurement jumped 15.8% after
36.9% growth during '08. On the home front, growth in Medicare
expenditures (12% of outlays) doubled and "income security" spending
(11% of outlays) jumped by one-quarter with higher unemployment. Social
security payments rose an elevated 10.7% but net interest payments
continued to fall sharply with lower interest rates.
Net outlays under the Government's Troubled Asset Relief
Program (TARP) started to fall by the end of FY09 but, for the fiscal
year as a whole, they amounted to $333.3B. The U.S. Treasury has
adopted the view that these TARP expenditures should be counted like
any other spending. When the banks repay the Treasury, these funds will
be counted as revenue. Accounted for in this way, TARP causes a surge
in the budget deficit when the funds are distributed to the banks, but
leads to a smaller deficit, or perhaps a surplus, when repayments are
received.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019c.jpg" align="right" border="0" height="265" width="353">
The Government's financial data are available in Haver's USECON
database, with extensive detail available in the specialized GOVFIN.
The Office of Management &amp; Budget's 2010
Budget can be found <a href="http://www.whitehouse.gov/omb/"> here.</a>
The Budget &amp; Economic Outlook: An Update from
the Congressional Budget Office can be found <a href="http://www.cbo.gov/ftpdocs/105xx/doc10521/08-25-BudgetUpdate.pdf">
here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E106/@E10602/@E106021.HTM">US
Government Finance</a> &nbsp;</th>
<th scope="col">FY 2009</th>
<th scope="col">FY 2008</th>
<th scope="col">FY 2007</th>
<th scope="col">FY 2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>-$1,417.1B</td>
<td>-$454.8B</td>
<td>-$161.5B</td>
<td>-$248.197B</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; as a
percent of GDP</td>
<td>-10.0%</td>
<td>-3.2%</td>
<td>-1.2%</td>
<td>-1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Net
Revenues (Y/Y % Change)</td>
<td>-16.6%</td>
<td>-1.7%</td>
<td>6.7%</td>
<td>11.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Individual Income Taxes</td>
<td>-20.1</td>
<td>-1.5</td>
<td>11.5</td>
<td>12.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Corporate Income Taxes</td>
<td>-54.6</td>
<td>-17.8</td>
<td>4.6</td>
<td>27.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Social Insurance Taxes</td>
<td>-1.0</td>
<td>3.5</td>
<td>3.8</td>
<td>5.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Net
Outlays (Y/Y % Change)</td>
<td>18.2</td>
<td>9.1</td>
<td>2.8</td>
<td>7.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Nat'l Defense</td>
<td>7.6</td>
<td>11.8</td>
<td>4.1</td>
<td>6.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Health</td>
<td>19.1</td>
<td>5.4</td>
<td>5.5</td>
<td>0.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Medicare</td>
<td>10.1</td>
<td>4.1</td>
<td>13.8</td>
<td>10.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Income Security</td>
<td>24.9</td>
<td>16.8</td>
<td>3.5</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Social Security</td>
<td>10.7</td>
<td>5.3</td>
<td>6.9</td>
<td>4.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Interest</td>
<td>-24.5</td>
<td>6.3</td>
<td>5.0</td>
<td>23.2</td>
</tr>
</tbody>
</table>
So Far, So Good: Japan Service
Sector Advance
Again
 
by <a href="/comment/Brusca.html">Robert
Brusca</a> October 19, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019e.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s Tertiary index (service sector index) rose in August
for the third month in a row. The chart above puts these increases in
perspective. While a nice, stable uptrend is emerging, the pace of the
rise is relatively moderate; yet the level of the index is well short
of the past cycle peak. 
 

The mining/MFG index fell extremely sharply in the depth of
the recession and while it has had a very sharp bounce back, it is too
soon to tell if the bounce-back will be complete. At a level of 83.9
the mining/MFG index is up sharply from its low of 69.5 but is still
&#8216;light-years&#8217; away from the past peak at 110.1. 
 

The rebound in the various sector indices is a good sign for
Japan&#8217;s beleaguered economy. Even so these bounces have a long way to
go to restore Japan to its precession levels of activity. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col">Up to
date Japan Industry Survey</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Aug-2009</td>
<td>Jul-2009</td>
<td>Jun-2009</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr class="odd">
<td class="firstcol">Mining and MFG</td>
<td>83.9</td>
<td>82.6</td>
<td>80.9</td>
<td>82.5</td>
<td>78.7</td>
<td>83.4</td>
<td>110.1</td>
<td>69.5</td>
<td>35.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Tertiary</td>
<td>97.1</td>
<td>96.8</td>
<td>96.1</td>
<td>96.7</td>
<td>96.1</td>
<td>97.8</td>
<td>103.5</td>
<td>89.1</td>
<td>55.6%</td>
</tr>
<tr>
<td colspan="10">Ranges, Max, Min since 1993</td>
</tr>
</tbody>
</table>
Actual Exchange Rates in the
Developing World and Purchasing Power Parity 
by <a href="/comment/Curley.html">Louise
Curley</a> October 19, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019h.jpg" align="right" border="0" height="265" width="353">While
purchasing power parity (PPP) is not a major factor in determining a
country's actual exchange rate, it can be used as a rough guide in
deciding whether a particular currency is under or over
valued.&nbsp;&nbsp; Most developing countries with growing
current account balances, have preferred to pile up foreign exchange
reserves rather than let their currencies appreciate.&nbsp;
Meanwhile, the purchasing power parity of their currencies has
generally increased slowly and steadily as their economies have
prospered. As a result their currencies have continued to be
undervalued.

 Data on the purchasing power parity of currencies can be
derived from data in the Haver data base, The World
Development Indicators.&nbsp;<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019f.jpg" align="right" border="0" height="265" width="353">
The data are annual so the
latest data point is 2008.&nbsp; PPP conversion factors for the
world countries are included in the section "Exchange Rates and
Prices".&nbsp; We&nbsp; chose four countries as examples:
China, Korea, Singapore and Brazil and the PPP Conversion
Factor (GDP) to market exchange rate ratio.
The conversion
factor is the ratio of PPP exchange rate to the actual exchange rate.
One minus the conversion factor, therefore is the percentage of under
or over valuation of the particular exchange rate relative to the
dollar.&nbsp; Thus for Korea,&nbsp; the conversion factor of
.684 in 2008 means that the Korea's actual exchange rate was 31.6%
undervalued relative to the dollar.&nbsp; <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019g.jpg" align="right" border="0" height="265" width="353">
Since the actual exchange
rate is 1102.09 Won/$, a conversion factor of .684 means that the PPP
exchange rate is 753.98 Won/$ (.684 * 1102.09).&nbsp; The actual
exchange rates, the PPP exchange rates and the percent of
undervaluation of the currencies of the four countries are shown in the
table below.· Brazil has allowed its currency to appreciate
considerably.&nbsp; From an undervaluation of 61.9 in 2002, the
Rial was only 18.4% undervalued in 2008, as shown in the first
chart.&nbsp; By contrast, China has permitted only moderate
appreciation of the yuan as shown in the same chart. The Singapore
dollar has steadily reduced its undervaluation as can be seen in the
second chart.&nbsp; Korea, on the other hand experienced a sharp
increase in its undervaluation in 2008, also shown in the second
chart.
 The third chart brings up to date the actual exchange
rates of the four countries.&nbsp; They have, to varying degrees,
appreciated in 2009.&nbsp; Again, the Chinese Yuan has appreciated
the least and the Brazilian Real, the most. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003&nbsp;</th>
<th scope="col">2002 </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">China</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Actual exchange rate
(Yuan/$)</td>
<td>6.95</td>
<td>7.61</td>
<td>7.97</td>
<td>8.19</td>
<td>8.28</td>
<td>8.28</td>
<td>8.28</td>
</tr>
<tr>
<td class="firstcol">PPP exchange rate</td>
<td>3.39</td>
<td>3.38</td>
<td>3.46</td>
<td>3.45</td>
<td>3.43</td>
<td>3.29</td>
<td>3.28</td>
</tr>
<tr>
<td class="firstcol">Undervaluation (%)
(1-Conversion factor)</td>
<td>51.1</td>
<td>55.5</td>
<td>56.6</td>
<td>57.9</td>
<td>58.6</td>
<td>60.1</td>
<td>60.3</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Korea</td>
</tr>
<tr>
<td class="firstcol">Actual exchange rate (Won/$)</td>
<td>1102.1</td>
<td>929.3</td>
<td>954.8</td>
<td>1024.1</td>
<td>1145.3</td>
<td>1191.1</td>
<td>1251.1</td>
</tr>
<tr>
<td class="firstcol">PPP exchange rate</td>
<td>754.0</td>
<td>747.9</td>
<td>760.7</td>
<td>788.9</td>
<td>794.3</td>
<td>795.7</td>
<td>769.8</td>
</tr>
<tr>
<td class="firstcol">Undervaluation (%)
(1-Conversion factor)</td>
<td>31.5</td>
<td>19.3</td>
<td>20.3</td>
<td>23.0</td>
<td>30.7</td>
<td>32.2</td>
<td>38.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Singapore</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Actual exchange rate
(S$/US$)</td>
<td>1.41</td>
<td>1.51</td>
<td>1.59</td>
<td>1.66</td>
<td>1.69</td>
<td>1.74</td>
<td>1.79</td>
</tr>
<tr>
<td class="firstcol">PPP exchange rate</td>
<td>1.08</td>
<td>1.09</td>
<td>1.06</td>
<td>1.08</td>
<td>1.10</td>
<td>1.09</td>
<td>1.12</td>
</tr>
<tr>
<td class="firstcol">Undervaluation (%)
(1-Conversion factor)</td>
<td>&nbsp;23.7</td>
<td>27.7</td>
<td>33.3</td>
<td>35.7</td>
<td>34.9</td>
<td>37.6</td>
<td>37.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Brazil</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Actual exchange rate
(Rial/$)</td>
<td>1.83</td>
<td>1.94</td>
<td>2.18</td>
<td>2.43</td>
<td>2.93</td>
<td>3.08</td>
<td>2.93</td>
</tr>
<tr>
<td class="firstcol">PPP exchange rate</td>
<td>1.50</td>
<td>1.41</td>
<td>1.40</td>
<td>1.36</td>
<td>1.31</td>
<td>1.22</td>
<td>1.11</td>
</tr>
<tr>
<td class="firstcol">Undervaluation (%)
(1Conversion
factor)</td>
<td>&nbsp;18.4</td>
<td>27.6</td>
<td>35.8</td>
<td>44.2</td>
<td>55.3</td>
<td>57.6</td>
<td>61.9</td>
</tr>
</tbody>
</table>


U.S. Home Builders' Index Recovery
Stuttering This Month 
by <a href="/comment/Moeller.html">Tom
Moeller</a> October 19, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019i.jpg" align="left" border="0" height="265" width="353">
Housing continues to turn the corner toward recovery, but of
late that recovery stuttered. The National Association of Home Builders
reported that its October Composite Housing Market Index fell to 18
from 19 in September. Though the index remained double the low of 8
this past January, it's rate of improvement has slowed since the
Spring. The index is compiled from survey questions asking builders to
rate market conditions as &#8220;good&#8221;, &#8220;fair&#8221;, &#8220;poor&#8221; or &#8220;very high&#8221; to
&#8220;very low&#8221;. The figure is a diffusion index,
therefore, numerical results over 50 indicate a predominance of &#8220;good&#8221;
readings.
The sub-index of sales during the next six months fell to 27
which was the lowest level since August. The present sales index also
fell to 17 which equaled the 3Q average. Much of easing in the October
composite index was due to a sharp decline in the West (+27.3% y/y). In
the Midwest (+30.5% y/y) and in the South (+12.5% y/y) the index fell
slightly while in the Northeast (+56.3% y/y) there was a continued gain.
The Home Builders' Association also reported that traffic of
prospective buyers slipped during October after firm gains this past
Spring and Summer.
The Home Builders' Housing Opportunity Index, which is the
share of homes sold that could be considered affordable to a family
earning the median income, fell slightly in the second quarter. It had
jumped earlier to a record high of 72.5% buoyed by lower home prices,
lower interest rates and higher income. (There is a break in the series
from 2002 to 2003.)<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019j.jpg" align="right" border="0" height="265" width="353">
The NAHB has compiled the Housing Market Index
since 1985. The weights assigned to the
individual index components are .5920 for single family detached sales,
present time; .1358 for single family detached sales, next six months;
and .2722 for traffic of prospective buyers. The results, along with
other housing and remodeling indexes from NAHB Economics, are included
in Haver&#8217;s SURVEYS database.
Asia and the Global Financial Crisis is
today's speech by Fed Chairman Ben S. Bernanke and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20091019a.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat'l
Association of Home Builders</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">&nbsp;October '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Housing Market Index
(All Good = 100)</td>
<td>18</td>
<td>19</td>
<td>14</td>
<td>16</td>
<td>27</td>
<td>42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales</td>
<td>17</td>
<td>18</td>
<td>14</td>
<td>16</td>
<td>27</td>
<td>45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales:
Next Six Months</td>
<td>27</td>
<td>29</td>
<td>19</td>
<td>25</td>
<td>37</td>
<td>51</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Traffic of
Prospective Buyers</td>
<td>14</td>
<td>17</td>
<td>11</td>
<td>14</td>
<td>21</td>
<td>30</td>
</tr>
</tbody>
</table>
</body></html>

The U.S. government ran a budget deficit of $1.417 trillion during Fiscal Year 2009. The figure was by far a record and more than tripled the 2008 deficit of $454.8 billion. While somewhat below the Congressional Budget Office's [...]

U.S. FY '09 Federal Budget DeficitTops $1.4 Trillion

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016e.jpg" align="left" border="0" height="265" width="353">
Italy&#8217;s exports and imports both dropped on the month with
exports dropping faster. As a result, the trade gap widened. But the
gap has improved from its worst level at end of 2008. True, the deficit
has expanded again from it best level in May of 2009, but both exports
and imports are on the mend. The export drop this month was
particularly large and therefore it is hard to put in context; it will
take several more months to figure out if this is a new trend of sorts,
or an oddity. 
 

One problem is that Germany, too, had reported a sharp and
unexpected drop in exports. So the Italian drop may have something to
it. Even so it could be that the same rogue factor affected both of
them, it could be a coincidence, or it could be a fundamental weakening
in exports. It will take time to tell 
 

Because of the relatively sharp drop this month, -15.9% for
exports Vs -8.8% for imports, the Yr/Yr trends are probably distorted.
But both export and import growth are down sharply across major
category components (see the table, at the bottom). 
 

While all nations are banking on trade to become an engine of
growth, US demand seems to be slow in starting and most industrialized
economies are having a hard time getting into gear, too. It is in this
environment in which it is hard to see why up to this point exports
have responded so well in the cycle. One man&#8217;s export is another&#8217;s
import and ultimately is linked to domestic demand which remains
globally challenged: that is the part that is hard to figure out. Whose
export demands have been strong and will they stay that way? 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Italy's
Trade Trends</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/mo % monthly rate</td>
<td colspan="4">Period Specified saar</td>
</tr>
<tr class="grey3">
<td class="firstcol">Seasonally Adjusted</td>
<td>Aug-09</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>3-MO</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr-Ago</td>
</tr>
<tr class="grey2">
<td class="firstcol">Current Account Bal</td>
<td>&#8364;&#8364;(3,237)</td>
<td>&#8364;&#8364;(1,382)</td>
<td>&#8364;&#8364;(2,378)</td>
<td>&#8364;&#8364;(2,332)</td>
<td>&#8364;&#8364;(2,099)</td>
<td>&#8364;&#8364;(3,656)</td>
<td>&#8364;&#8364;(3,927)</td>
</tr>
<tr class="grey2">
<td class="firstcol">Goods
Balance</td>
<td>&#8364;&#8364;(1,086)</td>
<td>&#8364;&#8364;814</td>
<td>&#8364;&#8364;939</td>
<td>&#8364;&#8364;222</td>
<td>&#8364;&#8364;592</td>
<td>&#8364;&#8364;163</td>
<td>&#8364;&#8364;86</td>
</tr>
<tr class="grey1">
<td class="firstcol">
Exports</td>
<td>-15.9%</td>
<td>11.8%</td>
<td>-1.3%</td>
<td>-25.7%</td>
<td>-22.4%</td>
<td>-24.4%</td>
<td>-8.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">
Imports</td>
<td>-8.8%</td>
<td>12.9%</td>
<td>1.2%</td>
<td>17.9%</td>
<td>-10.9%</td>
<td>-26.0%</td>
<td>-2.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Services
Balance</td>
<td>&#8364;&#8364; 352</td>
<td>&#8364;&#8364; (399)</td>
<td>&#8364;&#8364; (788)</td>
<td>&#8364;&#8364; (278)</td>
<td>&#8364;&#8364; (585)</td>
<td>&#8364;&#8364; (766)</td>
<td>&#8364;&#8364; (458)</td>
</tr>
<tr class="grey1">
<td class="firstcol">Exports</td>
<td>10.4%</td>
<td>5.8%</td>
<td>-0.4%</td>
<td>83.3%</td>
<td>41.6%</td>
<td>-0.7%</td>
<td>-2.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Imports</td>
<td>-1.7%</td>
<td>-0.8%</td>
<td>3.3%</td>
<td>3.0%</td>
<td>-15.6%</td>
<td>-12.1%</td>
<td>-3.3%</td>
</tr>
<tr class="grey4">
<td class="firstcol" colspan="7">Not
Seasonally Adjusted</td>
<td>All Yr/Yr</td>
</tr>
<tr class="grey3">
<td class="firstcol">Exports</td>
<td colspan="2">Aug-09</td>
<td colspan="2">Aug-08</td>
<td colspan="2">Aug-07</td>
<td>Aug-06</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food&amp;Bev</td>
<td colspan="2">-1.7%</td>
<td colspan="2">-1.7%</td>
<td colspan="2">7.2%</td>
<td>10.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Capital Gds</td>
<td colspan="2">-24.9%</td>
<td colspan="2">-8.2%</td>
<td colspan="2">15.9%</td>
<td>12.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Transport</td>
<td colspan="2">-23.9%</td>
<td colspan="2">-7.9%</td>
<td colspan="2">9.0%</td>
<td>14.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Consumer Gds</td>
<td colspan="2">-14.1%</td>
<td colspan="2">-11.5%</td>
<td colspan="2">8.0%</td>
<td>8.3%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Other Gds</td>
<td colspan="2">-44.2%</td>
<td colspan="2">4.3%</td>
<td colspan="2">4.5%</td>
<td>20.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Imports</td>
<td colspan="2">Aug-09</td>
<td colspan="2">Aug-08</td>
<td colspan="2">Aug-07</td>
<td>Aug-06</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food&amp;Bev</td>
<td colspan="2">-10.5%</td>
<td colspan="2">-0.5%</td>
<td colspan="2">6.4%</td>
<td>6.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Capital Gds</td>
<td colspan="2">-22.4%</td>
<td colspan="2">-10.5%</td>
<td colspan="2">13.1%</td>
<td>6.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Transport</td>
<td colspan="2">-21.9%</td>
<td colspan="2">-6.2%</td>
<td colspan="2">11.6%</td>
<td>5.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol"> Consumer Gds</td>
<td colspan="2">-8.5%</td>
<td colspan="2">-5.7%</td>
<td colspan="2">8.3%</td>
<td>9.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Other Gds</td>
<td colspan="2">-42.6%</td>
<td colspan="2">9.7%</td>
<td colspan="2">-0.1%</td>
<td>33.4%</td>
</tr>
<tr class="grey4">
<td colspan="8" class="firstcol">Balances
in Mlns of euros</td>
</tr>
</tbody>
</table>
</body></html>

Italy’s exports and imports both dropped on the month with exports dropping faster. As a result, the trade gap widened. But the gap has improved from its worst level at end of 2008. True, the deficit has expanded again from it best [...]

Italy's Trade Gap Widens On Weaker Exports

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016f.jpg" align="right" border="0" height="265" width="353"> Consumer
sentiment sagged this month but retraced just half of the rise during
September. The University of Michigan's mid-month October reading of
consumer sentiment fell to 69.4 from a September reading of 73.5.
Despite the decline sentiment remained up by roughly one-quarter from
the low last Fall. Consensus expectations had been for no change this
month versus September. During the last ten years, there has been a 69%
correlation between the level of sentiment and the growth in real
consumer spending during the next five months.The reading of expected
economic conditions fell the hardest this month with an 8.0% m/m
decline. That mostly erased September's gain. Despite the decline,
however, the index remained up by one-third from the February low.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016g.jpg" align="right" border="0" height="265" width="353">
The
latest decline was led by a sharp 18.7% drop in expected business
conditions during the next five years which reversed much of the recent
improvement. Expected conditions during the next year fell just
modestly and the index remained more than double the February low.
Conversely, the expected change in personal finances improved and the
index was up nearly one-quarter from the low during 2008 with the
higher stock market. The reading of current economic condition fell
just moderately as the reading of personal finances slipped m/m. It has
remained range-bound this year with higher unemployment. The reading of
buying conditions for large household goods held steady m/m but it is
up by one-third from the November low due to low prices. Expected
price inflation during the next year amounted to 3.1%; up slightly from
September but down from a high of 7% during May of last year. A low of
0.3% inflation was expected by 25% of respondents but 5.0% inflation
was expected by another quarter. Inflation of 3.4% during the next 5-10
years was the mean expectation.&nbsp;The opinion of
government policy, which may eventually influence economic
expectations, fell slightly from September and remained near
the&nbsp; lowest level since February. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016h.jpg" align="right" border="0" height="265" width="353">
Thirty percent of
respondents thought that a poor job was being done by government. A
reduced 19% thought that a good job was being done. It had hit 30% in
April.The University of Michigan survey data is not seasonally
adjusted. The reading is based on telephone interviews with about 500
households at month-end; the mid-month results are based on about 300
interviews. The summary indexes are in Haver's USECON database
with details in the proprietary UMSCA database.Optimism
Amid Uncertainty from the Federal Reserve Bank of Dallas is
available <a href="http://dallasfed.org/research/update-us/index.cfm">
here</a>.&nbsp;
<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/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">Mid-October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Oct y/y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>69.4</td>
<td>73.5</td>
<td>65.7</td>
<td>20.5%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>72.1</td>
<td>73.4</td>
<td>66.6</td>
<td>23.5</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>67.6</td>
<td>73.5</td>
<td>65.0</td>
<td>18.6</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>
</body></html>

Consumer sentiment sagged this month but retraced just half of the rise during September. The University of Michigan's mid-month October reading of consumer sentiment fell to 69.4 from a September reading of 73.5. Despite the decline [...]

Michigan Consumer Sentiment Sags M/M But Remains Improved From Its Low

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016a.jpg" align="left" border="0" height="265" width="353">
Industrial production is hardly overheating, but the nation's
industrial plant is starting to hum again. Output rose a surprising
0.7% during September after gains of 1.2% and 0.8% during the prior two
months. An uptick of a meager 0.1% had been the Consensus expectation,
based on the decline in factory sector employment last month. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016b.jpg" align="right" border="0" height="265" width="353">
The
productivity of those still working thus soared. The recent output
recovery follows a decline of 14.5% during the 21 months of recession
beginning in January of 2008.
Output of consumer goods rose a firm 1.1% for the third month
of increase following a 10.1% drop during the recession. Production of
autos led the increase with a 7.3% rise, after two months of decline
and a recession loss of 38.5%. Furniture &amp; appliance output
rose a lesser 0.3% which was the second in the last three months.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016c.jpg" align="right" border="0" height="265" width="353">
Working the other way, the output of computers, video &amp; audio
equipment showed no sign of recovery, posting a 1.4% (-16.5% y/y)
decline. Outside of the auto and high-tech sectors output ticked 0.3%
higher (-5.3% y/y) during September for the third consecutive monthly
gain. That's against the 12.8% decline during the prior 21 months.
Apparel output rose for third consecutive month of strong gain
and the 2.2% increase cut the y/y decline to 11.4%. The output of
business equipment rose 0.2% (-8.0% y/y) but the output of construction
supplies continued 0.4% (-16.8% y/y) lower after four months of
relative stability. Construction supplies output fell 23.4% during this
recession.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016d.jpg" align="right" border="0" height="265" width="353">
Excess industrial capacity diminished during September for the
third consecutive month. In the factory sector alone, the rise to 67.5%
also was the third consecutive monthly gain but it nevertheless left
the figure near its lowest of the postwar period. Across industries,
utilization remained the smallest since WWII.
The industrial production data are available in Haver's USECON
database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">INDUSTRIAL
PRODUCTION (SA, %)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Output </td>
<td>0.7</td>
<td>1.2</td>
<td>-6.0</td>
<td>-2.2</td>
<td>1.5</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>0.8</td>
<td>1.2</td>
<td>-7.8</td>
<td>-3.2</td>
<td>1.4</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Consumer Goods</td>
<td>1.1</td>
<td>1.5</td>
<td>-1.8</td>
<td>-2.6</td>
<td>0.9</td>
<td>0.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Business Equipment</td>
<td>0.2</td>
<td>1.1</td>
<td>-8.0</td>
<td>-1.1</td>
<td>2.7</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Construction Supplies</td>
<td>-0.4</td>
<td>0.5</td>
<td>-16.8</td>
<td>-6.3</td>
<td>-2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>-0.7</td>
<td>1.9</td>
<td>-2.1</td>
<td>0.3</td>
<td>3.4</td>
<td>-0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>70.5</td>
<td>69.9</td>
<td>74.5 (Sept. '08)</td>
<td>77.5</td>
<td>80.6</td>
<td>80.9</td>
</tr>
</tbody>
</table>
</body></html>

Industrial production is hardly overheating, but the nation's industrial plant is starting to hum again. Output rose a surprising 0.7% during September after gains of 1.2% and 0.8% during the prior two months. An uptick of a meager [...]

U.S. Factory Production Climbs For Third Month While Plant Utilization Reaches Seven-Month High

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016a.jpg" align="left" border="0" height="265" width="353">
Industrial production is hardly overheating, but the nation's
industrial plant is starting to hum again. Output rose a surprising
0.7% during September after gains of 1.2% and 0.8% during the prior two
months. An uptick of a meager 0.1% had been the Consensus expectation,
based on the decline in factory sector employment last month. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016b.jpg" align="right" border="0" height="265" width="353">
The
productivity of those still working thus soared. The recent output
recovery follows a decline of 14.5% during the 21 months of recession
beginning in January of 2008.
Output of consumer goods rose a firm 1.1% for the third month
of increase following a 10.1% drop during the recession. Production of
autos led the increase with a 7.3% rise, after two months of decline
and a recession loss of 38.5%. Furniture &amp; appliance output
rose a lesser 0.3% which was the second in the last three months.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016c.jpg" align="right" border="0" height="265" width="353">
Working the other way, the output of computers, video &amp; audio
equipment showed no sign of recovery, posting a 1.4% (-16.5% y/y)
decline. Outside of the auto and high-tech sectors output ticked 0.3%
higher (-5.3% y/y) during September for the third consecutive monthly
gain. That's against the 12.8% decline during the prior 21 months.
Apparel output rose for third consecutive month of strong gain
and the 2.2% increase cut the y/y decline to 11.4%. The output of
business equipment rose 0.2% (-8.0% y/y) but the output of construction
supplies continued 0.4% (-16.8% y/y) lower after four months of
relative stability. Construction supplies output fell 23.4% during this
recession.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016d.jpg" align="right" border="0" height="265" width="353">
Excess industrial capacity diminished during September for the
third consecutive month. In the factory sector alone, the rise to 67.5%
also was the third consecutive monthly gain but it nevertheless left
the figure near its lowest of the postwar period. Across industries,
utilization remained the smallest since WWII.
The industrial production data are available in Haver's USECON
database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">INDUSTRIAL
PRODUCTION (SA, %)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Output </td>
<td>0.7</td>
<td>1.2</td>
<td>-6.0</td>
<td>-2.2</td>
<td>1.5</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>0.8</td>
<td>1.2</td>
<td>-7.8</td>
<td>-3.2</td>
<td>1.4</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Consumer Goods</td>
<td>1.1</td>
<td>1.5</td>
<td>-1.8</td>
<td>-2.6</td>
<td>0.9</td>
<td>0.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Business Equipment</td>
<td>0.2</td>
<td>1.1</td>
<td>-8.0</td>
<td>-1.1</td>
<td>2.7</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Construction Supplies</td>
<td>-0.4</td>
<td>0.5</td>
<td>-16.8</td>
<td>-6.3</td>
<td>-2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>-0.7</td>
<td>1.9</td>
<td>-2.1</td>
<td>0.3</td>
<td>3.4</td>
<td>-0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>70.5</td>
<td>69.9</td>
<td>74.5 (Sept. '08)</td>
<td>77.5</td>
<td>80.6</td>
<td>80.9</td>
</tr>
</tbody>
</table>
Michigan Consumer Sentiment Sags
M/M But Remains Improved From Its Low 
by <a href="/comment/Moeller.html">Tom
Moeller</a> October 16, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016f.jpg" align="right" border="0" height="265" width="353"> Consumer
sentiment sagged this month but retraced just half of the rise during
September. The University of Michigan's mid-month October reading of
consumer sentiment fell to 69.4 from a September reading of 73.5.
Despite the decline sentiment remained up by roughly one-quarter from
the low last Fall. Consensus expectations had been for no change this
month versus September. During the last ten years, there has been a 69%
correlation between the level of sentiment and the growth in real
consumer spending during the next five months.

The reading of expected
economic conditions fell the hardest this month with an 8.0% m/m
decline. That mostly erased September's gain. Despite the decline,
however, the index remained up by one-third from the February low.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016g.jpg" align="right" border="0" height="265" width="353">
The
latest decline was led by a sharp 18.7% drop in expected business
conditions during the next five years which reversed much of the recent
improvement. Expected conditions during the next year fell just
modestly and the index remained more than double the February low.
Conversely, the expected change in personal finances improved and the
index was up nearly one-quarter from the low during 2008 with the
higher stock market.

The reading of current economic condition fell
just moderately as the reading of personal finances slipped m/m. It has
remained range-bound this year with higher unemployment. The reading of
buying conditions for large household goods held steady m/m but it is
up by one-third from the November low due to low prices.

Expected
price inflation during the next year amounted to 3.1%; up slightly from
September but down from a high of 7% during May of last year. A low of
0.3% inflation was expected by 25% of respondents but 5.0% inflation
was expected by another quarter. Inflation of 3.4% during the next 5-10
years was the mean expectation.&nbsp;

The opinion of
government policy, which may eventually influence economic
expectations, fell slightly from September and remained near
the&nbsp; lowest level since February. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016h.jpg" align="right" border="0" height="265" width="353">
Thirty percent of
respondents thought that a poor job was being done by government. A
reduced 19% thought that a good job was being done. It had hit 30% in
April.

The University of Michigan survey data is not seasonally
adjusted. The reading is based on telephone interviews with about 500
households at month-end; the mid-month results are based on about 300
interviews. The summary indexes are in Haver's USECON database
with details in the proprietary UMSCA database.

Optimism
Amid Uncertainty from the Federal Reserve Bank of Dallas is
available <a href="http://dallasfed.org/research/update-us/index.cfm">
here</a>.&nbsp;

<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/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">Mid-October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Oct y/y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>69.4</td>
<td>73.5</td>
<td>65.7</td>
<td>20.5%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>72.1</td>
<td>73.4</td>
<td>66.6</td>
<td>23.5</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>67.6</td>
<td>73.5</td>
<td>65.0</td>
<td>18.6</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>

Italy's Trade Gap Widens On Weaker
Exports 
by <a href="/comment/Brusca.html">Robert
Brusca</a> October 16, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016e.jpg" align="left" border="0" height="265" width="353">
Italy&#8217;s exports and imports both dropped on the month with
exports dropping faster. As a result, the trade gap widened. But the
gap has improved from its worst level at end of 2008. True, the deficit
has expanded again from it best level in May of 2009, but both exports
and imports are on the mend. The export drop this month was
particularly large and therefore it is hard to put in context; it will
take several more months to figure out if this is a new trend of sorts,
or an oddity. 
 

One problem is that Germany, too, had reported a sharp and
unexpected drop in exports. So the Italian drop may have something to
it. Even so it could be that the same rogue factor affected both of
them, it could be a coincidence, or it could be a fundamental weakening
in exports. It will take time to tell 
 

Because of the relatively sharp drop this month, -15.9% for
exports Vs -8.8% for imports, the Yr/Yr trends are probably distorted.
But both export and import growth are down sharply across major
category components (see the table, at the bottom). 
 

While all nations are banking on trade to become an engine of
growth, US demand seems to be slow in starting and most industrialized
economies are having a hard time getting into gear, too. It is in this
environment in which it is hard to see why up to this point exports
have responded so well in the cycle. One man&#8217;s export is another&#8217;s
import and ultimately is linked to domestic demand which remains
globally challenged: that is the part that is hard to figure out. Whose
export demands have been strong and will they stay that way? 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Italy's
Trade Trends</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/mo % monthly rate</td>
<td colspan="4">Period Specified saar</td>
</tr>
<tr class="grey3">
<td class="firstcol">Seasonally Adjusted</td>
<td>Aug-09</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>3-MO</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr-Ago</td>
</tr>
<tr class="grey2">
<td class="firstcol">Current Account Bal</td>
<td>&#8364;&#8364;(3,237)</td>
<td>&#8364;&#8364;(1,382)</td>
<td>&#8364;&#8364;(2,378)</td>
<td>&#8364;&#8364;(2,332)</td>
<td>&#8364;&#8364;(2,099)</td>
<td>&#8364;&#8364;(3,656)</td>
<td>&#8364;&#8364;(3,927)</td>
</tr>
<tr class="grey2">
<td class="firstcol">Goods
Balance</td>
<td>&#8364;&#8364;(1,086)</td>
<td>&#8364;&#8364;814</td>
<td>&#8364;&#8364;939</td>
<td>&#8364;&#8364;222</td>
<td>&#8364;&#8364;592</td>
<td>&#8364;&#8364;163</td>
<td>&#8364;&#8364;86</td>
</tr>
<tr class="grey1">
<td class="firstcol">
Exports</td>
<td>-15.9%</td>
<td>11.8%</td>
<td>-1.3%</td>
<td>-25.7%</td>
<td>-22.4%</td>
<td>-24.4%</td>
<td>-8.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">
Imports</td>
<td>-8.8%</td>
<td>12.9%</td>
<td>1.2%</td>
<td>17.9%</td>
<td>-10.9%</td>
<td>-26.0%</td>
<td>-2.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Services
Balance</td>
<td>&#8364;&#8364; 352</td>
<td>&#8364;&#8364; (399)</td>
<td>&#8364;&#8364; (788)</td>
<td>&#8364;&#8364; (278)</td>
<td>&#8364;&#8364; (585)</td>
<td>&#8364;&#8364; (766)</td>
<td>&#8364;&#8364; (458)</td>
</tr>
<tr class="grey1">
<td class="firstcol">Exports</td>
<td>10.4%</td>
<td>5.8%</td>
<td>-0.4%</td>
<td>83.3%</td>
<td>41.6%</td>
<td>-0.7%</td>
<td>-2.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Imports</td>
<td>-1.7%</td>
<td>-0.8%</td>
<td>3.3%</td>
<td>3.0%</td>
<td>-15.6%</td>
<td>-12.1%</td>
<td>-3.3%</td>
</tr>
<tr class="grey4">
<td class="firstcol" colspan="7">Not
Seasonally Adjusted</td>
<td>All Yr/Yr</td>
</tr>
<tr class="grey3">
<td class="firstcol">Exports</td>
<td colspan="2">Aug-09</td>
<td colspan="2">Aug-08</td>
<td colspan="2">Aug-07</td>
<td>Aug-06</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food&amp;Bev</td>
<td colspan="2">-1.7%</td>
<td colspan="2">-1.7%</td>
<td colspan="2">7.2%</td>
<td>10.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Capital Gds</td>
<td colspan="2">-24.9%</td>
<td colspan="2">-8.2%</td>
<td colspan="2">15.9%</td>
<td>12.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Transport</td>
<td colspan="2">-23.9%</td>
<td colspan="2">-7.9%</td>
<td colspan="2">9.0%</td>
<td>14.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Consumer Gds</td>
<td colspan="2">-14.1%</td>
<td colspan="2">-11.5%</td>
<td colspan="2">8.0%</td>
<td>8.3%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Other Gds</td>
<td colspan="2">-44.2%</td>
<td colspan="2">4.3%</td>
<td colspan="2">4.5%</td>
<td>20.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Imports</td>
<td colspan="2">Aug-09</td>
<td colspan="2">Aug-08</td>
<td colspan="2">Aug-07</td>
<td>Aug-06</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food&amp;Bev</td>
<td colspan="2">-10.5%</td>
<td colspan="2">-0.5%</td>
<td colspan="2">6.4%</td>
<td>6.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Capital Gds</td>
<td colspan="2">-22.4%</td>
<td colspan="2">-10.5%</td>
<td colspan="2">13.1%</td>
<td>6.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Transport</td>
<td colspan="2">-21.9%</td>
<td colspan="2">-6.2%</td>
<td colspan="2">11.6%</td>
<td>5.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol"> Consumer Gds</td>
<td colspan="2">-8.5%</td>
<td colspan="2">-5.7%</td>
<td colspan="2">8.3%</td>
<td>9.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Other Gds</td>
<td colspan="2">-42.6%</td>
<td colspan="2">9.7%</td>
<td colspan="2">-0.1%</td>
<td>33.4%</td>
</tr>
<tr class="grey4">
<td colspan="8" class="firstcol">Balances
in Mlns of euros</td>
</tr>
</tbody>
</table>
</body></html>

U.S. Factory Production Climbs ForThird Month While Plant Utilization Reaches Seven-Month High

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015l.jpg" width="353">
The Federal Reserve Bank of New York reported that its October Empire State Factory Index of General Business Conditions improved to its highest level since 2004. The latest reading of 34.57 compares to sharply negative levels this past Winter and suggests positive growth in factory sector activity. The latest level was much better than Consensus expectations for a reading of 18.0.
The figure is a diffusion index. Since the series&#39; inception in 2001, there has been a 75% correlation between its level and the three-month change in U.S. factory sector industrial production. Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to independent survey questions; it is not a weighted combination of the components. The series dates back only to 2001.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State. Participants from across the state in a variety of industries respond to a questionnaire and report the change in indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/empiresurvey_overview.html">here</a>.
The new orders component again paced the latest gain in the overall October index with a rise to the highest level since 2005. The shipments index also improved sharply while the employment index reached its highest level since 2007. In the history of the NY employment index, there has been an 87% correlation between the employment index and the three-month growth in overall U.S. factory sector employment as reported by the Labor Department. The workweek index also improved sharply as did unfilled orders and delivery times.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015m.jpg" width="353">
The price index eased slightly after having risen to its highest level in a year during September. Nevertheless, the index level remained down sharply from all of last year. Since inception in 2001, there has been a 77% correlation between the index of prices paid and the three-month change in the core intermediate materials PPI.
The Empire State index of expected business conditions in six months rose during August to its highest level since early 2007. The subseries for new orders, shipments, employment and capital expenditures each ticked up.
The Empire State data is available in Haver&#39;s SURVEYS database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM">Empire State Manufacturing Survey</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">October &#39;08&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">General Business Conditions (diffusion index, %)&nbsp;&nbsp;</td>
<td>34.57</td>
<td>18.88</td>
<td>-24.30</td>
<td>-10.10</td>
<td>17.23</td>
<td>20.24</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; New Orders</td>
<td>30.82</td>
<td>19.84</td>
<td>-19.57</td>
<td>-6.25</td>
<td>15.71</td>
<td>20.11</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Employment</td>
<td>10.39</td>
<td>-8.33</td>
<td>-3.66</td>
<td>-5.36</td>
<td>11.28</td>
<td>12.62</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>19.48</td>
<td>20.24</td>
<td>31.71</td>
<td>46.99</td>
<td>35.64</td>
<td>41.88</td>
</tr>
</tbody>
</table>


</html>

The Federal Reserve Bank of New York reported that its October Empire State Factory Index of General Business Conditions improved to its highest level since 2004. The latest reading of 34.57 compares to sharply negative levels this [...]

Empire State Factory Conditions Improve To Highest Level Since 2004

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015i.jpg" align="right" border="0">
October
index of factory sector activity from the Philadelphia Federal Reserve
Bank indicated that activity in the region continued to grow this
month. The index slipped as expected to a positive 11.5 from 14.1 in
September and remained near its highest since mid-2007. The latest
level compared to figures near -40.0 this past fall and winter.During
the last ten years there has been a 77% correlation between the level
of the Philadelphia Fed Business Conditions Index and the three-month
growth in factory sector industrial production.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015j.jpg" align="right" border="0">
There has been a 70%
correlation with q/q growth in real GDP. The latest survey from the
Philadelphia Federal Reserve Bank can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2009/bos1009.pdf">here.</a>·
Amongst the components, new orders improved to 6.2 from 3.3 and the
latest figure was the highest since 2007. Also showing improvement was
the employment index. It rose to a still negative -6.8 but that
compared with a low of -52.0 during March. During the last ten years
there has been a 79% correlation between the index level and the m/m
change in manufacturing sector payrolls. The inventory component
reversed its earlier improvement and suggests that any turn towards
inventory accumulation will be modest. Improved pricing power
accompanied the gains in real activity. The prices paid index rose to
its highest level since last September and compares to negative
readings this past winter and spring. During the last ten years there
has been a 74% correlation between the prices paid index and the
three-month growth in the intermediate goods PPI.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015k.jpg" align="right" border="0">
There has been an 83%
correlation with the change in core intermediate goods prices.
Expected business conditions in six months fell this month. The October
index fell to a still-positive reading of 39.8 but that was down from
the recent high. Most of the index components fell except anticipated
capital expenditures.· The figures from the Philadelphia Federal
Reserve can be found in Haver's SURVEYS
database.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Philadelphia
Fed (%)</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">October '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">General Activity Index</td>
<td>11.5</td>
<td>14.1</td>
<td>-38.7</td>
<td>-21.3</td>
<td>5.0</td>
<td>8.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>6.2</td>
<td>3.3</td>
<td>-30.6</td>
<td>-14.7</td>
<td>6.9</td>
<td>9.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Number of Employees</td>
<td>-6.8</td>
<td>-14.3</td>
<td>-19.2</td>
<td>-8.7</td>
<td>6.8</td>
<td>9.0</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>21.3</td>
<td>&nbsp;14.9</td>
<td>&nbsp;10.2</td>
<td>36.4</td>
<td>26.3</td>
<td>36.7</td>
</tr>
</tbody>
</table>
</body></html>

October index of factory sector activity from the Philadelphia Federal Reserve Bank indicated that activity in the region continued to grow this month. The index slipped as expected to a positive 11.5 from 14.1 in September and [...]

Philadelphia Fed Index Slips Yet Still Indicates Positive Growth

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091015e.jpg" align="left" border="0" height="265" width="353">
The EMU HICP fell by 0.1% m/m in September. The 12-month pace
for headline inflation was -0.3%. The headline rate has not increased
Yr/Yr since April. Headline inflation is choppy at a low level. Core
inflation has been very steady at a 1.1% pace; it barely ticked up to
1.2% over three months in Sept. 
 
In EMU goods sector inflation has been falling under the influence of
weak oil prices aided by the impact of a rising euro exchange rate.
Services prices have been steady at 1.8% but over the recent three
months service sector inflation stepped down to a 1.3% pace. 
 
The headline inflation trend across selected large EMU nations shows
subdued rates. Spain and France show a hint of inflation acceleration
in their sequential growth rates. Spain&#8217;s 1.9% 3-month pace is the
highest in this group. 
 
Core inflation is both stable and low across the large EMU countries.
Italy alone shows some hint of acceleration with a core inflation pace
of 1.9% over three months up from what has generally been a 1.5% pace
for core inflation there. 
 
On balance inflation, inflation trends inflation dynamics and inflation
fundamentals appear to be very well contained in the zone. We see the
inflation readings and trends above. The dynamics do not show wages or
prices getting out of control across the economy. The fundamentals show
constrained money and credit growth, lots of economic slack, as well as
a rising exchange rate. There is little ground for the ECB to be
inflation wary. The increases in global commodity prices have been well
blunted by euro strength Vs the dollar. 
 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">Trends in HICP</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% SAAR</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Sep-09</td>
<td>Aug-09</td>
<td>Jul-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>0.8%</td>
<td>-0.3%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>0.0%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>1.2%</td>
<td>1.1%</td>
<td>1.1%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>0.5%</td>
<td>0.4%</td>
<td>-1.7%</td>
<td>-2.9%</td>
<td>-0.2%</td>
<td>-1.8%</td>
<td>4.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>-0.7%</td>
<td>0.2%</td>
<td>0.8%</td>
<td>1.3%</td>
<td>1.8%</td>
<td>1.8%</td>
<td>2.6%</td>
</tr>
<tr>
<td colspan="8">&nbsp;</td>
</tr>
<tr>
<td colspan="8">HICP</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>-0.3%</td>
<td>0.7%</td>
<td>-0.5%</td>
<td>-0.4%</td>
<td>0.4%</td>
<td>-0.5%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>-0.1%</td>
<td>1.1%</td>
<td>0.7%</td>
<td>-0.4%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.4%</td>
<td>0.5%</td>
<td>-0.6%</td>
<td>1.1%</td>
<td>1.5%</td>
<td>0.4%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>-0.3%</td>
<td>0.7%</td>
<td>0.1%</td>
<td>1.9%</td>
<td>1.4%</td>
<td>-1.0%</td>
<td>4.6%</td>
</tr>
<tr>
<td colspan="8">Core excl Food Energy and
Alcohol</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>1.3%</td>
<td>1.0%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.8%</td>
<td>1.0%</td>
<td>1.2%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.4%</td>
<td>0.5%</td>
<td>-0.4%</td>
<td>1.9%</td>
<td>1.5%</td>
<td>1.5%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>-0.1%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.7%</td>
<td>0.7%</td>
<td>0.3%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
</body></html>

The EMU HICP fell by 0.1% m/m in September. The 12-month pace for headline inflation was -0.3%. The headline rate has not increased Yr/Yr since April. Headline inflation is choppy at a low level. Core inflation has been very steady at [...]

EMU HICP Drops in September Core Rate Remains in Subdued Trend

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

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

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Winnie Tapasanun

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Industrial production (IP) rose a more-than-expected 0.4% m/m in December following a 0.4% rise in November (+0.2% initially) and a 0.3% decline in October (-0.1% previously), data from the Federal Reserve Board showed. December marked the third m/m gain in four months. A 0.1% m/m December increase had been expected in the Action Economics Forecast Survey. The year-on-year growth rate slowed to 2.0% in December, the lowest since September, from 2.5% in November; this compared with a 0.3% y/y decline in December 2024. The December IP index at 102.3 was 3.1% above a low of 99.2 in January 2024. IP rose 0.2% q/q in Q4 2025 after a 0.6% q/q gain in Q3 2025, increasing at a 0.7% annualized rate following a 2.3% Q3 annualized pace. In 2025, IP rose 1.3% after declines of 0.7% in 2024 and 0.2% in 2023.

By **industry groups**, manufacturing production grew 0.2% (2.0% y/y) in December, up for the third time in four months, following a 0.3% increase in November (0.0% initially) and a 0.6% drop in October (-0.4% previously). Durable goods production edged up 0.1% (3.1% y/y) in December, the first m/m increase since September, after a 0.1% downtick in November. Within durables, the following categories rose m/m in December, including output rises of 2.4% (3.5% y/y) in primary metals, 1.7% (1.3% y/y) in electrical equipment, appliances & components, 1.5% (17.2% y/y) in aerospace & miscellaneous transportation equipment, 0.8% (-2.2% y/y) in furniture & related products, 0.2% (4.8% y/y) in machinery, and 0.1% (7.4% y/y) in computer & electronic products. Notably, aircraft & parts production climbed 2.1% (30.0% y/y), the third m/m increase in four months, reversing a 2.1% November drop. To the downside, the following durable goods categories fell m/m in December, including drops of 2.3% (-5.5% y/y) in wood products, 1.1% (-2.8% y/y) in motor vehicles & parts, 1.1% (-1.0% y/y) in nonmetallic mineral products, 0.1% (+2.6% y/y) in fabricated metal products, and 0.1% (-3.7% y/y) in miscellaneous durables goods.

Nondurable goods production increased 0.3% (1.0% y/y) in December, the third m/m gain in four months, after a 0.8% rebound in November. The December increase reflected m/m output rises of 1.8% (2.1% y/y) in petroleum & coal products, 0.5% (1.9% y/y) in food, beverages & tobacco, and 0.3% (-0.2% y/y) in plastics & rubber products. In contrast, the following nondurable goods categories declined m/m in December, including output drops of 1.3% (-0.8% y/y) in textiles & product mills, 1.1% (-0.5% y/y) in apparel & leather goods, 0.3% (-3.1% y/y) in paper, 0.3% (-3.4% y/y) in printing & related support activities, and 0.1% (+1.6% y/y) in chemicals.

Utilities output recovered 2.6% (2.3% y/y) in December, the third m/m rise in four months, following a 0.3% decline in November (-0.4% initially), reflecting a 1.2% rebound (1.3% y/y) in electric utilities output and a 12.0% jump (8.7% y/y) in natural gas utilities output. Mining activity, however, fell 0.7% (+1.7% y/y), the third m/m slide in four months, after an unrevised 1.7% November gain.

By **market groups**, business equipment output advanced 0.8% (10.1% y/y) in December, up for the third time in four months, after a 0.3% increase in November. Consumer goods output rose 0.7% (0.7% y/y) after a 0.7% November rebound, reflecting a 0.7% decline (-3.5% y/y) in durable consumer goods and a 1.1% gain (1.8% y/y) in nondurable consumer goods. Materials production grew 0.2% (1.7% y/y), the third m/m increase in four months, after a 0.5% November rise. In contrast, construction supplies production fell 0.3% (+1.3% y/y) in December, the second m/m fall in three months, reversing a 0.3% increase in November.

In **special classifications**, factory output of selected high-tech industries increased 0.7% (10.9% y/y) in December, the third successive m/m gain, following a downwardly revised 0.5% rise in November (+1.1% initially). Manufacturing production excluding selected high-tech industries rose 0.2% (1.7% y/y) in December after a 0.3% gain in November, and manufacturing production excluding selected high-tech and motor vehicles & parts rose 0.3% (2.1% y/y) after a 0.4% increase; both measures posted their third m/m gain in four months.

Capacity utilization rose to 76.3% in December, the highest since July, from 76.1% in November (76.0% initially). The Action Economics Forecast Survey forecasted 76.0%. The December reading was 3.2 percentage points below its long-run (1972–2024) average. Manufacturing capacity utilization held at 75.6% in December and November (75.4% previously); the December rate was 2.6 percentage points below its long-run average.

Industrial production and capacity data are in Haver’s **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.

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- December IP +0.4% (+2.0% y/y), third m/m rise in four months, led by a 2.6% gain in utilities.
- Manufacturing +0.2% (+2.0% y/y), w/ durables +0.1% and nondurables +0.3%.
- Selected high-tech +0.7%, third consecutive m/m rise; motor vehicles -1.1%, fourth straight m/m fall.
- Mining -0.7%, third m/m decline in four months.
- Key categories in market groups mostly increase.
- Capacity utilization at a five-month-high 76.3%; mfg. capacity utilization steady at 75.6%.

U.S. Industrial Production Increases in December on Utilities Rebound

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The European Monetary Union has concluded a year of weak-to-moderate growth with inflation largely toeing the line. As always, the inflation picture is more complicated than a simple statement. When we look at inflation, we look at the headline, we look at the core, to make sure that the volatile food & energy elements aren't dominating the index, and then we look across some of the main participants to see if the trend for inflation is shared broadly across the largest countries in the Monetary Union. When we apply those kinds of standards, the grading for the year is reduced. However, based on the headline alone, it was an excellent year for the ECB.

**Headline Inflation in 2025**
Headline inflation in 2025 rose by 2%, exactly on the target of the European Central Bank. It rose over six months at a 2% annual rate and then concluded the year over the last three months, rising at a 1.6% annual rate with some margin below the target set by the central bank itself.

**Country Headline Inflation Trends**
On a country basis, the performance is not nearly as good. While year-on-year results look pretty good, with Germany at 2%, France at 0.7% and Italy at 1.3%, Spain comes in at 3.1%. So the three largest monetary union economies come in at or below 2% with Spain as a rogue observation. When we look further at the sequence of inflation within the year, we see Germany at 2% over 12 months, rising to 3.1% over 6 months, rising further to 4% over 3 months. Inflation is accelerating at the end of the year even as Germany hits the target! This is something to keep an eye on. For France, the inflation rate also accelerates slightly but stays below the bar of 2% over three months, six months, and 12 months. For Italy, inflation is decelerating from 1.3% over 12 months to -0.3% over six months, and then inflation in Italy is contracting at a 1.9% annual rate over three months. Spanish inflation shows clear trouble with a 3.1% 12-month pace, rising to 4.6% at an annual rate over six months, and rising further to 5.9% at an annual rate over three months.

**Core Inflation**
For core inflation, the Monetary Union’s consolidated numbers are not yet compiled. However, for the four largest economies, we do have core or ex-energy inflation. For Germany, it's inflation excluding energy. On that basis, German inflation is 2.2% over 12 months, it rises to 2.7% over six months, then falls back to a 2% annual pace over three months All-in-all not a bad performance. For France, core inflation is below 2% over 12 months, six months, and three months. In Italy, once again, we see inflation decelerating: Italian inflation is 2% over 12 months - right on the ECB target. It falls to a 1.3% annual rate over six months and then falls further to a 0.3% annual rate over three months. For Spain, the core has another very difficult story for the Monetary Union. Inflation is 2.7% over 12 months, it rises to 3.1% over six months and stays at an annual rate of about 3% over three months. This is too high and it looks stubborn, particularly because it is the core.

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**Across the Big Four**
On balance, what we see is that the ECB grades-out well, based on headline inflation and based on its sequential performance for the European economic union as a whole. But large countries, show headline inflation building some steam particularly in the largest economy, Germany, and in Spain, the smallest of the BIG-4 economies. Inflation is once again mixed in the Monetary Union with German and Spanish inflation too high and with French and Italian inflation running either at or below the 2% mark and with Italy showing a tendency towards weaker prices for both the headline and the core. The change in prices over these various periods shows inflation gets the most help from oil prices over 12 months where Brent, measured in euros, falls by 22.6%; over six months Brent prices fall by 37% at an annual rate; and over three months Brent oil prices are unchanged, so that the headline isn't getting help at all from oil prices except through lagged effects.

**Summing Up**
Meanwhile, there are some signs of stronger growth taking root in Europe, especially in Germany with better industrial production being logged and with German industrial production looking significantly stronger than the PMI data, suggesting that perhaps PMI data are missing something about the rebound that is developing. Nonetheless, it was a good year for inflation and the ECB; however, it doesn't exactly end the year in the catbird’s seat. On the other hand, it does not end the year behind the curve. There are scattered pressures and needs among member countries which always makes monetary policy difficult. When some countries need higher interest rates and others need lower interest rates, the ECB is in a difficult spot. Clearly, Spain and Germany are experiencing different phenomenon than France and Italy. That could be the policy challenge for the year ahead.

Europe

Big Four Inflation in EMU 2025-Final

Andrew Cates

**The growth consensus for 2026** 
Consensus growth forecasts for 2026 have continued to firm over the past six months, with upward revisions most pronounced in economies that are more directly exposed to the global AI investment cycle. Taiwan stands out, reflecting its central role in advanced semiconductor manufacturing and the spillovers from sustained AI-related capex across the global tech supply chain. The US has also seen a sizeable upgrade, consistent with strong domestic investment in AI infrastructure and data-centre capacity, alongside resilient demand for high-value tech services. Elsewhere in Asia, upgrades to South Korea and, to a lesser extent, China and India point to a broader regional benefit from the AI-driven electronics and capital-goods cycle, even as underlying macro conditions remain mixed. Canada has also seen modest upward revisions, likely reflecting its close integration with US investment trends. By contrast, revisions across much of Europe and Japan have been more muted, while forecasts for Russia remain under downward pressure.

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**The next steps for central bank policy** 
Based on responses to the special questions in the latest Blue Chip survey, the chart highlights how uncertain panelists remain about the precise timing of the next policy move, even where there is broad agreement on direction. Expectations for both the Fed and the Bank of England are now loosely centred on March 2026 as the most likely window for the next easing step, but the spread of responses points to limited conviction and a high sensitivity to incoming data. By contrast, panelists continue to see the ECB as largely through its easing cycle, with a clear majority expecting any further move only later, if at all. The Bank of Japan remains the clear outlier: while further tightening is still the central expectation, views are split on timing, with panelists divided between a March move and a hike pushed beyond April 2026—highlighting ongoing uncertainty over the durability of domestic inflation and wage dynamics.

260115Z2.jpg

**The UK economy and BoE policy** 
While Blue Chip panelists remain divided on the precise timing of the Bank of England’s next policy cut, the latest run of UK data is tilting market expectations toward an earlier move. Economic releases have increasingly fallen short of expectations, a pattern that has coincided with a steady decline in short-dated gilt yields. The negative surprise profile reflects a combination of weak household demand and softer labour-market indicators. This has generated downside momentum in the data, reinforcing the case—at least from a market perspective—for earlier or deeper policy easing.

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**The impact of Artificial Intelligence**
Responses to the special questions in the latest Blue Chip survey also suggest that panelists are divided over the timing of AI’s macroeconomic impact in the US. A sizeable share already reports seeing noticeable effects, consistent with the rapid pace of AI-related investment and adoption over the past year. At the same time, a similarly large group expects AI’s impact to become more evident only over the next one to three years, implying a belief that productivity and growth effects will materialise with a lag. These views are notable given that a majority of panelists continue to judge anticipated AI-related gains as being overstated in financial markets, underscoring the risk of disappointment—and potential equity market volatility—if realised outcomes fail to match elevated expectations.

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**US business formation and productivity growth**
The chart points to a renewed pick-up in US productivity growth alongside a marked step-up in business applications, a combination that has naturally fuelled interest in the role of AI. The acceleration in output per hour over the past year coincides with a surge in corporate formations, potentially reflecting both heightened investment in new technologies and the emergence of new, AI-enabled business models. That said, productivity growth has historically been highly cyclical, often strengthening late in the cycle or during periods of labour hoarding and cost discipline, before fading again. As such, while AI may be contributing at the margin, it remains too early to conclude that the recent improvement marks a durable, technology-driven shift rather than another cyclical upswing.

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**China’s export growth**
This week’s China trade data revealed that its export growth has continued to rotate away from the US and toward Europe and ASEAN, a pattern that has become more pronounced over the past year. While exports to the US have fallen sharply on a year-on-year basis, shipments to both Europe and ASEAN have held up markedly better, and in recent months have returned to positive growth. This divergence is consistent with the tightening of US trade policy toward China, including higher tariffs, expanded export controls and broader efforts to “de-risk” supply chains. By contrast, trade with Europe and ASEAN appears to be benefiting from trade diversion and re-routing, as Chinese firms redirect exports toward markets where barriers remain lower and supply-chain integration is deeper.

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The global backdrop remains unsettled, reflected in rising gold prices amid geopolitical tensions—most recently around Venezuela—and renewed political noise, including questions over Federal Reserve independence. At the same time, however, many major equity indices remain at or close to all-time highs, buoyed by optimism around AI and reinforced by a run of relatively benign US inflation readings. Against this mixed backdrop, the charts this week point to a global outlook that is becoming more differentiated rather than uniformly weaker. Blue Chip forecasts for 2026 growth have edged higher over the past six months, with upgrades concentrated in economies most exposed to the AI investment cycle, notably the US and parts of Asia (chart 1). Central bank expectations remain fluid: while panelists broadly anticipate easing by the Fed and Bank of England, conviction around timing is limited, and the Bank of Japan remains an outlier with further tightening still expected (chart 2). In the UK, that uncertainty sits alongside a deteriorating data flow, with negative economic surprises increasingly tilting market expectations toward an earlier BoE rate cut (chart 3). Turning to the US, special questions highlight a divide over whether AI is already having a noticeable macro impact or whether its effects will emerge more gradually, a tension that mirrors concerns about over-optimism in financial markets (chart4). That debate is echoed in the recent pick-up in US productivity growth and the step-change in business formation—developments that may reflect AI-related dynamics but which also warrant caution given the historically cyclical nature of productivity (chart 5). Finally, China’s trade data point to a continued re-orientation of export growth away from the US and toward Europe and ASEAN, consistent with evolving US trade policy and broader supply-chain realignment (chart 6).

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Charts of the Week: Between Optimism and Uncertainty

Michael J. Moran

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The Bureau of Labor Statistics did not publish a report on export and import prices for October because of the government shutdown, and BLS was unable to construct statistics for October to include with the November report. The charts above have a gap in October, and the November figures are represented by a small dot.

Import prices have been remarkably stable in the past three years, as shown by the sideways movement in the level of the import price index (left chart). Focusing on percent changes (i.e. inflation rates) rather than the level of the index shows deflation in 2023 and early 2024 followed by higher prices more recently (right chart). Still, the net change in the past 12 months has totaled only 0.1% and the cumulative change in the past three years amounted to a decline of 0.4%.

A calm environment in the energy sector has helped to restrain import prices, as the price of crude oil showed little change in 2023 and 2024 and declined in 2025. Import prices excluding petroleum products have increased in recent years, but the changes have been modest: 0.9 in the past 12 months and 1.3% in the past three years.

The non-oil components of import prices have traced various patterns in recent years, but shifts have been largely offsetting. Prices of food and autos increased noticeably in 2023 and 2024, but they gave back much of those increases in 2025. Prices of capital goods were stable in 2023 and 2024, but they started to increase in 2025. Prices of consumer goods have been volatile, showing bursts of higher prices followed by discounting, leaving a modest net increase in the past three years.

The calm energy environment also seemed to play a role on the export side, as the industrial supply category showed little net change in prices over 2023 and 2024 before jumping in early 2025. Food prices followed a similar pattern, showing two years of restraint before moving higher in 2025. These two categories account for much of the upward movement in overall export prices in 2025. Prices of consumer goods also started to move higher in 2025 after little net change in the prior two years. Prices of capital goods and automobiles have traced reasonably steady upward paths.

Many observers might try to use the import component of this report to gain insight into the effect of tariffs on prices. That will be difficult because the figures from this report are pre-tariff; there will be no independent upward pressure on prices in this report because of tariffs. In fact, one should look for lower import prices in searching for a tariff effect. That is, if a foreign exporter were to absorb the tariff burden, that would be accomplished by reducing the pre-tariff price in order to keep the after-tariff price steady.

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Some exporters to the US may have made such efforts. The nearby chart shows the month-to-month change in import prices in 2025, and May and June both showed lower prices. These months were especially important because they followed the announcement by President Trump of marked increases in tariffs in April. Also, some of the downward pressure occurred in components that would be sensitive to price (autos and consumer goods). Of course, May and June might be too soon after the announcement of draconian tariffs for foreign exporters to assess and change their pricing strategy.

The chart on monthly changes ends in September because the absence of an October reading prevents the calculation of the month-to-month changes for October and November. However, the two-month change from September to November is easily calculated, and the increase of 0.4% suggests little or no effort to absorb the burden of tariffs.

These import and export price series are not seasonally adjusted; they can be found in Haver’s **USECON** database. Detailed figures are available in the **USINT** database. The expectations figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

- Import prices have changed little in the past three years.
- Export prices were stable in 2023-24, but moved higher in 2025.

Import & Export Prices: Generally Modest Changes

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The Empire State Manufacturing Index of General Business Conditions rose to a higher-than-expected 7.7 in January following a 17.2-drop to -3.7 in December, according to the Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. A reading of 1.0 for January had been expected in the Action Economics Forecast Survey. The positive January figure indicated that the business activity in New York State expanded for the third time in four months; it was an improvement from -7.4 in January 2025 and a low of -29.7 in January 2024, though still below a high of 16.8 in November 2024. The percentage of respondents reporting an increase in general business conditions was 34.2% in January, up from 31.7% in December; the percentage reporting a decrease was 26.5%, down from December’s 35.4%. The latest survey was conducted between January 2 and January 9.

The headline index reflects the answer to a single question concerning the state of economic activity and is not calculated from the components. Haver Analytics calculates a composite index from the five major components, which is comparable to the ISM manufacturing index. This calculated index increased to 51.2 in January following a 4.2-point decline to the neutral-level 50.0 in December (the lowest level since September); it was slightly up from 50.7 in January 2025 and well above a low of 43.0 in January 2024. The index is the average of five diffusion indexes: new orders, shipments, employment, supplier deliveries and inventories with equal weights (20% each).

In the latest survey, the new orders index rose to 6.6 in January after a 10.6-point drop to -1.0 in December, marking the third m/m gain in orders in four months and a sharp improvement from a low of -30.7 in January 2024. The shipments index jumped to 16.3 in January, the highest level since November 2024, following a 16.5-point fall to -5.0 in December; it was well above a low of -21.7 in April 2024. The unfilled orders index improved to -8.2 in January after a 9.1-point decrease to -14.9 in December, indicating that unfilled orders contracted for the eighth straight month but at a less severe pace; the index reached a low of -24.2 in January 2024. The inventories index fell to -2.1 in January, the lowest level since September, after a 2.7-point decline to 4.0 in December, signaling the first inventory contraction since October. Meanwhile, the delivery times index increased to 0.0 in January from -5.9 in December, with 12.4% of respondents reporting longer delivery times and an identical 12.4% reporting shorter times, indicating that delivery times were unchanged.

On the labor front, the number of employees index fell to -9.0 in January after a 1.0-point increase to 7.5 in December, indicating that employment contracted for the first time since September and reached its lowest level since January 2024. The index remained well below a peak of 24.9 in February 2022. In January, only 7.9% of respondents reported an increase in employment while a higher 16.8% reported a decline. The average workweek index dropped to -5.4 in January from 2.5 in December, turning negative for the first time since October and hitting the lowest level since April 2025.

Inflation pressures eased in January but remained high. The prices paid index fell to 42.8 in January, the lowest level since March 2025, after a 5.9-point decrease to 44.2 in December. Although still well below a peak of 84.9 in April 2022, the index remained above a low of 25.9 in December 2024 and a low of 20.8 in December 2023. In January, 44.5% of respondents reported higher prices paid while only 1.7% reported lower prices paid. The prices received index fell to 14.4 in January, the lowest reading since January 2025, from 25.4 in December. The index was up from a low of 7.5 in December 2024 and a low of 7.7 in July 2023 but far below a high of 51.9 in March 2022. In January, 18.9% of respondents reported higher prices received while 4.4% reported lower prices received.

Firms remained fairly optimistic about the future business outlook in the latest survey. The index for future business conditions eased to 30.3 in January after rising to 33.5 in December, with 50.6% of respondents expecting business conditions to improve over the next six months. Future new orders edged down to 33.3 in January from 34.5 in December, while future shipments rose to 34.9—the highest level since March 2022—from December’s 30.7. Growth in future employment strengthened to 14.9, the highest reading since November 2024, from December’s 7.8. Capital spending plans remained positive for the third consecutive month in January, with the future capital expenditures index rising to 10.3 from December’s 6.9. Expected prices paid fell to 52.6 in January from 55.4 in December and expected prices received fell to 36.5 from 41.6, with both measures at their lowest levels since December 2024.

The indexes in this report are diffusion indexes and measure the percentage of respondents indicating an increase minus the percentage indicating a decrease with zero separating expansion from contraction.

The New York Fed survey data are contained in Haver’s **SURVEYS** database. The expectations series is in Haver’s **AS1REPNA** database.

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- General Business Conditions Index up 11.4 pts. to 7.7 in January.
- Positive: Shipments (16.3, highest since Nov. ’24) and new orders (6.6).
- Negative: Employment (-9.0, lowest since Jan. ’24), unfilled orders (-8.2), and inventories (-2.1, a four-month low).
- Prices paid at a 10-month-low 42.8 and prices received at a one-year-low 14.4.
- Firms fairly optimistic: Future Business Conditions Index down to a still-positive 30.3; future prices paid at a one-year-low 52.6.

Economy in Brief: 2009

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