Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071220e.jpg" align="left" border="0" height="265" width="353">
Consumer is mostly downbeat throughout main EU nations. 
 

Italy&#8217;s consumer confidence fell early in 2007 and has
remained in a narrowed lower range ever since. Despite an ongoing rise
in the Euro and weaker results in other Euro-area economies, in Italy
Consumer confidence has continued to move sideways. Its drop this month
to 107 from 107.6 leaves it near the lower bound of this new range (see
plot above). Confidence is in the bottom third of its range. Italian
consumers are very pessimistic in many respects about the year ahead.
For the next 12 months ahead they rate the overall situation as the
worst in the last 100 months. Unemployment expectations are in the top
13 percent of this range. Consumers rate their financial situation in
the past 12 months as in the bottom 10 percent of its range (worse,
actually 7.5%-tile) and rate the year-ahead prospects as the worst
ever. The environment for household saving is in the top 7% currently
but for the year ahead that slips to the bottom 15 percentile. Major
purchases responses sort of break the mold for unrelenting pessimism,
as consumer feedback rates the past 12 months as being in the 23rd
percentile and the next twelve months improve to the still-poor reading
of the 38th percentile. 
 

The rest of the EU is also experiencing some consumer angst
but not without exception. The indication by GfK that German sentiment
in January may be improving is somewhat shocking in the wake of the
weak euro figures we have been seeing. Insee reports weaker conditions
coming in France featuring concerns about consumer. The weakness in the
UK&#8217;s recent CBI retail survey and its outlook for January fits right
in. In Belgium the retail and wholesale sector index just reported a
sharp fall in December. Italy&#8217;s consumers have been struggling for some
time. It is hard to know about what the fresh and upbeat German
responses might mean. German consumers have been so negative all year
long and finally they have a Christmas that is far removed from the VAT
hike they spent to avoid last year and that impacted sales patterns so
much early in 2007. One wonders if that is part of what is going on in
Germany. In the rest of the E-zone there seems little evidence of
anything that is upbeat for consumers. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col"> Italy
ISAE Consumer Confidence</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td colspan="6">Since January 1999</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Oct 
07</td>
<td>Sep 
07</td>
<td>Aug 
07</td>
<td>Jul 
07</td>
<td>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Confidence</td>
<td>107.3</td>
<td>107.3</td>
<td>106.6</td>
<td>107.4</td>
<td>34.3</td>
<td>61</td>
<td>127</td>
<td>97</td>
<td>30</td>
<td>111</td>
</tr>
<tr>
<td class="firstcol" colspan="11">Last
12 months</td>
</tr>
<tr class="odd">
<td class="firstcol">OVERALL SITUATION</td>
<td>-67</td>
<td>-63</td>
<td>-57</td>
<td>-59</td>
<td>26.2</td>
<td>63</td>
<td>-22</td>
<td>-83</td>
<td>61</td>
<td>-55</td>
</tr>
<tr class="odd">
<td class="firstcol">PRICE TRENDS</td>
<td>-23.5</td>
<td>-26.5</td>
<td>-25</td>
<td>-26</td>
<td>23.9</td>
<td>65</td>
<td>4</td>
<td>-32</td>
<td>36</td>
<td>-16</td>
</tr>
<tr>
<td class="firstcol" colspan="11">Next
12months</td>
</tr>
<tr class="odd">
<td class="firstcol">OVERALL SITUATION</td>
<td>-33</td>
<td>-30</td>
<td>-29</td>
<td>-25</td>
<td>1.7</td>
<td>99</td>
<td>24</td>
<td>-34</td>
<td>58</td>
<td>-13</td>
</tr>
<tr class="odd">
<td class="firstcol">PRICE TRENDS</td>
<td>26</td>
<td>31</td>
<td>22.5</td>
<td>18.5</td>
<td>45.2</td>
<td>43</td>
<td>49</td>
<td>7</td>
<td>42</td>
<td>23</td>
</tr>
<tr class="odd">
<td class="firstcol">UNEMPLOYMENT</td>
<td>2</td>
<td>-2</td>
<td>0</td>
<td>-3</td>
<td>82.1</td>
<td>12</td>
<td>9</td>
<td>-30</td>
<td>39</td>
<td>-6</td>
</tr>
<tr class="odd">
<td class="firstcol">HOUSEHOLD BUDGET</td>
<td>6</td>
<td>5</td>
<td>7</td>
<td>4</td>
<td>20.6</td>
<td>85</td>
<td>33</td>
<td>-1</td>
<td>34</td>
<td>14</td>
</tr>
<tr>
<td class="firstcol" colspan="11">HOUSEHOLD
FIN SITUATION</td>
</tr>
<tr class="odd">
<td class="firstcol">Last 12 months</td>
<td>-44</td>
<td>-39</td>
<td>-37</td>
<td>-34</td>
<td>7.5</td>
<td>96</td>
<td>-7</td>
<td>-47</td>
<td>40</td>
<td>-29</td>
</tr>
<tr class="odd">
<td class="firstcol">Next12 months</td>
<td>-14</td>
<td>-13</td>
<td>-10</td>
<td>-10</td>
<td>0.0</td>
<td>100</td>
<td>14</td>
<td>-14</td>
<td>28</td>
<td>-1</td>
</tr>
<tr>
<td class="firstcol" colspan="11">HOUSEHOLD
SAVINGS</td>
</tr>
<tr class="odd">
<td class="firstcol">Current</td>
<td>58</td>
<td>54</td>
<td>55</td>
<td>54</td>
<td>97.4</td>
<td>2</td>
<td>59</td>
<td>20</td>
<td>39</td>
<td>38</td>
</tr>
<tr class="odd">
<td class="firstcol">Future</td>
<td>-42</td>
<td>-33</td>
<td>-35</td>
<td>-34</td>
<td>0.0</td>
<td>100</td>
<td>-9</td>
<td>-42</td>
<td>33</td>
<td>-23</td>
</tr>
<tr>
<td class="firstcol" colspan="11">MAJOR
Purchases</td>
</tr>
<tr class="odd">
<td class="firstcol">Current</td>
<td>-45</td>
<td>-42</td>
<td>-41</td>
<td>-39</td>
<td>28.6</td>
<td>54</td>
<td>-15</td>
<td>-57</td>
<td>42</td>
<td>-40</td>
</tr>
<tr class="odd">
<td class="firstcol">Future</td>
<td>-66</td>
<td>-65</td>
<td>-68</td>
<td>-68</td>
<td>22.6</td>
<td>65</td>
<td>-42</td>
<td>-73</td>
<td>31</td>
<td>-62</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp;</td>
<td colspan="5">Total number of months:</td>
<td>100</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
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Consumer is mostly downbeat throughout main EU nations. Italy’s consumer confidence fell early in 2007 and has remained in a narrowed lower range ever since. Despite an ongoing rise in the Euro and weaker results in other Euro-area [...]

Italy’s Consumer Confidence Remains Flat After Early-in-the-Year Dive

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071220d.jpg" width="353">
For November, the Conference Board reported that the composite index of leading economic indicators fell by 0.4% after an unrevised 0.5% decline during October. A 0.3% decline had been expected. 
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators index and the lagged change in real GDP.
The breadth of one month gain amongst the 10 components of the leading index remained quite low at 30.0%. Over a six month period, the breadth of gain amongst the leaders components was 50% for the third month in a row.
Last month, virtually all of the leader&#39;s components fell significantly except hours worked and vendor performance.
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators recovered 0.2% after a downwardly revised 0.1% dip in October. Over the last ten years there has been a 86% correlation between the y/y change in the coincident indicators and real GDP growth.
The lagging index rose firmly for the fourth consecutive month due mostly to a higher CPI and higher C&amp;I loans. The ratio of coincident to lagging indicators (a measure of economic excess) was unchanged at the lowest level since 1991. 
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

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<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.4%</td>
<td>-0.5%</td>
<td>-0.9%</td>
<td>1.2%</td>
<td>2.5%</td>
<td>7.1%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>1.7%</td>
<td>2.5%</td>
<td>2.1%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.2%</td>
<td>0.3%</td>
<td>2.8%</td>
<td>3.0%</td>
<td>3.5%</td>
<td>0.6%</td>
</tr>
</tbody>
</table>


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For November, the Conference Board reported that the composite index of leading economic indicators fell by 0.4% after an unrevised 0.5% decline during October. A 0.3% decline had been expected. During the last ten years there has [...]

U.S. Leading Economic Indicators Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071220c.jpg" width="353">
Last week, initial claims for jobless insurance jumped 12,000 to 346,000 after a 5,000 decline during the prior week.
The data are for the survey week for December nonfarm payrolls and claims rose 17,000 (5.2%) from the November period.
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last six years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four week moving average of initial claims, a measure which smoothes out most of the series&#39; w/w volatility, rose to 343,000 (5.3% y/y), the highest level since 2005.
Continuing claims for unemployment insurance rose 12,000 after a 41,000 increase during the prior week.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment held at 2.0% for the fourth consecutive week.
What Do Worker Flows Tell Us About Cyclical Fluctuations in Employment? from the Federal Reserve Bank of Philadelphia is available <a href="http://www.phil.frb.org/files/br/2007/q2/fujita_worker-flows.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">12/14/07</th>
<th scope="col">12/07/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;346</td>
<td>334</td>
<td>8.5%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,646</td>
<td>6.3%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
</tr>
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Last week, initial claims for jobless insurance jumped 12,000 to 346,000 after a 5,000 decline during the prior week. The data are for the survey week for December nonfarm payrolls and claims rose 17,000 (5.2%) from the November [...]

U.S. Initial Unemployment Insurance Jumped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071220a.jpg" width="353">
Growth in U.S. real GDP last quarter was unrevised at 4.9% (AR) after the sharp upward revision last month. The figures from the Commerce Department were as expected. Most components were little revised, including the sharp drop in corporate profits.
Last quarter&#39;s growth in GDP still is estimated to have stemmed mostly (1.4 percentage points) from improvement in net exports, led by 19.1% (10.3% y/y) growth in real exports.
Inventories added a revised 0.9 percentage points which was negligibly lower than estimated last month. Faster accumulation added 0.2 points to growth to 2Q growth.
Corporate profits are estimated to have fallen 4.9% at an annual rate (+1.8% y/y) versus an initial read of a 4.6% decline. The housing market&#39;s decline is till estimated to have lowered the financial sector&#39; earnings by 22.7% (AR, +2.6% y/y). Domestic nonfinancial sector profitability also fell 7.0% (AR, -8.6% y/y) as costs rose. The lower dollar boosted rest of world earnings by 38.0% (AR, 36.5% y/y). Revisions to each of these figures were moderate.
Growth in final sales to domestic purchasers was left about unchanged at 2.4%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071220b.jpg" width="353">
A revised 20.7% collapse in residential investment last quarter (AR, -15.9% y/y) was little changed and subtracted 1.1 percentage points from growth during 3Q.
Strength in business fixed investment continued and was little revised at 8.7% (6.0% y/y). That added 1.0 percentage points to 3Q growth. Spending on structures grew 17.0% (16.1% y/y) and spending on equipment &amp; software grew 5.1% (AR, 1.8% y/y).
Growth in real personal consumption expenditures was little changed at 2.8% (2.9% y/y) but it still was double growth during 2Q.
The GDP chain price index was little changed at a 1.0%.
Can You Hear Me Now? is the latest from the Federal Reserve Bank of St. Louis and analyzes recent changes to communications from the Fed. It can be found <a href="http://research.stlouisfed.org/publications/mt/20080101/cover.pdf"> here</a>.

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<colgroup><col><col><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">3Q &#39;07 &nbsp;Final</th>
<th scope="col">3Q &#39;07 Preliminary</th>
<th scope="col">3Q &#39; 07 &nbsp;Advance</th>
<th scope="col">2Q &#39;07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>4.9</td>
<td>4.9</td>
<td>3.9</td>
<td>3.8</td>
<td>2.8</td>
<td>2.9</td>
<td>3.1</td>
<td>3.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>0.9</td>
<td>1.0</td>
<td>0.4</td>
<td>0.2</td>
<td>-0.4</td>
<td>0.1</td>
<td>-0.2</td>
<td>0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>4.0</td>
<td>3.9</td>
<td>3.5</td>
<td>3.6</td>
<td>3.1</td>
<td>2.8</td>
<td>3.3</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">Foreign Trade Effect</td>
<td>1.4</td>
<td>1.4</td>
<td>0.9</td>
<td>1.3</td>
<td>0.9</td>
<td>-0.1</td>
<td>-0.2</td>
<td>-0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>2.5</td>
<td>2.4</td>
<td>2.5</td>
<td>2.1</td>
<td>2.1</td>
<td>2.7</td>
<td>3.3</td>
<td>3.8</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>1.0</td>
<td>0.9</td>
<td>0.8</td>
<td>2.6</td>
<td>2.4</td>
<td>2.6</td>
<td>1.7</td>
<td>2.1</td>
</tr>
</tbody>
</table>


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Growth in U.S. real GDP last quarter was unrevised at 4.9% (AR) after the sharp upward revision last month. The figures from the Commerce Department were as expected. Most components were little revised, including the sharp drop in [...]

US 3Q GDP Still Up 4.9%, Profits Still Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071219d.jpg" width="353">
On average, retail gasoline prices last week held at the prior period&#39;s level of $3.00 per gallon, according to the US Department of Energy survey.That level is, however, down eleven cents from the peak one month ago.
The recent stability of gasoline prices owes to the decline in the price of crude oil. For spot WTI crude oil, prices at $90.00 per barrel are down almost 10% from the highs last month which nearly touched $100 per barrel.
That stability, however, is little comfort at the pump where prices have doubled versus the $1.56 averaged during 2003. To drive 10,000 miles in a vehicle which averages 20 miles per gallon, the annual cost has risen to $1,500 from $750.
At the margin, where spending decisions are made, persons earning $30,000 per year now will now spend 5% of yearly income on gasoline versus 2.5% in 2003. Since then the demand for gasoline indeed has fallen, but only modestly to 2.3% of real consumer expenditures from 2.5%. Bottom line: less will be available for spending on other goods &amp; services.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071219e.jpg" width="353">
Longer term trends paint a somewhat less gloomy picture for two reasons. 1) As a percentage of total consumer spending, that percentage spent on gasoline is down by nearly one half since before oil prices quadrupled in the mid 1970s, and 2) versus all other consumer prices gasoline has risen sharply, yet only to the level of the early 1980s.
Less demand for gasoline only is perhaps a saving grace for this picture. Had vehicle fuel efficiency not roughly doubled to that 20 miles per gallon, annual fuel costs would be $3,000. Ouch. That&#39;s still a doubling.
Relative to all other consumer prices, gasoline indeed has risen. Ouch. In fact, the rise rivals the gain of 25-30 years ago. A saving grace, perhaps; the level prices have risen to is still below the high seen in 1980. (That&#39;s only a positive if a person was born before 1963.)
Other factors also do mitigate the negative effects of the recent rise in gasoline prices. Disposable income growth is now accelerating versus decelerating in earlier periods of oil price shocks. And even though employment growth is recently down, the deceleration is nowhere near as dramatic as in earlier periods. And the unemployment rate is lower. Finally, interest rates are quite a bit lower.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071219f.jpg" width="353">
That all, makes it quite uncertain how consumer will/is holding up. The data are inconclusive, so far. Anecdotal reports are mixed. Chain store sales are easing. Vehicle sales are flat to lower. (All of the data used in this analysis is available in Haver&#39;s USECON and USWEEKLY data bases.)
Oil Shocks and Price Stability from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20071201/cover.pdf">here</a>.
Today&#39;s announcement by the Fed of recent auction result can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20071219c.htm"> here</a>.

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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">12/17/07</th>
<th scope="col">12/10/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Gasoline ($ per Gallon)</td>
<td>3.00</td>
<td>3.00</td>
<td>29.2%</td>
<td>2.57</td>
<td>2.27</td>
<td>1.85</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>90.03</td>
<td>88.33</td>
<td>47.5%</td>
<td>61.11</td>
<td>58.16</td>
<td>41.78</td>
</tr>
</tbody>
</table>
</body>
</html>

On average, retail gasoline prices last week held at the prior period's level of $3.00 per gallon, according to the US Department of Energy survey.That level is, however, down eleven cents from the peak one month ago. The recent [...]

Gasoline Still Near $3.00 per Gallon. Longer Term, Less is Used

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071219c.jpg" align="left" border="0" height="265" width="353">
Italy&#8217;s new orders are off in October, led by weakness in
foreign orders on the month. But that drop only offsets the rise the
month before. Domestic order weakness remains despite the 1.7% rise in
October. Over three months both domestic and foreign orders are
falling. Yr/Yr foreign order growth is still strong at +10.2%, while
domestic orders are up by just 2.9% over 12-months. In the quarter to
date, total orders are dropping at a 6.3% pace, while foreign orders
are dropping at a 19% rate. Domestic orders in Q4 2007 are edging
upward a pace of 1.9% at an annualized rate. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col">Italy Orders </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>-1.1%</td>
<td>0.3%</td>
<td>-0.7%</td>
<td>-5.7%</td>
<td>6.3%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>-5.6%</td>
<td>5.6%</td>
<td>-4.1%</td>
<td>-16.3%</td>
<td>12.5%</td>
<td>10.2%</td>
</tr>
<tr>
<td class="firstcol">Domestic</td>
<td>1.7%</td>
<td>-2.6%</td>
<td>1.2%</td>
<td>1.1%</td>
<td>3.0%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Sales</td>
<td>-0.5%</td>
<td>-3.6%</td>
<td>3.9%</td>
<td>-1.3%</td>
<td>5.6%</td>
<td>3.7%</td>
</tr>
</tbody>
</table>
</body></html>

Italy’s new orders are off in October, led by weakness in foreign orders on the month. But that drop only offsets the rise the month before. Domestic order weakness remains despite the 1.7% rise in October. Over three months both [...]

Italy’s Orders Sag and Drop in New Quarter

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071219b.jpg" align="left" border="0" height="265" width="353">
The IFO index for December is out, but the detail awaits
releases next week. The headlines and sector news tell us what we
already knew and that is, conditions are still deteriorating. The
Business climate and Current situation indices are still firm-valued as
they reside at or near the three-quarters mark of their respective
ranges. The outlook index is less upbeat as it resides at the one-third
mark. If we were assigning grades it would be 'Cs&#8217; for climate and
current and a &#8216;D&#8217; for expectations. The IFO gauge has slipped more
rapidly that it did in the 2005 episode. 
 
 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col">IFO Survey: Germany </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="5">Percent: Yr/Yr</td>
<td colspan="3">INDEX NUMBERS</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>Current</td>
<td>Average</td>
<td>Percentile</td>
</tr>
<tr>
<td class="firstcol">Biz Climate</td>
<td style="color: red;">-5.3%</td>
<td style="color: red;">-2.5%</td>
<td style="color: red;">-1.4%</td>
<td style="color: red;">-0.9%</td>
<td>0.7%</td>
<td>103.0</td>
<td>95.8</td>
<td>75.6%</td>
</tr>
<tr>
<td class="firstcol">Current Situation</td>
<td style="color: red;">-6.2%</td>
<td style="color: red;">-3.2%</td>
<td style="color: red;">-2.1%</td>
<td style="color: red;">-1.3%</td>
<td>2.5%</td>
<td>108.1</td>
<td>94.9</td>
<td>77.6%</td>
</tr>
<tr>
<td class="firstcol">Biz Expectations</td>
<td style="color: red;">-4.3%</td>
<td style="color: red;">-2.0%</td>
<td style="color: red;">-0.8%</td>
<td style="color: red;">-0.4%</td>
<td style="color: red;">-1.1%</td>
<td>98.2</td>
<td>96.7</td>
<td>66.8%</td>
</tr>
</tbody>
</table>
</body></html>

The IFO index for December is out, but the detail awaits releases next week. The headlines and sector news tell us what we already knew and that is, conditions are still deteriorating. The Business climate and Current situation [...]

IFO Presages Weak EMU Reading for Germany as Well

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

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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Andrew Cates

**US monetary policy**
This first chart shows that Chair Powell’s cautious tone in the aftermath of this week’s FOMC meeting led markets to scale back expectations for further near-term easing. Fed funds futures for late 2025 through mid-2026 rose slightly, signalling that investors now expect a shallower and slower easing cycle than before. While the rate cut itself confirmed the Fed’s gradual pivot toward easier policy, markets interpreted Powell’s remarks as suggesting that a December move is not guaranteed and that the central bank remains wary of declaring victory on inflation too soon.

251030Z1.jpg

**The global business cycle**
The latest flash PMI surveys for October highlight a still-divergent global picture, with services-led resilience offsetting persistent manufacturing weakness. Activity remains strongest in India and the United States, both comfortably in expansion territory, while Germany has shown one of the clearest signs of improvement within the euro area after a long period of contraction. The broader euro area and UK readings point to modest but positive momentum, suggesting that growth is stabilising rather than accelerating. In contrast, France remains mired below the 50 threshold, signalling continued contraction, and Japan and Australia are treading water with only marginal gains.

251030Z2.jpg

**Consumer confidence in the US and Europe** 
Consumer confidence trends have diverged across major economies in 2025. In the UK, sentiment has improved gradually, supported by easing inflation and lower interest rates. In the euro area, confidence has stabilised after a prolonged downturn, though households remain wary. By contrast, US confidence has slipped further, probably reflecting a softening labour market, slowing wage growth, and heightened concern about job security. Overall, global consumer sentiment remains fragile and uneven, suggesting that household spending could stay subdued even if price pressures recede and monetary policy becomes more accommodative.

251030Z3.jpg

**Credit conditions in the euro area** 
The latest data on Euro Area M3 growth underline that monetary conditions remain mildly restrictive, even after the ECB’s recent rate reductions. Money growth has decelerated sharply over the past year, with only a limited contribution from private-sector credit and little net support from lending to government. The ECB’s Q4 Bank Lending Survey, released this week, suggests that while financing conditions are beginning to ease, credit dynamics remain weak. Banks reported a further net tightening of credit standards for firms, reflecting continued risk aversion, even as loan demand from businesses and households picked up modestly thanks to lower interest rates and improving sentiment.

251030Z4.jpg

**The UK manufacturing sector**
Turning to the UK, the latest CBI Industrial Trends Survey offers little sign of improvement in manufacturing conditions. The balance of firms reporting excess stocks of finished goods has fallen further into negative territory, consistent with efforts to run down inventories amid weak demand and high uncertainty. And on that score, the share of firms citing uncertainty about demand over the next year as a constraint on capital expenditure has shifted up, highlighting persistent caution in investment planning. Together, these indicators point to a sector still struggling to regain momentum after a protracted slowdown—one where firms are prioritising cost control and liquidity preservation over expansion, despite an easing in headline inflation and gradual monetary policy support.

251030Z5.jpg

**Traded goods price inflation**
The Drewry Container Index, which tracks global shipping costs for a standard 40-foot container, has fallen back in recent months from the elevated levels seen in 2024, reflecting softer global trade volumes and a partial unwinding of last year’s supply-chain pressures. Even so, concerns have re-emerged that new US tariff measures and associated logistical bottlenecks could push freight rates and producer price inflation (PPI) higher in the coming months. The final chart below illustrates how closely traded goods price inflation, represented by Haver’s aggregation of PPI inflation for advanced economies, has tended to move with swings in container shipping costs. While traded goods inflation remains subdued for now, any renewed disruptions to global shipping routes or tariff-driven frictions could quickly feed through to higher input costs—especially in manufacturing sectors reliant on long and complex supply chains.

251030Z6.jpg

Global equity markets are once again flirting with record highs, buoyed by renewed optimism that the global economy can achieve a soft landing—and by persistent enthusiasm over the potential productivity gains from AI-related investment. The Federal Reserve’s decision to cut rates by 25bps this week—its second this autumn—initially reinforced expectations that global monetary policy is shifting toward a more accommodative stance. However, Chair Powell’s reminder that a further cut in December was “not inevitable” tempered that optimism and was met with some disappointment in financial markets (chart 1). Even so, the broader tone remains constructive, though it contrasts with a still-fragile macro environment. Renewed conflict in Gaza, the ongoing US government shutdown, and intensifying trade tensions have kept risk sentiment uneven and underscored the fragility of the recovery. The latest flash PMIs (chart 2) show modest global expansion led by services, while manufacturing continues to struggle. Consumer confidence (chart 3) tells a similar story: sentiment has weakened in the US as the labour market softens, stabilised in the euro area, and improved slightly in the UK. In the euro area, sluggish money and credit growth (chart 4) and the ECB’s latest bank-lending survey confirm that financial conditions remain mildly restrictive despite recent rate cuts. The UK CBI Industrial Trends Survey (chart 5) points to manufacturers reducing inventories and deferring investment plans amid demand uncertainty. Externally, the Drewry Container Index (chart 6) has fallen back from 2024’s elevated levels, signalling easing supply-chain pressures and subdued traded-goods inflation—though tariff realignments remain a potential source of friction.

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Charts of the Week: Optimism with Caveats

251030A5.jpg

251030B5.jpg

Initial claims for unemployment insurance increased 11,892 during the week ended October 18 to 232,163. The increase reversed most of the earlier week’s decline of 14,839. The four-week moving average of initial claims edged up to 227,953 and have trended higher this year, after weakening late in 2024. The four- week average hit a low of 200,323 in January 2024.

Continuing claims for unemployment insurance fell to 1.947 million in the week ended October 11 from 1.928 million in the prior week. The four-week moving average edged up to 1.931 million, the highest level since early September and up 3.3% y/y, less than half the peak rate of growth in April 2023.

The insured unemployment rate varied greatly across individual states and territories. In the week ended October 11, the highest unemployment rates were in New Jersey (2.12%), Washington (1.99%), California (1.88%), Massachusetts (1.84%), District of Columbia (1.75%) and Connecticut (1.71%). The lowest were in South Dakota (0.24%), Florida (0.36%), North Carolina (0.41%), Louisiana (0.42%), Nebraska (0.48%) and Virginia (0.52%). Rates in other notable states include New York (1.46%), Illinois (1.49%), Pennsylvania (1.37%), and Texas (1.14%). These state data are not seasonally adjusted.

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

251030C5.jpg

251030D5.jpg

- Rise in initial claims reverses earlier decline.
- Continuing claims jump.
- State unemployment rates vary.

U.S. Unemployment Insurance Claims Increase in Latest Week

251030E.jpg

The European monetary union’s index of sentiment created by the European Commission rose sharply in October to its highest level since April 2023. There were improvements in the three of the five sector indexes reported with only construction and services unchanged in October relative to their September values.

Despite the nice step-up in the indexes in October, they are still at relatively low values. Only two sectors, construction and retailing, have readings above their 50th percentiles with construction at a 77.5 percentile standing and retailing at a 51.5 percentile standing. The service sector has a low 27.5 percentile standing, consumer confidence is at a 24.3 percentile standing, and the industrial sector is at a 35.9 percentile. Data are ranked over observations back to 1990, where feasible.

**‘Better’ is not always ‘good’**
Clearly the euro area is not performing particularly well at this time. The rankings data make that especially clear. The service sector and the industrial sector are substantially below their historic medians. The median occurs at a queue (or rank) standing at the 50-percentile mark. Consumer confidence is in the lower 25-percentile of its range for this period; services are in their 27th percentile – a low ranking for such an important job creating sector.

**The largest have the best October showing**
The four largest economies in the euro area lead the way in the month and on the broader trip to mediocrity. Germany, France, and Italy each rise by one percentage point or more in October. More broadly, Italy and Spain are the only two ‘large economies’ with percentile standings above their respective 50th percentiles: Spain is at a 55.3 percentile standing, Italy at a 50.9 percentile standing. The largest two economies in the monetary union, Germany and France, respectively, have standings at the 19th percentile for Germany in the 33rd percentile for France.

**Granular performance of the Euro Area**
In October only one large economy backtracked compared to September and that's Spain; its hard decline of 0.9% came after its index rose by 2.9% in September. Among the remaining 14 economies, seven of them showed declines in October and seven of them showed increases. The pickup and performance for the monetary union in October is substantially on the back of the larger economies that are doing better while these smaller monetary union members are clearly mixed.

**Standings**
In terms of standings, the smaller monetary union economies show 5 of 14 with standings above their 50th percentile. These are Portugal at 51.5%, Cyprus at 56.2%, Lithuania at 64.4%, Greece at 71.1%, and Malta at a strong 89.1%.

**Summing up**
It is a good month statistically for the euro area. However, the gains are not widespread, and the sector performance is still mixed. But this is the strongest level for the EU sentiment index since April 2023, and that is something.

251030.jpg

Europe

EU Indexes Show Improvement in EMU in October; Index Last Higher in April 2023

251029F20.jpg

251029G20.jpg

At today’s meeting of the Federal Open Market Committee, the target range for the Fed funds rate was reduced to 3.75%-to-4.00% from 4.00%-to-4.25%. It was the lowest range since December 2022. The current range compares to a high of 5.25%-to-5.50% in mid-September 2024. Today’s target range matched expectations in the Action Economics Forecast Survey. The action was supported by all but two FOMC members; one preferred to lower the target range by 50 basis points and another preferred no cut.

The following statement was released after today’s meeting: “Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated.”

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months.”

“The Committee decided to conclude the reduction of its aggregate securities holdings on December 1. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.”

U.S. economic figures can be found in Haver’s **USECON** database & interest rate data are in the **WEEKLY** & **DAILY** databases.

251029H20.jpg

251029I20.jpg

- FOMC lowers funds rate target by quarter point for second time this year.
- The decision was approved by all but two FOMC voters.
- Asset purchases to end.

FOMC Reduces Fed Funds Rate Target as Expected

251029F5.jpg

251029G5.jpg

The Pending Home Sales Index from the National Association of Realtors (NAR) remained unchanged last month (-0.9% y/y) at 74.8 following a 4.2% August increase, revised from 4.0%, after easing an unrevised 0.3% in July. So far in 2025 sales have risen 1.1%, but the index remained 40.2% below its most recent peak of 125.1 in October 2021. The index is a forward-looking measure of home sales based on contract signings.

Steady pending home sales occurred as the average rate on a 30-year mortgage fell to 6.35%	 in September after declining to 6.59% in August. It has weakened to an average 6.28% so far in October. These rates are down from a high of 7.04% in the third week of January, but remain well above a low of 5.22% in August 2022 and more than double a record low 2.68% in December 2020.

Pending home sales were mixed last month in the four major regions of the country. Pending home sales in the Northeast increased 3.1% (0.5% y/y) after falling 1.1% in August. In the South, sales improved 1.1% (0.9% y/y) after increasing 3.2%. Moving lower, sales in the Midwest declined 3.4% (-1.5% y/y) after rising 8.7% in August. Sales in the West eased 0.2% last month (-5.3% y/y) after a 5.0% August improvement.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- Sales remain at highest level since March.
- Year-to-year date sales rise modestly.
- Regional changes are mixed.


Economy in Brief: 2007

Jump to:

Italy’s Consumer Confidence Remains Flat After Early-in-the-Year Dive

U.S. Leading Economic Indicators Down

U.S. Initial Unemployment Insurance Jumped

US 3Q GDP Still Up 4.9%, Profits Still Down

US 3Q GDP Still Up 4.9%, Profits Still Down

Gasoline Still Near $3.00 per Gallon. Longer Term, Less is Used

Italy’s Orders Sag and Drop in New Quarter

IFO Presages Weak EMU Reading for Germany as Well