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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<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

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

Resilient US economy is pushing up longer-term inflation expectations and interest rates

Positive US economic data surprises leading to upward adjustment of interest rate expectations

Recent aggressive policy easing in China has given a massive boost to equity prices

FOMC expects much more easing now than in June

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The Conference Board's Index of Consumer Confidence fell 7.2% (-9.9% y/y) to 92.9 after a 4.9% decline in February to 100.1, revised from down 6.6%. A reading of 94.0 had been expected in the Action Economics Forecast Survey. The March figure was 17.6% below its November high. Weakness in confidence is widespread amongst components in this latest report.

The Expectations Index slumped 12.8% (-11.9% y/y) to 65.2, after a 9.0% February weakening, revised from a 12.9% decline. This latest figure was the weakest since March 2013. The Present Situation index fell 2.6% (-8.4% y/y) to 134.5, after declining 1.3% in February, revised from down 2.4%, after a 2.8% January fall. The reading was the lowest in six months.

The percentage of respondents assessing business conditions as “good” fell to 17.7% this month after declining to 19.1% in February. The index hit a high of 22.0 in October. The percentage assessing conditions as “bad” rose to 16.6% after falling to 14.8% in February. The appraisal of labor market conditions held steady m/m in March as 33.6% of respondents thought jobs were plentiful, down from 41.7% one year earlier. Jobs were viewed as hard to get by 15.7% of respondents this month, down from 16.0% in February. This measure has risen from 11.0% in January 2024. The labor market differential calculated by Haver Analytics (the percentage of consumers who think jobs are plentiful minus the percentage who believe that jobs are currently hard to get) stood at 17.9% compared to 17.6% in February and remained below a high of 47.1% in March 2022. This series has a 60% correlation with the unemployment rate over the last ten years.

Expectations for business conditions deteriorated in March. A lessened 17.1% of respondents expect conditions to improve over the next six months, down from 20.8% in both February and January, while a higher 27.3% expect them to deteriorate, up from 25.5% in February. On employment, a lessened 16.7% expect the number of jobs to increase over the next six months. The percentage expecting the number of jobs to decline in the next six months rose to 28.5% after surging to 26.6% in February, and increasing to 21.0% in January. A lessened 16.3% expect income to increase in six months. That remained down from a high of 20.7% in November and compares to a higher 15.5% who expect income to decrease.

The expected rate of price inflation over the next twelve months rose to 6.2% in March after increasing to 5.8% in February from 5.2% in January. Interest rates are expected to rise this year by a higher 54.6% of respondents, up from 52.6% in February. The percentage of respondents expecting equity prices to increase over the next twelve months plummeted to 37.4% after dropping to 46.7% in February, while the percentage expecting a decline in stock prices jumped to 44.5% after rising to 34.0% in February.

The percentage of respondents planning to buy a home rose in March to 5.4% from 5.3% in February. Plans to purchase an automobile eased to 10.3% this month from a downwardly revised 10.7% in February.

The Consumer Confidence data are available in Haver’s **CBDB** database. The total indexes, which are indexed to 1985=100, appear in **USECON**, and market expectations are in **AS1REPNA**.

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- Confidence weakens to lowest level since January 2021.
- Expectations reading plummets to twelve-year low; present situation reading weakens.
- Inflation and interest rate expectations rise further.

U.S. Consumer Confidence Tumbles in March; Inflation Expectations Strengthen

Michael J. Moran

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Sales of new homes rose 1.8% in February, a solid increase on a month-to-month basis, but one that had little influence on the recent trend. The ups and downs of the past two years have traced a sideways path, with the February total of 676 thousand homes (annual rate) nearly identical to the average of 675 thousand in the prior two years.

Results for new home sales in the past two years have been light relative to the burst triggered by low interest rates from mid-2020 to early 2022, and they are well shy of the exuberance seen in the years before the housing-related recession in 2008-09. Otherwise, sales compare favorably with historical norms.

While sales of new homes can be viewed as respectable, more might have been expected given conditions in the market for existing homes. Sales of existing homes have been light in the past two years because of the effects of high interest rates on potential sellers. Many households that might be interested in moving have remained on the sidelines rather than surrender a low-rate mortgage. With a lack of supply, sales of existing homes have been depressed.

The market for new homes is not supply constrained, as the months’ supply is in the upper portion of its historical range. One might expect potential buyers to shift to the new home market given the limited availability in the existing market. However, a slow pace of total sales (new + existing) suggests that the housing market overall is in the doldrums. High interest rates apparently have triggered affordability issues for many buyers.

Despite slow sales, housing prices have not done much to counter affordability issues. The average and median prices of new homes are now drifting lower, but the change has been modest relative to the surge in prices from 2020 to 2022. More notable, the median price of existing homes has continued to move higher, and various indexes of home prices continue to show upward pressure – lighter than it was two to four years ago, but still upward.

New home sales are recorded when the sales contract is signed. New home sales activity and prices are available in Haver's **USECON** database. The consensus expectation figure from Action Economics is available in the **AS1REPNA** database.

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- A Respectable pace of new home sales...
- ...but only a modest counter to soft sales in the existing home market.

New Home Sales: Range Bound Activity in February

Winnie Tapasanun

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U.S. house prices rose 0.2% m/m in January after rises of 0.5% in December (+0.4% initially) and 0.4% in November (unrevised), according to the Federal Housing Finance Agency (FHFA) House Price Index. The January reading was the 10th consecutive m/m gain but the smallest since June 2024. The January HPI at 436.52 was 12.9% above a low of 386.53 in August 2022 and 55.2% above a low of 281.32 in May 2020. The year-on-year rate of increase registered at 4.8% in January and December, the highest since July 2024; nevertheless, having remained lower than 6.7% in January 2024 and well below a high of 18.7% in February 2022.

House prices rose m/m in January (vs. December) in six of the nine census divisions. These included West North Central (1.0% vs. -0.2%), Middle Atlantic (0.7% vs. 0.7%), East North Central (0.5% vs. 0.6%), Pacific (0.5% vs. 0.3%), West South Central (0.4% vs. 0.2%), and East South Central (0.2% vs. 0.5%). To the downside, house prices fell m/m in two census divisions in January (vs. December): South Atlantic (-0.8% vs. 0.3%) and Mountain (-0.6% vs. 1.7%). Meanwhile, house prices in New England were virtually unchanged (+7.3% y/y) in January following six straight m/m increases.

Year-on-year house prices continued to gain in January, with the pace of advance accelerating (vs. December) in four of the nine census divisions. These were Middle Atlantic (8.2% vs. 7.2%), East North Central (6.9% vs. 6.4%), East South Central (4.8% vs. 4.0%), and Pacific (3.6% vs. 2.9%). Meanwhile, house price growth decelerated y/y in January (vs. December) in the following four census divisions: Mountain (3.7% vs. 5.1%), South Atlantic (3.9% vs. 4.4%), West North Central (5.0% vs. 5.2%), and New England (7.3% vs. 7.9%). House price growth in the West South Central region held steady at 2.4% y/y.

The FHFA house price index is a weighted purchase-only index that measures average price changes in repeat sales of the same property. An associated quarterly index includes refinancing the same kind of properties. The indexes are based on transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on single-family properties are included.

The FHFA data are available in Haver’s **USECON** database.

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- FHFA HPI +0.2% m/m (+4.8% y/y) in Jan.; +0.5% m/m (+4.8% y/y) in Dec.
- House prices up m/m in six of nine census divisions but down in South Atlantic and Mountain.
- House prices up y/y in all of the nine regions, w/ the highest rate in Middle Atlantic (8.2%).

U.S. FHFA House Price Growth Decelerates in January

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Retail gasoline prices for all grades rose to a four-week high last week and averaged $3.24 per gallon (-11.0% y/y) after falling to $3.18 in the week ending March 17. Prices have risen from a low of $3.13 in the week of December 9. The recent high was $3.79 in the week ending April 22, 2024. Its all-time high of $5.11 occurred in the week ending June 13, 2022. The retail price for on-highway diesel fuel improved to $3.57 per gallon (-11.6% y/y) in the week of March 24 after easing to $3.55 in the prior week. The latest diesel price remained well below a high of $4.63 in the week ending September 18, 2023 and a peak of $5.81 in the week ending June 20, 2022.

The price of West Texas Intermediate crude oil edged up to $67.64 per barrel (-17.9% y/y) in the week ended March 21, after rising to $66.74 per barrel in the prior week. Prices have fallen from a high of $78.50 where they were nine weeks ago, remaining below a high of $91.45 in the week of September 29, 2023. The cost of crude oil peaked at $120.46 in the week of June 10, 2022. Yesterday, the price was $69.11	 per barrel. The price of European Brent crude oil of $72.18 per barrel (-16.0% y/y) in the week of March 21 compared to $71.54 in the prior week and a high of $82.79 nine weeks ago. Prices remained below a recent high of $95.61 in the week of September 29, 2023 and below a peak of $127.40 in the week of June 10, 2022. Yesterday, the price was $73.96 per barrel.

Natural gas prices held last week at an average $4.14 per mmbtu (168.8% y/y) in the week ended March 21 after easing to $4.15/mmbtu in the prior week. Prices remained well above a low of $1.40/mmbtu in the week of March 15, 2024 but below their peak of $9.56 in the week of August 26, 2022. Yesterday, the price was $4.03 per mmbtu.

Gasoline demand held steady y/y in the four weeks ending March 14 after edging 0.1% higher in the prior four weeks. Demand for all petroleum products rose 2.5% y/y in the four weeks ending March 14 after a 3.9% y/y rise in the previous four-week period. Crude oil input to refineries rose 1.8% y/y in the four weeks ending March 14 after a 3.4% y/y increase in the prior four weeks.

Gasoline inventories rose 4.2% y/y in the week ending March 14 after a 3.0% y/y rise in the week ending March 7. Residual fuel oil inventories fell 21.3% y/y in the week of March 14, after an 17.1% y/y fall in the prior week. Crude oil inventories rose 3.2% y/y in the week of March 14 after a 2.8% y/y rise in the previous week.

Measured in days’ supply, gasoline inventories fell to 27.2 days in the week of March 14 from 27.8 days in the prior week. The recent low was 22.9 days in the week of November 8. The supply of crude oil was 28.0 days in the week of March 14 for the third straight week, but remained below a high of 31.9 days in the week of March 3, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** & **USENERGY** database.

- Gasoline costs rise.
- Crude oil prices move higher.
- Natural gas costs stabilize.

U.S. Gasoline Prices Strengthen Last Week

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Germany's all sector climate index improved in March to -19.8 from -24 in February. Still, the index only has a 13.9 percentile standing on data back to the early 1990s. The all-sector climate index, the current index and expectations all improve month-to-month with the scope of improvement for the all-sector climate and expectations indexes greater only about 10% of the time. These are sharp month-to-month improvements. However, the levels of the indexes are so weak that the rankings continue to scrape very low levels. Overall conditions in Germany have hardly changed despite the solid month-to-month improvement concentrated in climate and expectations.

**Climate**
The climate measure shows improvements for the all-sector reading, manufacturing, construction wholesaling, retailing, and services. The highest percentile standing for any sector is for construction at a below-median 41.5 percentile standing. The next highest standing is for retailing at a 24.5 percentile standing, the weakest reading is a standing of 10.3% in manufacturing, and the services sector is at a 13.2 percentile standing, not too much stronger than that. 

**Transition-Ho!**
While climate conditions are still in difficult straits, we find that current conditions standings are largely worse than for climate standings; expectations show uneven comparisons. We know there are big changes coming to Europe, particularly for Germany, because of the new shift to more defense spending. This, obviously, will create improvements in the defense sector but should also have broader multiplier effects for the economy, for the manufacturing sector, but also for the economy in general. We also expect these changes to spread across Europe with similar increases in military spending to be introduced in other countries, as the United States is looking for Europe to carry more of its own security burden. We should continue to see improvements in expectations and in climate in the coming months and those improvements should be translated gradually into improved current conditions as well.

**Current conditions-Manufacturing and Construction lead**
Current conditions in the index show improvement across all sectors with minuscule improvements being posted in wholesaling and in retailing in March. The percentile standing for the current indexes in March show the strongest reading in construction; it is the only sector above its median: above its 50th percentile at 61.6%, with retailing close to its 50th percentile mark at 48.2%. The weakest readings are for manufacturing at an 11.9 percentile standing and then services at a 16.9 percentile standing. But manufacturing has the largest month-to-month gain. The overall standing for current conditions is lower still at its 10.7 percentile standing, indicating a confluence of weakness across sectors, a result that has the overall index at a weaker standing than any for individual sector.

**Expectations – Manufacturing surges**
Expectations show broad improvement and for the most part fairly significant improvement across sectors. The headline improvement shows expectations at -16.1 in March compared to -20.5 in February, which leaves the index at a 16.9 percentile standing overall. Expectation standings are weak, however, with the strongest expectation standing in manufacturing at 21.1%, the second strongest for wholesaling at 19.8%; services rank third with the standing of 15.1%. Construction, the sector that has the strongest current and climate standings, has the weakest expectation-standing at the 8.2 percentile mark.

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**Summing up and looking ahead**
These readings begin to pick up some of the changes in progress with expectations showing still very weak current readings but substantial pickups month-to-month. However, most of this is simply expectations improving; it is not expectations built on actually better performance and jumping off from there, as we can see from the fact that the current indexes or the most part are not much changed month-to-month, with extremely little change in wholesaling and retailing. Still, both of those current/expectations reading are higher; manufacturing is also improved in the current reading but expectations are leading the way ahead, improving faster, not the other way around. German transactors are beginning to look to the future recognizing there is a change afoot on military spending that is going to permeate the economy and we're beginning to see that in different aspects of the IFO survey. Stay tuned and stay alert.

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