Winnie Tapasanun

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The advance estimate of the U.S. international trade deficit in goods narrowed to $83.35 billion in November from $98.80 billion in October, according to the U.S. Census Bureau. This was the first time since August in which the goods deficit had narrowed. The November deficit was smaller than a $97.17 billion shortfall last November and the smallest since December 2020. A $96.5 billion deficit had been expected by the Action Economics Forecast Survey. The deficit had reached a peak of $125.66 billion in March. The goods trade deficit shrank to $268.55 billion in Q3'22, the smallest shortfall since Q2'21, from $309.37 billion in Q2'22. The narrower deficit showed net exports added 2.9%-points to Q3 GDP growth after having added 1.2%-points in Q2.

Total exports fell 3.1% m/m (+8.5% y/y) in November, the third consecutive m/m fall, after a 2.0% decline in October. However, exports have risen 8.2% since January. Total imports slid 7.6% (-0.2% y/y) in November, the first m/m slide since August and the deepest since April 2020, after a 1.0% increase in October. Imports have fallen 4.2% since January.

The decline in exports in November reflected exports m/m drops of 5.8% (+14.2% y/y) in industrial supplies & materials, 5.7% (+16.6% y/y) in other goods, 4.6% (-10.0% y/y) in foods, feeds & beverages, and 2.2% (+9.3% y/y) in capital goods excluding autos. To the upside, exports of consumer goods excluding autos (4.0% m/m; -1.8% y/y) and automotive vehicles & parts (1.0% m/m; 14.6% y/y) registered their monthly gains.

The slide in imports in November reflected imports m/m declines in all the end-use imports categories. These included drops of 13.0% (-10.0% y/y) in consumer goods excluding autos, 8.9% (+13.8% y/y) in automotive vehicles & parts, 6.0% (-2.8% y/y) in industrial supplies & materials, 5.5% (+1.9% y/y) in foods, feeds & beverages, 5.1% (-15.5% y/y) in other goods, and 4.3% (+8.3% y/y) in capital goods excluding autos.

The advance international trade data can be found in Haver's **USECON** database. The expectation figure is from the Action Economics Forecast Survey, which is in **AS1REPNA**.

- $83.35 billion deficit in November, smaller than expected.

- Exports decline 3.1%, down for the third straight month.

- Imports fall 7.6% following two consecutive m/m rises.

U.S. Goods Trade Deficit Narrows in November; Lowest Since Dec. '20

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The Conference Board U.S. Consumer Confidence Index rose 6.8% (-6.0% y/y) to 108.3 in December, the first monthly rise since September to the highest level since April, after a 0.8% decline to 101.4 in November (-2.0%; 100.2 initially). The December reading was down from 115.2 last December and 16.0% below its recent high of 128.9 in June 2021. A reading of 101.0 had been expected in the Action Economics Forecast Survey.

Consumers' views of present and future economic conditions improved this month following two consecutive monthly drops. The Present Situation Index rose 6.4% (1.7% y/y) to 147.2 in December, the highest level since September, after a 0.3% decline to 138.3 in November. The index was slightly higher than 144.8 last December. The Expectations Index rose 7.4% (-13.6% y/y) to 82.4 this month, the highest level since January, after a 1.5% drop to 76.7 in November. It was below 95.4 last December and down 26.4% from its recent peak of 111.9 in March 2021.

Labor market readings showed more optimism this month. The jobs gap, representing the difference between respondents indicating that jobs are plentiful and those saying jobs are hard to get, rebounded to 35.8% in December, the first monthly rise since September, from 31.5% in November. But it was below a record 47.1% in March and 44.2% last December. Calculated by Haver Analytics, this series has had a 67% correlation with the unemployment rate over the last ten years. The jobs plentiful measure rose this month to a three-month-high 47.8% from 45.2% in November, but it remained below a record 56.7% in March and 55.9% last December. The jobs hard-to-get measure fell to 12.0% of respondents in December from 13.7% in November, but it was up from a 9.6% low in March and 11.7% last December.

Consumers viewed business conditions as more favorable compared to last month. Current business conditions were perceived as good by 19.0% of respondents in December, the highest since September, up from 17.8% in November but down from 19.4% last December and a 25.2% high in June 2021. Expectations that business conditions would improve in six months were 20.4% of respondents, up from 19.8% in November and a 13.7% low in July but down from 25.4% last December and a record 42.5% in May 2020. More jobs were expected in six months by 19.5% of respondents, slightly up from 18.5% in November but down from 24.2% last December and a record 41.2% in April 2020. The percentage expecting rising income declined to 16.7% of respondents in December, the lowest since August, from 17.1% in November and 17.5% last December. But it was slightly up from a 15.3% July low.

Inflation expectations eased this month but remained high. The expected inflation rate in twelve months declined to 6.7% in December, the lowest since September 2021, from 7.1% in November. The December reading was down from a 7.9% high in June and 6.9% last December but noticeably up from a 4.4% low in January 2020. A 64.3% of respondents expected that interest rates would rise over the next twelve months, slightly down from 65.9% in November but up from 61.0% last December.

The share of respondents planning to buy a home within six months fell to a three-month-low 6.2% in December from 6.5% in November. It was down from 6.9% last December and a 7.7% high in July 2020 but up from a 4.5% July low. Those planning to buy a major appliance declined to 43.1% of respondents in December from 44.9% in November. The December reading, while slightly above a 41.1% July low, was below 47.8% last December and a 53.9% high in July 2021.

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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- Up 6.9 pts. to a higher-than-expected 108.3 in Dec.; highest since April.

- Present Situation Index increases to a three-month-high 147.2 after two consecutive m/m declines.

- Expectations Index recovers to 82.4, the highest level since Jan., following two successive m/m decreases, but recession risks persist.

- Consumers more optimistic about the current business conditions and the short-term business conditions outlook; more upbeat about the present labor market and the short-term labor market outlook.

- Inflation expectations retreat to their lowest level since Sept. '21.

U.S. Consumer Confidence Rebounds in December After Two Straight M/M Drops

Carol Stone, CBE

Manufacturers tallied a 2.1% decline in new orders for durable goods in November (6.2% y/y) according to the latest Census Bureau data, after a 0.7% increase in October. That earlier tally was revised from a 1.0% advance reported initially. The Action Economics survey had projected November's move to be a 1.0% decrease.

The November decline in total new orders reflects a notable mix among industries. The largest decline was in nondefense aircraft, -57.3% (-8.2% y/y) after a 4.5% rise in October; defense aircraft orders were down 8.6% in the month (+9.2% y/y) after an 18.2% advance in October. There were also declines in primary metals orders, down 0.4% (1.9% y/y) following October's 0.7% decrease, and in motor vehicles and parts, down 0.07% (+14.1% y/y) after October's 0.8% increase. But November had gains in orders in several sectors: computers and electronic products, +0.6% (1.7% y/y) following a decrease of 0.2% in October, electrical equipment, 0.2% (+4.5% y/y) after October's 0.1% decrease, fabricated metals, 0.1% +3.0% y/y) after being unchanged in October, and “other durable goods,” 0.2% (+3.0%) following a 0.2% decrease in October. Total capital goods orders fell 5.5% (+5.2% y/y) in November following a 1.4% increase in October.

Even as new orders for nondefense aircraft dropped, that industry's shipments gained in November, rising 5.4% (+40.7% y/y) after increasing 2.2% in October. Total shipments of durable goods rose 0.2% (+8.8% y/y) after 0.4% in October, and total capital goods shipments rose 0.6% (+11.6% y/y) after 1.2% in October. Shipments of nondefense capital goods gained 0.8% (+12.8% y/y) in November following 1.6% the month before.

Manufacturers' orders and shipments of durable goods, as well as nondurable goods, are available in Haver's **USECON** database. Unfilled orders and inventories are also included. The Action Economics forecast data are in the **AS1REPNA** database.

- Sizable gains and declines in orders among industries.

- Nondefense aircraft orders post marked drop, but shipments advance.

- Orders for computers & electronic equipment also rise.

U.S. Durable Goods Orders Register a Notable Decline in November

Kathleen Stephansen, CBE

Personal income rose 0.4% (4.7% y/y) during November versus expectations for a 0.3% rise and following a 0.7% (4.8% y/y) in October. The gain reflected a 0.5% rise (6.2% y/y) in wages & salaries, corresponding to continued employment growth, and following a 0.5% rise in October. Proprietors' income eased 0.2% (3.7% y/y) following a similar retrenchment in October. Rental income eased 0.1% % (7.2% y/y) in November. Receipts on assets rose 0.5% (4.9% y/y) as interest income increased 0.6% (6.6% y/y) and dividend income rose 0.3 % (3.2% y/y). Personal transfer receipts increased 0.3% (1.1% y/y). Disposable income rose 0.4% (2.9% y/y) in November, following a rise of 0.7% (2.9% y/y) in October, while real disposable earnings rose 0.3% (-2.5% y/y) in November following an increase of 0.4% (-3.0% y/y) in October.

The personal saving rate edged up to 2.4% in November after the near record low of 2.2% in October, revised from 2.3%. The level of personal savings bounced back 10% last month from a decline of 5.2% in October and was 64.8% lower y/y.

Personal consumption expenditures (PCE) increased 0.1% (7.7% y/y) in November, after rising 0.9% (8.1% y/y) during October, initially reported as a 0.8% (7.9% y/y) rise. The Action Economics Forecast Survey had expected a 0.1% rise. In November, real PCE increased less than 0.1% (2.0% y/y), reflecting a decrease of 0.6% in spending on goods and an increase of 0.3% in spending on services. Real spending on durable goods declined 1.5% (+0.6% y/y) last month as spending on motor vehicle & parts decreased 4.3% (-1.5% y/y) after surging 5.2% in October. Real spending of furniture & appliances decreased 0.4% (-1.5% y/y) in November, after a 1.2% rise in October. Real spending on recreational goods & vehicles rose 0.5% (5.3% y/y) following a 0.4% increase in October.

Real spending on nondurable goods edged down 0.1% (-1.5% y/y) in November, after rising 0.2% (-1.5% y/y) in October. Outlays on gasoline & other energy products fell 1.5% (-4.2% y/y) following a 0.7% decline in October. Real apparel spending declined 0.6% (0.6% y/y) last month, after a 0.2% rise in October and real outlays on food & beverages gained 0.3% (-4.6% y/y) following a 0.2% rise the prior month.

Real spending on household consumer services improved rose 0.3% (3.3% y/y), after a 0.2% (3.1% y/y) rise in October. Real transportation services outlays dropped 1.0% (+1.7% y/y) after a 0.4% rise the prior month, while real housing & utilities expenditures rose 0.3% (1.2% y/y) after a similar 0.3% in October. Real healthcare spending gained 0.3% in last month (2.3% y/y) after a 0.3% rise in October. Recreation services buying declined 0.1% (3.8% y/y) in November following a 0.2% rise in October, while real food services and accommodations rose 0.8% (7.3% y/y) last month after a 0.4% rise in October. Real spending on financial services and insurance rose 0.3% (1.6% y/y) last month after a 0.2% gain in October.

The personal income and consumption figures are available in Haver's **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

- Personal income beat expectations in November.

- Wage increases remain firm.

- Real spending on goods declined while real spending on services increased during November.

U.S. Personal Income Rose in November but Real Spending Was Flat

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New single-family home sales rose 5.8% m/m (-15.3% y/y) to 640,000 units at an annual rate in November after an 8.2% rise to 605,000 in October (632,000 initially) and a 13.5% decrease to 559,000 in September (588,000 previously), according to the U.S. Census Bureau. The November reading was the highest since August. Sales have fallen 38.2% from their peak of 1.036 million in August 2020. The Action Economics Forecast Survey expected 600,000 sales in November.

By region, sales in November reflected varied movements in the major regions. Sales in the West advanced 27.6% (-26.6% y/y) to 171,000 in November, the fourth m/m gain in five months to the highest level since May, on top of a 7.2% rise to 134,000 in October. Sales in the Midwest recovered 21.3% (3.6% y/y) to 57,000, the third m/m increase in four months, following a 30.9% drop to 47,000. In contrast, sales in the Northeast slid 8.5% (+26.5% y/y) to 43,000, the first m/m slide since June, after a 42.4% jump to 47,000. Sales in the South fell 2.1% (-15.0% y/y) to 369,000, the second m/m fall in three months, after a 13.2% increase to 377,000.

The median price of a new home declined 2.8% (+9.5% y/y) to $471,200 in November, the first m/m drop since August, following a 6.0% gain to $484,700 in October. The average sales price of a new home rose 1.9% (9.0% y/y) to $543,600, the highest since July, after a 1.6% October rebound to $533,400. These sales price data are not seasonally adjusted.

The number of unsold new homes on the market decreased 1.7% (+18.2% y/y) to a seasonally adjusted 461,000 in November, the lowest level since August, after a 1.3% increase to 469,000 in October; these figures were up from 390,000 last November and the recent low of 281,000 in October 2020. The seasonally adjusted supply of new homes for sale declined to 8.6 months in November, a three-month low, from 9.3 months in October, but it was up from 6.2 months last November and a record-low of 3.3 months in August 2020. The median number of months a new home stayed on the market rose to 1.9 months in November from 1.5 months in October; these readings were down from 2.9 months last November and a high of 5.1 months in March 2021. These figures date back to January 1975.

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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- 640,000 units SAAR in Nov., a three-month high; downward revisions to Oct. and Sept.

- Month-on-month sales up in the West and the Midwest but down in the Northeast and the South.

- Median sales price declines following two consecutive m/m rises.

U.S. New Home Sales Rise for the Second Straight Month in November

Tom Moeller

The Conference Board's Composite Leading Economic Indicators Index fell 1.0% (-4.5% y/y) during November after a 0.9% October decline, revised from -0.8%. The Action Economics Forecast Survey expected a 0.4% decline in the index for November.

Six of the Leading Index's ten components made negative contributions to the index change in November. Declines came from the average workweek, initial unemployment insurance claims, the ISM new orders index, building permits, consumer expectations for business/economic conditions and the leading credit index.

The Index of Coincident Economic Indicators improved 0.1% last month (1.9% y/y) following an unrevised 0.2% October gain Three of the four index components rose minimally including payroll employment, personal income and business sales. Industrial production declined.

The Index of Lagging Economic Indicators increased 0.2% (6.9% y/y), revised from 0.1%, following no change in October. A rise in banks’ prime rate, a gain in C&I loans and the ratio of consumer credit/income were offset by declines in the average duration of unemployment, the change in unit labor costs and the 6-month change in the services CPI.

The ratio of the Coincident index to the Lagging index also is seen as a leading indicator. The ratio fell slightly last month and has been steadily declining since December of 2021, suggesting rising recession risks.

The Conference Board figures are available in Haver's **BCI** database; the components are available there, and most are also in **USECON**. The expectations are in the **AS1REPNA** database. Visit the Conference Board's site for coverage of leading indicator series from around the world.

- Index falls for ninth straight month.

- Coincident indicators rise minimally.

- Lagging indicators edge higher.

U.S. Leading Economic Indicators Decline in November

Sandy Batten

The third estimate of GDP is usually uneventful. However, the third estimate of Q3 GDP was an exception as GDP growth was unexpectedly revised up 0.3%-point to 3.2% with the upward revision spread across domestic demand components. The Action Economics Forecast Survey had looked for no revision. Real personal consumption expenditure growth was the major factor behind today’s upward revision. Its growth was revised up to a respectable 2.3% from 1.7%, boosting its contribution to overall GDP growth to 1.5%-points from 1.2%-points in the second estimate. The largest contribution to Q3 GDP growth was still provided by net exports. The narrowing of the trade deficit in Q3 was revised slightly smaller with the contribution to GDP growth from net exports revised down marginally to 2.86%-points from 2.93%-points. However, the September and October trade reports have shown that the trade deficit has begun to widen again and so, trade is unlikely to provide a boost to GDP in Q4.

Another meaningful upward revision to business investment in structures also contributed to the overall upward revision. Business spending on structures fell a much more modest 3.6% q/q saar versus -6.9% in the second estimate and -15.3% in the advance report. By contrast, the drag from the slowdown in inventory investment was revised slightly larger. Inventories rose a revised $38.7 billion (2012$) in Q3, down from $49.6 billion in the second estimate and $61.9 billion in the advance report. This increased their drag on Q3 GDP growth to 1.2%-points from the second estimate of 1.0%-point. The previously reported 26.8% quarterly drop in residential investment was little revised to -27.1% and still subtracted 1.4%-points from overall GDP growth as the Federal Reserve’s aggressive increase in interest rates continues to take its toll on the housing sector. Government spending growth was revised up to 3.7% from the second estimate of 3.0% with the revision mostly accounted for by an upward revision to spending by state and local governments.

Private domestic demand was considerably stronger in Q3 upon the third estimate though it remained anemic. Growth of final sales to private domestic purchasers was revised up meaningfully to a 1.1% q/q saar increase from 0.5% in the second estimate and an extremely weak 0.1% in the advance report.

The third estimate of quarterly GDP contains the second estimate of quarterly corporate profits. They were revised up to unchanged in Q3 from the initially reported 1.1% q/q fall (not annualized). The upward revision was more than accounted for by an upward revision to domestic profits. Domestic profits edged up 0.6% q/q in Q3 upon revision versus the initially reported 1.1%quarterly fall. By contrast, the initially reported 1.0% q/q decline in foreign profits was revised to a 3.4% fall. Annual growth in corporate profits continued to slow under the weight of rising interest rates and a slowing global economy, though this growth was revised slightly higher in the second estimate. Compared to a year ago, total corporate profits were revised to +5.5% versus the first estimate of 4.4%, but still down from 7.7% y/y in Q2 and 10.9% y/y in Q1.

Inflation as measured by the GDP price index was revised slightly higher in the third estimate—to 4.4% q/q saar from 4.3% in the second estimate and 4.1% in the advance report, still down sharply from the 40-year high of 9.0% in Q2. The Action Economics Forecast Survey had expected no revision. The previously reported 4.3% increase in the PCE price index was not revised in the third estimate.

The GDP figures can be found in Haver's **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis' detail in the national accounts. Both databases include tables of the newly published not seasonally adjusted data. The Action Economics consensus estimates can be found in **AS1REPNA**.

- The second estimate of a 2.9% q/q saar increase in real GDP in Q3 was revised up to 3.2%.

- Upward revision spread across domestic demand components; inventories a larger drag.

- Corporate profits revised to unchanged in Q3 from initially reported 1.1% q/q decline, led by big upward revision to domestic profits.

- Quarterly rise in GDP price index revised up a tick to 4.4% from 4.3%.

U.S. Q3 GDP Growth Revised Up Further in Third Estimate

Initial claims for unemployment insurance rose to 216,000 (-1.8% y/y) in the week ended December 17 from 214,000 in the prior week, revised from 211,000 reported last week. A reading of 225,000 had been expected in the Action Economics Forecast Survey. The four-week moving average of 222,000 was below a high of 250,000 early in August. These data are seasonally adjusted by the Labor Department.

In the week of December 10, the number of continued weeks claimed fell to 1.672 million (-12.2% y/y) from 1.678 million in the prior week, revised from 1.671 million. Continuing claims have been trending higher since a low of 1.346 million in mid-September. The four-week moving average was 1.657 million.

The insured rate of unemployment remained at 1.2% in the week of December 10. It has been at that level for three weeks and compares to 0.9% in late-September.

In the week ended December 3, the total number of continued weeks claimed for all unemployment insurance programs was 1.537 million (NSA), down 3.1% w/w and off 28.1% y/y. This total includes federal employees, newly discharged veterans, extended benefits and other specialized programs. Claims in the Pandemic Unemployment Assistance program and Pandemic Emergency Unemployment Compensation are no longer included in the main Labor Department press release, as both programs have expired.

States with the highest insured unemployment rates were Alaska (2.25%), New Jersey (2.04%), California (1.96%), New York (1.57%) and Massachusetts (1.51%). States with the lowest rates were Alabama (0.22%), Kansas (0.29%), South Dakota (0.34%), Tennessee (0.38%) and Kentucky (0.41%). Insured unemployment rates in other states were Florida (0.44%), Texas (0.82%) and Pennsylvania (1.37%).

Data on weekly unemployment claims going back to 1967 are contained in Haver's **WEEKLY** database, and they are summarized monthly in **USECON**. Data for individual states are in **REGIONW**. The expectations figure is from the Action Economics Forecast Survey, carried in the **AS1REPNA** database.

- Upward trend in claims is broken.

- Continued weeks claimed slip.

- Insured unemployment rate steadies.

U.S. Initial Claims for Unemployment Insurance Claims Edge Higher

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

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Andrew Cates

**The Global Monetary Policy Consensus**
The latest Blue Chip Financial Forecasts survey points to a notably more balanced global monetary policy outlook over the coming year. In contrast to the pronounced easing bias that dominated much of the past two years, expectations are now more symmetric, with a similar number of central banks projected to raise rates as to ease policy. Japan is seen delivering further tightening, while Canada is expected to initiate an interest rate hike in coming months. In Australia’s case, this tightening guidance was reinforced this week, with the Reserve Bank lifting its policy rate by 25 basis points. Elsewhere, and in contrast, the euro area, UK and US are expected to move in the opposite direction.

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**US manufacturing activity**
The second chart underscores the recent improvement in US economic momentum, highlighted by an unexpected surge in the January ISM manufacturing PMI. After spending much of the past year hovering below the 50 threshold consistent with stagnation, the index jumped sharply back into expansionary territory, signalling a renewed pickup in industrial activity. This rebound has coincided with a broader run of stronger-than-anticipated US economic data, as reflected in the upswing in the Citigroup Economic Surprise Index. Together, these developments point to a US economy that continues to display notable resilience, complicating expectations of monetary easing in the near term.

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**US Bank Lending Standards and Financial Stress** 
The next chart turns to US financial conditions, highlighting the latest readings from the Senior Loan Officer Opinion Survey. The net proportion of banks tightening lending standards on corporate loans and mortgages is now more modest by historical standards, and well below the extremes seen during past episodes of financial stress. Some easing in credit headwinds has occurred alongside relatively subdued readings on the OFR Financial Stress Index, which continues to hover below its long-run average. Together, these indicators suggest that the US financial system has continued to avoid the kind of acute stress typically associated with sharp slowdowns in credit availability—helping to underpin the recent resilience in economic activity.

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**Semiconductor Sales**
The fourth chart highlights the renewed surge in global semiconductor sales, with momentum strengthening sharply over recent months across the Americas, China and the broader Asia-Pacific region. After the cyclical downturn in 2022–23, sales have rebounded to fresh highs, reflecting a powerful revival in demand for advanced chips and related technologies. This upswing has taken place amid intense investor preoccupation with artificial intelligence, with expectations that AI adoption will drive a sustained wave of capital spending on data centres, cloud infrastructure and high-performance computing. In contrast, semiconductor sales in Europe remain comparatively subdued, reflecting the region’s smaller footprint in high-end chip manufacturing, weaker industrial demand, and the ongoing impact of slower economic growth. While semiconductors are inherently cyclical, markets have increasingly interpreted the current rebound elsewhere as structural rather than purely cyclical—underpinned by the belief that AI represents a transformative and durable source of demand growth.

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**Large-Scale AI Models**
The next chart illustrates the rapid proliferation of large-scale AI models globally, with newly updated data for 2025 pointing to a further sharp acceleration in development activity. The United States continues to lead by a wide margin, while China has also seen a steep rise in model deployment in recent years, underscoring the intensifying technological competition between the two economies. Growth in the UK and other regions has been more modest by comparison, highlighting the increasingly concentrated nature of AI innovation. Taken together with the surge in semiconductor sales, these trends help explain the market’s strong preoccupation with AI as a potential driver of future productivity and investment cycles—although the geographic concentration of activity also raises questions about the uneven distribution of any resulting economic gains.

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**An AI Bubble?** 
The final chart draws on the latest Blue Chip Financial Forecasts special questions, highlighting market participants’ perceptions of the economic gains likely to be delivered by artificial intelligence. While a sizeable share of respondents still believe that financial markets may be overestimating AI’s potential benefits, an increasing proportion now judge current expectations to be broadly accurate, with only a small minority viewing the gains as underestimated. Notably, this represents a softening in scepticism compared with the survey results from last month, when concerns about excessive market optimism were more pronounced. The shift suggests a growing acceptance that AI-related investment and innovation could translate into meaningful economic impacts—though uncertainty remains high around the scale, timing and distribution of these gains.

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Financial markets have experienced renewed gyrations in recent weeks, as shifting geopolitical risks, questions around Federal Reserve independence, renewed talk of US dollar “debasement,” and ongoing enthusiasm surrounding artificial intelligence have combined to drive volatility across asset classes. These cross-currents have also contributed to a degree of rotation away from high-flying technology stocks, as investors reassess valuations and the timing of anticipated AI-driven gains. Against this backdrop, the charts in this week’s COTW highlight several important themes. Policy rate expectations now appear more balanced globally, marking a clear shift away from the one-sided easing bias of the past two years (chart 1), even as resilient US data—underscored by the unexpected jump in the January ISM index and a run of positive economic surprises—continues to complicate the outlook for monetary easing (chart 2). At the same time, US financial conditions remain relatively benign, with limited evidence of widespread credit stress or aggressive tightening in lending standards (chart 3). Meanwhile, the sharp rebound in semiconductor sales and the accelerating rollout of large-scale AI models underscore why investors remain so focused on the AI narrative, even as Europe lags behind due to weaker industrial momentum and a smaller footprint in advanced chip production (charts 4 and 5). Finally, while some scepticism about AI’s ultimate economic impact persists, the latest survey results suggest a moderation in concerns that markets are materially overestimating its gains (chart 6). Taken together, these developments paint a picture of a US economy that remains more resilient than many had anticipated, set against a financial landscape increasingly shaped by powerful—if sometimes competing—narratives around geopolitics, policy, and technological transformation.

Charts of the Week: Balanced Policy, Resilient Data and AI Narratives

Robert Brusca

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With the December report, Germany’s production and some of the early European industrial production data reveal a good deal of chaos in terms of the embedded trends. On the month, German industrial production fell by 1.9%, with consumer goods output up by 0.5%, capital goods output falling by 5.3%, and intermediate goods output falling by 1.2%. Among the early reporters in the monetary union—France, Spain, and Portugal—only Spain showed an increase in manufacturing IP in December; however, Spanish industrial production is notoriously volatile.

**Broader IP trends in Germany and elsewhere in Europe**
As for other early industrial production reporters, both Sweden and Norway showed strong-to-solid gains in December and each of them showed two-months of gains in a row. Beyond that, sequential growth rates from 12-months to six-months to three-months show accelerating growth in German consumer goods output against decelerating growth for intermediate goods. Real manufacturing output and real sales show mixed results- no clear trends; however, real manufacturing orders in Germany are off the map strong. 

**German manufacturing/industrial Surveys**
German industrial surveys from the IFO for manufacturing shows persistent weakening as well as for IFO manufacturing expectations, and in the EU Commission industrial index in the last three months. More broadly, Germany shows some modest but ongoing step up all of these based on average levels from 12-months to six-months to three-months for IFO expectations and the EU Commission industrial readings with mixed results for other survey readings.

**IP trends in Europe**
For the early reporting EMU members France, Spain, and Portugal, who report industrial production trends, each show mixed monthly trends against ongoing decelerations for manufacturing output over the broader sequential periods (12-month, to 6-month, to 3-month). However, for other Europe, Sweden and Norway, manufacturing trends are steadily accelerating on this broader timeline.

**A feeling of ‘Deja- What?’**
These combinations of opposed trends mixed with a lack of trends leave us with this sense of confusion about what's going on in manufacturing. For Germany, the extreme strength in orders is reassuring since orders should be forward-looking rather than backward-looking or even contemporaneous. But orders can also be a fickle series and so we'll have to watch it to see if the trends for German orders hold up.

**Current quarter-What’s been happening now**
In addition, current quarter growth for Germany actually looks quite good with industrial production up 3.7% at an annual rate in the current quarter, led by output increases in manufacturing against a decline in the intermediate goods output. Real orders in the quarter are surging at a 44% growth rate, while real sales in manufacturing only had a 0.1% uptick at an annual rate. The industrial indicators for Germany in the quarter show weakness or flatness with the only exception being IFO manufacturing expectations that advanced by a small amount. The three EMU members who report industrial production data show positive growth in the just-completed quarter except for Portugal where industrial production is falling at a 2.9% rate in the fourth quarter. Sweden and Norway, European countries but not monetary union members, show a strong 22% annual rate gain in Sweden against the 3% annual rate decline in Norway.

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**Rankings**
**How growth rates stack up…**
Moving away from short-term trends, the rankings of growth rates of these various metrics using 12-month growth rates on data back to 2006, show below-median growth rates for German industrial production and all three of its major sectors. All of them have rankings below the 50% mark where the median resides. Germany’s manufacturing output growth rate is below its median as is the growth of real sales; and once again real manufacturing orders break out and show a stunning 90th percentile standing, extremely strong compared to other growth rates on this period.

**Indicator rankings are poor**
However, the survey based industrial indicators for Germany, ranked based on their index levels, are all extremely weak and much weaker than German sector or other German metrics. The strongest indicator reading is the 29th percentile standing for IFO manufacturing expectations while the current ZEW index, IFO manufacturing index, and the EU Commission industrial readings, all reside below their 15th percentile. The survey rankings suggest that industrial sentiment is in much worse shape than activity and growth.

**IP elsewhere in Europe**
However, the growth ranking of manufacturing industrial production for the reporting EMU members and other European members are all quite solid, with percentile standings ranging from the 66th up to the 93rd percentile.

**Summing up**
From these data, Germany emerges as the weak economy compared with historic norms based on industrial production growth and indicator readings. However, there's a glimpse of positivity from the growth of real orders, and at the same time, some concern about ongoing sentiment for manufacturing in Germany as distinct from actual performance.

Germany

German IP Reveals Chaotic Trends

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**Total job openings** fell 5.6% m/m (-12.9% y/y) to 6.542 million in December after a downwardly revised 7.0% decline to 6.928 million in November (previously -4.1% m/m; 7.146 million), according to the Job Openings and Labor Turnover Survey. December marked the third consecutive m/m fall and the lowest level since September 2020. The job openings rate declined to 3.9% in December, the lowest since April 2020, from 4.2% in November, remaining below a record-high 7.4% in March 2022. This rate is calculated as the ratio of job openings to total nonfarm employment plus openings. Significantly, the drop in job openings also lowered the **ratio of job openings to unemployed individuals** to 0.872 in December—the lowest since March 2021—from 0.890 in November, down from 1.085 in December 2024 and a pre-pandemic 1.211 in February 2020. A reading of 0.872 implies there were about 0.87 open jobs per unemployed person—indicating fewer openings than unemployed workers. December was the fifth time in six months that this ratio remained below 1.0.

**Private sector job openings** fell 6.8% (-12.5% y/y) to 5.804 million in December after a 6.6% fall to 6.227 million in November, registering the third successive m/m decline and the lowest level since September 2020. The private sector job openings rate fell to 4.1% in December, the lowest since April 2020, from 4.4% in November. The December m/m decline in private sector openings reflected drops of 27.7% (-36.9% y/y) in financial activities, 20.2% (-25.5% y/y) in professional & business services, 14.4% (-5.1% y/y) in trade, transportation & utilities, and 5.2% (-12.4% y/y) in private educational & health services. To the upside, private sector openings in the following categories rose m/m in December: other services (21.1%; 11.0% y/y), mining & lodging (17.6%; 0.0% y/y), information (13.5%; -4.7% y/y), manufacturing (8.5%; 0.5% y/y), leisure & hospitality (7.5%; -17.2% y/y), and construction (2.8%; 42.4% y/y). Meanwhile, government job openings rose 5.3% (-15.6% y/y) in December, the first m/m rise in three months, after a 10.6% drop in November.

**Total hiring** rebounded 3.4% (-1.5% y/y) to 5.293 million in December, the first m/m increase since September, following a 4.6% decrease to 5.121 million in November. The hiring rate edged up to 3.3% in December from 3.2% in November, though it remained below pre-pandemic levels. **Private sector hiring** rose 3.1% (-0.4% y/y) to 4.978 million in December, the third m/m rise in four months, after a 4.0% decline to 4.826 million in November. The private sector hiring rate rose to 3.7% in December from 3.5% in November, the same as in October and September. The December m/m increase in private sector hiring was led by a 32.1% jump (42.3% y/y) in information, followed by gains of 24.0% (-4.6% y/y) in financial activities, 23.5% (0.0% y/y) in mining & lodging, 6.5% (-4.8% y/y) in private educational & health services, 4.2% (-4.9% y/y) in trade, transportation & utilities, 3.6% (6.1% y/y) in construction, 3.4% (7.9% y/y) in leisure & hospitality, and 1.8% (-4.3% y/y) in manufacturing. To the downside, private sector hiring in professional & business services (-5.2%; +0.5% y/y) and other services (-4.3%; -16.5% y/y) declined m/m in December. Meanwhile, government hiring rebounded 6.4% (-16.3% y/y) in December, the first m/m rise since September, following a 13.5% drop in November.

**Total separations** rose 2.1% (3.3% y/y) to 5.251 million in December after a 1.5% rise to 5.144 million in November, marking the third m/m increase in four months and the highest level since September. The total separations rate edged up to 3.3% after holding at 3.2% in November and October. Private sector separations rose 1.6% (4.2% y/y) to 4.932 million in December, the highest level since June, while government sector separations jumped 10.4% (-9.1% y/y) to 319,000 following two consecutive m/m declines. **Total quits** (voluntary separations initiated by the employee) increased 0.3% (3.5% y/y) to 3.204 million in December, the third m/m rise in four months and the highest level since June, after a 7.4% rebound in November. The quits rate (a measure of workers’ willingness or ability to leave jobs) held at 2.0% in December and November, slightly below 2.3% in February 2020. Private sector quits eased 0.2% (+4.5% y/y) following an 8.4% November rebound. **Layoffs and discharges** (involuntary separations initiated by the employer) increased 3.6% (5.6% y/y) to 1.762 million in December, up for the third time in four months, after an 8.1% drop in November. The layoffs & discharges rate remained at 1.1% in December and November, marginally below 1.3% in February 2020. Private sector layoffs grew 4.3% (7.8% y/y) following a 7.3% November decrease.

The Job Openings and Labor Turnover Survey (JOLTS) data are available in Haver’s **USECON** database.

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- Job openings down 5.6% (-12.9% y/y) to 6.542 mil., third straight m/m decline.
- Hiring up 3.4% (-1.5% y/y) to 5.293 mil., first m/m increase since September.
- Separations rise to a three-month high; quits reach a six-month high; layoffs rebound.

U.S. JOLTS: Openings Drop to Lowest Level Since Sept. ’20; Hiring Rebounds in December

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Initial claims for unemployment insurance jumped 22,000 to 231,000 in the week ended January 31 following an unrevised 209,000 in the prior week. The four-week average rose to 212,250 from 206,250. The Action Economics Forecast Survey looked for 213,000 claims to have been filed. Winter Storm Fern and the accompanying very cold temperatures could have provided a temporary boost. Historically speaking, claims remain at low levels.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—increased by 25,000 to 1.844 million in the week ending January 24, from a downwardly revised 1.819 million in the prior week (previously 1.827 million). The insured unemployment rate remained at 1.2% in the week of January 24, unchanged from the previous eight weeks.

The insured unemployment rate varied greatly across individual states and territories. In the week ending January 17, the highest unemployment rates were in Rhode Island (2.83%), New Jersey (2.77%), Massachusetts (2.67%), Washington (2.54%), and Minnesota (2.45%). The lowest rates were in Florida (0.30%), North Carolina (0.42%), Louisiana (0.43%), Alabama (0.46%), and Arkansas (0.47). Rates in other notable states include Illinois (2.15%), California, (2.08%), New York (2.02%), Pennsylvania (1.91%), and Texas (1.09%). These state data are not seasonally adjusted.

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

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- New claims jumped 22,000 to 231,000, the highest level since December 6.
- Continuing claims rose to 1.844 million from 1.819 million.

U.S. Initial Unemployment Claims Surged in Latest Week

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German real orders in December adjusted for inflation rose strongly again, gaining 7.8% month-to-month after rising 5.7% month-to-month in November. Foreign orders were up by 5.6% in December compared to 5.2% in November. Domestic orders surged by 10.7% in December after rising 6.4% in November and 10% in October.

**Real sales**
Real sales were mixed in December with overall sales falling 1.4% month-to-month mostly on weakness in capital goods sales.

**Broad categorical acceleration**
Many flows are accelerating this month. Sequential growth rates show acceleration. Total real orders accelerate from a year ago, to the current year, to six-months, and to three-months. Sales growth rates for consumer goods, consumer nondurables, and intermediate goods all show accelerations in gear. The exceptions are foreign orders that are not as strong over six months compared to their 12-month growth. And on the sales side, consumer durables sales and capital goods sales are weak.

**Quarter-to-quarter**
Quarterly annualized growth is complete for Q4 with this report. Foreign orders are the ‘weak flow’ expanding at a 13.6% annual rate – certainly not a weak growth rate. But domestic real orders are up at an astounding 101.9% annual rate. The net impact on the total real orders growth is to lift it to a pace of 44.1%. 

**Order ranking is very strong**
The table provides two rankings: one based on the level of variables and the other based on its year-on-year growth. The rankings this month for real orders overall, foreign, and domestic orders all reside in their top 80th to 90th percentiles- extremely strong based on level or growth. Sales do not follow suit. This gives us some reason to suspect that there is some lumpiness involved in the manufacturing data as distinct from strength. That will be something to watch. Overall mining and manufacturing sales growth is essentially at its historic median at a rank of 49.8. However, capital goods, intermediate goods and manufacturing sales all have rankings at or above their medians - as high as a 61-percentile standing for capital goods.

**Industrial confidence**
Industrial confidence for Germany, France, Italy and Spain (the EU’s big-four economies) show rankings based on these survey levels that are much lower at the 11th percentile for Germany, the 42nd and 36th percentiles, for France and Italy, respectively. Spain scores better with a 61.8 percentile standing on its industrial confidence measure. 

On balance, there is now an accelerating profile that is broad in sales trends and especially strong order trends. Perhaps Europe, under the pressure to stimulate its miliary capabilities, has a core of demand to help drive output ahead more consistently. This is something to watch in the coming months.