Winnie Tapasanun

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The Federal Reserve Bank of Kansas City reported that its manufacturing sector business activity index was at -9 in December, down from -6 in November and -7 in October. The December reading was well below a record-high 37 in March and 22 last December, indicating Tenth District manufacturing activity dropped at a slightly faster pace this month than last month and worsened to the lowest level since May 2020. "The slower pace in factory growth in December was driven by decreased activity in printing, wood products, machinery manufacturing, and food manufacturing," the Kansas City Fed reported. The ISM-adjusted index calculated by Haver Analytics showed contractions for the third consecutive month, falling to 44.5 in December from 47.3 in November and 49.0 in October. The latest reading was the lowest level since May 2020 and noticeably down from 59.1 last December.

The production index was at negative levels for three straight months: -13 in December, -10 in November and -22 in October; it was down from 11 last December. The new orders index declined to -17 in December from -12 in November, registering the seventh consecutive negative reading and significantly down from 22 last December. Fifteen percent of respondents (NSA) reported orders gains while 43% reported declines. The shipments index, while negative for three successive months, improved to -1 this month from -5 in November and -18 in October; it remained down from a record-high 46 in March and 13 last December. The employment index declined to zero in December, the lowest level since November 2020, from 3 in November and 18 last December. Seventeen percent of respondents (NSA) reported increases in the number of employees while 18% reported decreases.

The raw materials inventory index slid to -8 in December from 2 in November, registering the first negative reading since November 2020 (-2) and the lowest since May 2020 (-24). The order backlog index was unchanged at -25 this month, the fifth straight negative reading, down from 9 last December. The supplier delivery times index increased to -7 in December, the fourth successive negative reading, after declining to -12 in November; it was well below 44 last December.

The prices received index for finished products declined to a still-high 13 in December after rising to 19 in November; it was visibly down from a record-tying 57 in April (also 57 in Aug. ’21) and 46 last December. Twenty-three percent of respondents (NSA) reported higher prices received while 15% reported price declines. The prices paid index for raw materials fell to 13 this month, the lowest level since July 2020, from 22 in November; it was well below a recent-high 83 in April and 67 last December.

Expectations for future activity were slightly positive in December. The expectations index for six months ahead improved to 2 this month from zero in November. The expectations indexes for production (12), shipments (11) and new orders (2) increased in December. The expectations index for employment fell for the fourth time in five months in December but remained in positive territory (10). Expected capital expenditures rose to 7 this month, the highest level since September, from zero in November. Expectations for future raw materials prices rebounded to 28 in December from 24 in November, while expected finished goods prices declined further this month to 32, a two-year low, from 37.

The latest survey was conducted for a five-day period from December 14-19, 2022 and included 103 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and western Missouri.

The series dates back to July 2001. The diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Data for the Kansas City Fed Survey can be found in Haver's **SURVEYS** database.

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- Index declines to -9 in Dec., lowest since May '20, from -6 in Nov., w/ new orders (-17), production (-13) and shipments (-1) in negative territory.

- Employment falls to a zero reading, its lowest level since Nov. '20.

- Price pressures ease somewhat, w/ the prices paid index for raw materials dropping to the lowest level since Jul. '20.

- Expectations for future activity improve slightly.

Kansas City Fed Manufacturing Index in Negative Territory for the Third Straight Month in December

Tom Moeller

Sales of existing homes declined 7.7% during November (-35.4% y/y) to 4.09 million (SAAR) from an unrevised 4.43 million in October. Sales have fallen for ten consecutive months and were down 37.0% during that period. The Action Economics Forecast Survey expected October sales of 4.35 million units.

Sales of single-family homes fell 7.6% (-35.2% y/y) in November to 3.65 million units. Sales have fallen in each month since January. Condo and co-op sales weakened 8.3% (-37.1% y/y) in November following a 2.0% October fall.

The decline in total sales was most pronounced in the Western region of the country where they fell 12.5% (-45.7% y/y) to 700,000 after a 9.1% October decline. Sales in the South were off 7.1% (-35.0% y/y) after falling 4.8% in October. Sales in the Northeast weakened 7.0% (-28.4% y/y) to 500,000 following a 6.6% October drop. Sales in the Midwest were off 5.6% (-30.6% y/y) in November to 1.02 million, down for the ninth month this year.

The number of existing homes for sale (NSA) fell 6.6% (+2.7% y/y in November, the fourth straight month of decline. The months' supply of homes on the market (NSA) held at 3.3 months at the current selling rate which is the highest since June 2020. It’s up from a record low of 1.6 months reached in January of this year. These figures date back to January 1999.

The median price of an existing home (NSA) fell 2.1% (+3.5% y/y) to $370,700, down for the fifth straight month. They were 10.4% below the June peak of $413,800. Prices declined last month in all four regions of the country.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

- Sales weaken to lowest level since May 2020.

- Decline continues throughout the country.

- Prices slide to nine-month low.

U.S. Existing Home Sales & Prices Continue to Fall in November

The U.S. current account deficit narrowed in the third quarter to $217.1 billion from $238.7 billion during Q2’22, revised from $251.1 billion. The Action Economics Forecast Survey anticipated a $222.0 billion deficit. It was the smallest deficit since Q2’21. As a percent of GDP, the Q3 deficit contracted to 3.38% from 3.78% in Q2. Exports overall rose 2.4% (19.5% y/y) after an 8.4% gain, while imports edged 0.4% higher (14.9% y/y) following a 3.2% Q2 rise.

The deficit in goods trade narrowed to $271.1 billion after deepening to $310.9 billion in Q2, revised from $310.5 billion. Exports grew 1.3% (23.8% y/y) following a 10.6% Q2 jump. Capital goods exports surged 3.9% (11.9% y/y) while auto exports rose 1.3% (15.6% y/y). These gains were accompanied by a 0.7% rise (9.9% y/y) in nonauto consumer goods exports but offset by a 10.8% decline (+16.8% y/y) in foods, feeds & beverage exports. Industrial supplies & materials exports fell 1.8% (+35.3% y/y).

Imports of goods declined 3.8% (+14.5% y/y) in Q3, following a 2.5% rise in Q2. Auto imports rose 3.3% (22.6% y/y) while capital goods exports gained 1.9% (14.8% y/y). A 9.5% decline (+10.0% y/y) in nonauto consumer goods imports offset these gains while industrial supplies & materials imports fell 5.2% (+22.4% y/y). Foods, feeds & beverage imports also declined 5.2% (+10.0% y/y).

The surplus on services trade improved in Q3 to $60.5 billion from $57.3 billion in Q2. Services exports rose 2.1% (17.2% y/y). Travel exports strengthened 5.4% (104.7% y/y) as tourism rose. Services imports edged 0.9% higher (18.6% y/y) but travel imports rose 5.2% (76.0% y/y). Charges for the use of intellectual property increased 6.6% (4.4% y/y).

The surplus on primary income fell to $45.6 billion in Q3 from $57.2 billion in Q2. Primary income receipts rose 5.1% (17.2% y/y). Primary income payments increased 11.1% (14.5% y/y).

On the capital flow side of the ledger, the net US acquisition of foreign financial assets rose to $411.0 billion in Q3 from $410 billion in Q2. Direct investment assets declined to $56.7 billion from $99.6 billion in Q2.

Balance of Payments data are in Haver's **USINT** database, with summaries available in **USECON**. The expectations figure is in the **AS1REPNA** database.

- Deficit is smallest in five quarters.

- Goods deficit narrows sharply as exports grow & imports fall.

- Services surplus continues to grow.

U.S. Current Account Deficit Narrows in Q3'22

Mortgage applications rose 0.9% w/w (-63.9% y/y) in the week ending December 16 after a 3.2% increase in the week ending December 9, according to the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house ticked down 0.1% (-36.5% y/y), the second w/w decline in three weeks, following a 4.0% rebound in the previous week. Applications for refinancing a loan rose 6.0% (-84.5% y/y), the fourth w/w rise in five weeks, after a 2.8% increase in the prior week.

The share of applications for refinancing an existing loan rose to 31.3% of total applications in the December 16 week from 29.4% in the previous week, registering the highest reading since the September 16 week of 32.5%. These latest weeks' shares were still down from 65.4% in the week of December 31, 2021. The adjustable-rate mortgage (ARM) share of activity declined to 7.5% in the December 16 week after rising to 7.7% in the prior week.

The Federal Reserve raised its short-term rate target on December 14, but longer-term rates, including mortgage rates, fell for the week ending December 16. The effective rate on a 30-year fixed-rate loan was at 6.51% in the December 16 week, down from 6.60% in the previous two weeks. The latest reading was the lowest since the September 16 week of 6.45% but significantly above the 3.42% average rate in December 2021. The rate on 15-year fixed-rate mortgages fell to 5.94% in the December 16 week from 6.05% in the December 9 week and the rate on a 30-year Jumbo loan fell to 6.12% from 6.26%, posting their lowest readings since the September 16 week. The rate on a 5-year ARM loan decreased to 5.78%, the lowest since the September 30 week, from 5.88%.

The average loan size fell to $358,300 (+2.9% y/y) in the December 16 week, the second w/w fall in three weeks, from $364,400 in the December 9 week. The series high of $401,900 was reached in the May 6 week. The average size of a purchase loan declined to $398,000 (-4.4% y/y) in the December 16 week from a five-week-high $401,400 in the prior week and the average size of a loan to refinance a mortgage slid to $271,100 (-13.1% y/y) from a five-week-high $275,500.

The Mortgage Bankers Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks, and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver's **SURVEYS** database.

- Applications for loans to purchase edge down in the week of December 16.

- Applications for refinancing a loan rise for the third straight week.

- Mortgage rates fall for fixed-rate loans, Jumbos and ARMs; their lowest rates since September.

U.S. Mortgage Applications Up for the Second Week After Two Consecutive Weekly Declines

Total housing starts slipped 0.5% (-16.4% y/y) during November to 1.427 million units (SAAR) from 1.434 million in October, revised from 1.425 million. Starts in November were 20.9% lower last month than the April 2022 peak. The Action Economics Forecast Survey expected 1.40 million starts in November.

Single-family starts declined 4.1% (-32.1% y/y) last month to 828,000 after falling 3.4% to 863,000 in October. Multi-family starts rose 4.9% (23.3% y/y) to 599,000 after easing 0.2% in October.

Housing starts remained regionally mixed. In the Northeast, starts declined 18.6% (-27.2% y/y) to 83,000, the third straight month of sharp decline. November starts in the Midwest fell 6.5% (-0.5% y/y) to 215,000 after rising 10.0% in October. Starts in the West increased 8.3% last month (-20.7% y/y) to 341,000 following a 14.2% October rise. Starts in the South edged 0.1% higher (-16.7% y/y) after rising 6.2% in October.

Building permits declined 11.2% (-22.4% y/y) during November to 1.342 million after falling 3.3% in October. Single-family permits weakened 7.1% (-29.7% y/y) to 781,000. It was the ninth straight consecutive monthly decline. Multi-family permits declined 16.4% (-9.2% y/y) to 561,000 after falling 3.3% in October.

The housing starts and permits figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

• Single-family starts fall sharply as multi-family starts increase.

• Decline is pronounced in the Northeast.

• Building permits decline sharply.

U.S. Housing Starts Ease in November

Retail gasoline prices declined last week to $3.12 per gallon (-5.3% y/y) after falling to $3.24 per gallon during the previous week. Prices have been declining since the mid-June peak of $5.01 per gallon. The retail cost of diesel fuel fell to $4.60 per gallon (+26.8% y/y) last week from $4.75 in the prior week . The price reached a peak of $5.81 per gallon in the third week of June.

West Texas Intermediate crude oil prices rose to an average $75.21 per barrel (5.6% y/y) in the week ended December 16 from $73.11 per barrel in the prior week. Prices remained down from a high of $120.46 in the second week of June. Yesterday, the price was $75.19 per barrel. The average price of Brent crude oil rose to $80.18 per barrel last week (8.7% y/y) from $79.56 in the prior week. The price peaked at $127.40 in mid-June. Yesterday, the price was $81.66 per barrel.

The price of natural gas strengthened to $6.84/mmbtu (80.5% y/y) in the week ended December 16 after falling to $4.60/mmbtu in the previous week. Prices peaked at $9.56/mmbtu in the last week of August and were up from a low of $3.56/mmbtu in the last week of December, 2021. Yesterday, the price was $6.00/mmbtu.

In the four weeks ended December 9, gasoline demand declined 9.0% from a year earlier after falling 7.1% y/y during the prior four weeks. These declines compare to 15.2% y/y growth at the end of last year. Demand for all petroleum products weakened 6.9% y/y in the latest four weeks in contrast to the 14.4% growth at the end of 2021. Crude oil input to refineries increased 4.8% y/y.

Gasoline inventories eased 2.3% y/y in the week ended December 9, while crude oil inventories declined 21.5% y/y.

Measured in days' supply, gasoline inventories in the week ended December 9 rose w/w to 26.9 days and are still lower than the 29.2 days in early-February. The supply of crude oil fell to 25.8 days and remained down from 41.8 days in early-March of last year.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price data can be found in Haver's **WEEKLY** and **DAILY** databases. Greater detail on prices, as well as the demand, production and inventory data are in **USENERGY**.

- Gas prices are lowest since July 2021.

- Crude oil costs edge higher.

- Natural gas prices recover after recent weakness.

U.S. Gasoline Prices Decline Sharply

The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo fell 6.1% (-63.1% y/y) during December to 31 from an unrevised 33 in November. It was the twelfth straight monthly decline. The index stood at the lowest index level since April 2020, which was near the lowest level since June 2012. The average level of the index in 2022 fell 27.3% from 2021. A December reading of 36 had been expected in the Informa Global Markets survey.

Performance amongst the components of the index was mixed this month. The index of present sales conditions fell 7.7% (-60.0% y/y) to 36. It was the eleventh decline in twelve months. The December level was 62.5% below the record-high of 96 in November 2020. The index of expected sales over the next six months improved 12.9% in December (-58.8% y/y). Nevertheless, the December level was 60.7% below the November 2020 peak. The index measuring traffic of prospective buyers held steady m/m (-71.8% y/y) at the lowest level since April 2020.

Among the regions of the country, the Housing Market Index in the South improved 6.1% (-60.7% y/y) to 35 following a 19.5% November fall. In the Northeast, the index held steady m/m (-60.0% y/y). In other regions, the index in the Midwest declined 14.3% (-60.5% y/y) to 30, the lowest level since April 2020. In the West, the index declined 10.7% (-71.3% y/y) and equaled the lowest level since January 2012.

The NAHB has compiled the Housing Market Index since 1985. It reflects survey questions which ask builders to rate sales and sales expectations as "good," "fair" or "poor" and traffic as "very high," "average" or "very low". The figures are diffusion indexes with values over 50 indicating a predominance of "good"/"very high" readings. In constructing the composite index, the weights assigned to the individual index components are: 0.5920 for single-family detached sales, present time, 0.1358 for single-family detached sales, next six months, and 0.2722 for traffic of prospective buyers. These data are included in Haver's **SURVEYS** database. The Informa Global Markets survey is in Haver's **MMSAMER** database.

- Current sales decline but prospects pick up.

- Traffic of prospective buyers stabilizes.

- Index improves only in the South.

U.S. Home Builder Index Weakens Again in December

The Industrial Materials Price Index from the Foundation for International Business & Economic Research held steady (-11.8% y/y) in the week ended December 16 and has been moving sideways since late-September.

Moving higher over the last five weeks (-14.0% y/y) were Metals prices, led by strength in zinc (-2.2% y/y) and steel scrap (-16.6% y/y) prices. Copper scrap prices also recently firmed (-11.1% y/y), while aluminum prices gained (-8.8% y/y).

This increase was offset by continued price declines in the Miscellaneous group (-19.3% y/y), where lumber prices moved lower (-63.4% y/y). To the upside was the cost of natural rubber (-7.0% y/y).

Prices in the Crude Oil & Benzene group also fell recently (-0.5% y/y) as the cost of crude oil fell to $74.59 per barrel (+4.5% y/y), down from $120.31 per barrel in the second week of June. Benzene prices have trended sideways since early-September (-10.4% y/y).

The FIBER price index excluding crude oil moved slightly higher in recent weeks but remained down 12.6% y/y.

Prices in the Textile group moved sideways recently (-5.2% y/y) with little change in cotton prices (-23.3% y/y). Burlap prices continue to weaken (-10.3% y/y).

The industrial commodity price data can be found in Haver's **WEEKLY** database.

- Prices have trended sideways since late-summer.

- Rise in metals prices offsets decline in lumber costs.

- Oil prices weaken.

U.S. Industrial Commodity Prices Hold Steady

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

Sandy Batten

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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.