Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002j.jpg" width="353">
The Bank of Japan&#39;s Tankan Survey released this morning shows a greater than expected increase in the headline series (Diffusion index for large manufacturers&#39; current conditions) from 21% in June to 24% in September and was 5 percentage points above June, 2005. A weakening of the yen and a fall in oil prices since the June survey has contributed to the increase in economic activity. Confidence in current conditions also improved for medium sized manufactures--from 13% to 14%--while that for small manufacturers declined--from 7% to 6%. The trends of the diffusion indexes of actual conditions in the large and small manufacturers are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002g.jpg" width="353">
While Japanese manufacturers were more confident in their appraisal of current conditions, they were less confident in their appraisal of the future. The diffusion index for large manufacturers&#39; appraisal of the future fell from 22% to 21%, that for medium manufacturers fell from 13% to 11% while that for small firms remained unchanged at 7%. The contrast between the optimistic appraisal of current conditions and less sanguine appraisal of the future for large corporations is shown in the second chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002i.jpg" width="353">
The IFO Survey of German business released last week showed the same general trends as the Tankan Survey--an improved appraisal of current conditions and less sanguine view of the outlook. We suggested, in that in case of Germany, that the decline in the appraisal of the future was more likely to reflect caution rather than alarm as current conditions had rec<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002h.jpg" width="353">ently been much better than anticipated. (See Chart 3) In the case of Japan, actual business conditions for all industries have been better than expectations since the series began in 2004 until the second and third quarters of this year when they equaled expectations. (See Chart 4)
With the economy in the United States slowing, attention is being brought to bear on the prospects for growth in the next two largest industrial economies. While these surveys suggest some deceleration in growth may be in the cards for Japan and Germany, the trend of growth in both countries continues to recover from the depressed years of the recent past. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J8/@J809/@J809.HTM">Japan TANKAN (%)</a></th>
<th scope="col">3Q 06</th>
<th scope="col">2Q 06</th>
<th scope="col">3Q&nbsp; 05</th>
<th scope="col">Q/Q Dif&nbsp;&nbsp;</th>
<th scope="col">Y/Y&nbsp; Dif&nbsp;</th>
<th scope="col">2006&nbsp;&nbsp;</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">ACTUAL CONDITIONS&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Large Corporations&nbsp;</td>
<td>24</td>
<td>21</td>
<td>19</td>
<td>3</td>
<td>5</td>
<td></td>
<td>18</td>
<td>21</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; Medium Corporations</td>
<td>14</td>
<td>13</td>
<td>5</td>
<td>1</td>
<td>9</td>
<td></td>
<td>7</td>
<td>10</td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Small Corporations</td>
<td>6</td>
<td>7</td>
<td>3</td>
<td>-1</td>
<td>3</td>
<td></td>
<td>3</td>
<td>2</td>
</tr>
<tr class="odd">
<td class="firstcol">FORECASTS</td>
<td>4Q 06</td>
<td>3Q 06</td>
<td>4Q&nbsp; 05</td>
<td>Q/Q Dif&nbsp;&nbsp;</td>
<td>Y/Y&nbsp; Dif&nbsp;</td>
<td>2006&nbsp;&nbsp;</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Large Corporations&nbsp;</td>
<td>21</td>
<td>22</td>
<td>18</td>
<td>-1</td>
<td>3</td>
<td>21</td>
<td>16</td>
<td>15</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; Medium Corporations</td>
<td>11</td>
<td>13</td>
<td>6</td>
<td>-2</td>
<td>7</td>
<td>11</td>
<td>4</td>
<td>4</td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Small Corporations</td>
<td>7</td>
<td>7</td>
<td>1</td>
<td>0</td>
<td>6</td>
<td>7</td>
<td>1</td>
<td>-2</td>
</tr>
</tbody>
</table>
</body>
</html>

The Bank of Japan's Tankan Survey released this morning shows a greater than expected increase in the headline series (Diffusion index for large manufacturers' current conditions) from 21% in June to 24% in September and was 5 [...]

Japan's "Tankan" Like Germany's "IFO" Confident of the Present but Cautious of the Future

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002d.jpg" width="353">
The August value of construction put in place rose a modest 0.3% after a little revised 1.0% drop during July. Consensus expectations had been for a 0.4% decline. Despite the latest increase the level of 3Q activity remained 1.0% below 2Q.
Residential building dropped another 1.4%, the fifth sharp slide in as many months. New single family building dropped 2.7% (-9.3% y/y) and the August level was down 12.5% from the peak in February. Moving in the other direction the value of spending on improvements rose 1.1%% (0.8% y/y).
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.
Nonresidential building jumped 3.4% after an upwardly revised 1.3% July rise. Office construction surged 3.1% (27.5% y/y) while multi-retail building jumped 10.8% (51.1% y/y). Building by the factory sector surged 8.2% (28.4% y/y) to the highest level since 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002e.jpg" width="353">
Public construction spending reversed all of the prior month&#39;s revised decline with a 1.1% increase due to across the board gains. Construction activity on highways &amp; streets, nearly one third of the value of public construction spending, rose 0.4% (17.6% y/y).
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.
Are Investors More Risk-Averse During Recession? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20061001/cover.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.3%</td>
<td>-1.0%</td>
<td>4.5%</td>
<td>10.7%</td>
<td>11.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.1%</td>
<td>-1.0%</td>
<td>2.9%</td>
<td>12.0%</td>
<td>14.3%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-1.4%</td>
<td>-2.2%</td>
<td>-5.1%</td>
<td>13.9%</td>
<td>18.6%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>3.4%</td>
<td>1.3%</td>
<td>23.8%</td>
<td>7.4%</td>
<td>5.3%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>1.1%</td>
<td>-1.2%</td>
<td>9.7%</td>
<td>6.2%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

The August value of construction put in place rose a modest 0.3% after a little revised 1.0% drop during July. Consensus expectations had been for a 0.4% decline. Despite the latest increase the level of 3Q activity remained 1.0% [...]

U.S. Construction Spending Up Unexpectedly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002a.jpg" width="353">
The September composite index of manufacturing sector activity from the Institute for Supply Management fell to 52.9 from 54.5 during the prior month. The decline was the fourth in the last five months and left the index down five points from the year ago peak of 58.1 Consensus expectations had been for a more moderate decline m/m to 53.5.
During the last ten years there has been a 67% correlation between the level of the ISM index and three month growth in factory sector industrial production.
At 61.0 the price index, which is not included in the composite, dropped to its lowest level since last November. During the last ten years there has been an 89% correlation between the level of the price index and the three month change in the PPI for intermediate goods less food &amp; energy.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002c.jpg" width="353">
The percentage of respondents reporting higher prices fell to its lowest level (36%) since February.
A lower employment component, which fell to 49.4 from a four month high of 54.0 in August, accounted for much of the m/m decline in the composite. During the last ten years there has been a 77% correlation between the level of the ISM employment Index and the three month growth in factory sector employment.
The inventories index also fell sharply m/m while all of the other component series fell modestly with the exception of new orders which was unchanged m/m. The new orders index, however, at 54.2 is down sharply from the December 2003 high of 71.6.
The new export orders index fell modestly m/m to 55.3 and is down roughly three points from the recent high in January of 58.5. The series peak was in early 2004 near 60. During the last ten years there has been a 69% correlation between the level of the export order index and the q/q growth in goods exports from the GDP accounts. The imports index rose back to the middle of its range since early 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002b.jpg" width="353">
Explaining Cyclical Movements in Employment: Creative Destruction or Changes in Utilization from the Board of Governors of the Federal Reserve System is available <a href="http://www.federalreserve.gov/pubs/feds/2006/200623/200623abs.html">here</a>.
Economic Revitalization Through the Arts: The Creative Economy from the Federal Reserve Bank of Boston can be found <a href="http://www.bos.frb.org/commdev/c&amp;b/2006/spring/revitalization.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Sept. &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>52.9</td>
<td>54.5</td>
<td>58.0</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index (NSA)</td>
<td>61.0</td>
<td>73.0</td>
<td>78.0</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>
</body>
</html>

The September composite index of manufacturing sector activity from the Institute for Supply Management fell to 52.9 from 54.5 during the prior month. The decline was the fourth in the last five months and left the index down five [...]

ISM Composite & Price Indexes Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002a.jpg" width="353">
The September composite index of manufacturing sector activity from the Institute for Supply Management fell to 52.9 from 54.5 during the prior month. The decline was the fourth in the last five months and left the index down five points from the year ago peak of 58.1 Consensus expectations had been for a more moderate decline m/m to 53.5.
During the last ten years there has been a 67% correlation between the level of the ISM index and three month growth in factory sector industrial production.
At 61.0 the price index, which is not included in the composite, dropped to its lowest level since last November. During the last ten years there has been an 89% correlation between the level of the price index and the three month change in the PPI for intermediate goods less food &amp; energy.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002c.jpg" width="353">
The percentage of respondents reporting higher prices fell to its lowest level (36%) since February.
A lower employment component, which fell to 49.4 from a four month high of 54.0 in August, accounted for much of the m/m decline in the composite. During the last ten years there has been a 77% correlation between the level of the ISM employment Index and the three month growth in factory sector employment.
The inventories index also fell sharply m/m while all of the other component series fell modestly with the exception of new orders which was unchanged m/m. The new orders index, however, at 54.2 is down sharply from the December 2003 high of 71.6.
The new export orders index fell modestly m/m to 55.3 and is down roughly three points from the recent high in January of 58.5. The series peak was in early 2004 near 60. During the last ten years there has been a 69% correlation between the level of the export order index and the q/q growth in goods exports from the GDP accounts. The imports index rose back to the middle of its range since early 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002b.jpg" width="353">
Explaining Cyclical Movements in Employment: Creative Destruction or Changes in Utilization from the Board of Governors of the Federal Reserve System is available <a href="http://www.federalreserve.gov/pubs/feds/2006/200623/200623abs.html">here</a>.
Economic Revitalization Through the Arts: The Creative Economy from the Federal Reserve Bank of Boston can be found <a href="http://www.bos.frb.org/commdev/c&amp;b/2006/spring/revitalization.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Sept. &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>52.9</td>
<td>54.5</td>
<td>58.0</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index (NSA)</td>
<td>61.0</td>
<td>73.0</td>
<td>78.0</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Up Unexpectedly 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 2, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002d.jpg" width="353">
The August value of construction put in place rose a modest 0.3% after a little revised 1.0% drop during July. Consensus expectations had been for a 0.4% decline. Despite the latest increase the level of 3Q activity remained 1.0% below 2Q.
Residential building dropped another 1.4%, the fifth sharp slide in as many months. New single family building dropped 2.7% (-9.3% y/y) and the August level was down 12.5% from the peak in February. Moving in the other direction the value of spending on improvements rose 1.1%% (0.8% y/y).
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.
Nonresidential building jumped 3.4% after an upwardly revised 1.3% July rise. Office construction surged 3.1% (27.5% y/y) while multi-retail building jumped 10.8% (51.1% y/y). Building by the factory sector surged 8.2% (28.4% y/y) to the highest level since 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002e.jpg" width="353">
Public construction spending reversed all of the prior month&#39;s revised decline with a 1.1% increase due to across the board gains. Construction activity on highways &amp; streets, nearly one third of the value of public construction spending, rose 0.4% (17.6% y/y).
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.
Are Investors More Risk-Averse During Recession? from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20061001/cover.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.3%</td>
<td>-1.0%</td>
<td>4.5%</td>
<td>10.7%</td>
<td>11.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.1%</td>
<td>-1.0%</td>
<td>2.9%</td>
<td>12.0%</td>
<td>14.3%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-1.4%</td>
<td>-2.2%</td>
<td>-5.1%</td>
<td>13.9%</td>
<td>18.6%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>3.4%</td>
<td>1.3%</td>
<td>23.8%</td>
<td>7.4%</td>
<td>5.3%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>1.1%</td>
<td>-1.2%</td>
<td>9.7%</td>
<td>6.2%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Japan's "Tankan" Like Germany's "IFO" Confident of the Present but Cautious of the Future  
by <a href="/comment/Curley.html">Louise Curley</a> October 2, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002j.jpg" width="353">
The Bank of Japan&#39;s Tankan Survey released this morning shows a greater than expected increase in the headline series (Diffusion index for large manufacturers&#39; current conditions) from 21% in June to 24% in September and was 5 percentage points above June, 2005. A weakening of the yen and a fall in oil prices since the June survey has contributed to the increase in economic activity. Confidence in current conditions also improved for medium sized manufactures--from 13% to 14%--while that for small manufacturers declined--from 7% to 6%. The trends of the diffusion indexes of actual conditions in the large and small manufacturers are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002g.jpg" width="353">
While Japanese manufacturers were more confident in their appraisal of current conditions, they were less confident in their appraisal of the future. The diffusion index for large manufacturers&#39; appraisal of the future fell from 22% to 21%, that for medium manufacturers fell from 13% to 11% while that for small firms remained unchanged at 7%. The contrast between the optimistic appraisal of current conditions and less sanguine appraisal of the future for large corporations is shown in the second chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002i.jpg" width="353">
The IFO Survey of German business released last week showed the same general trends as the Tankan Survey--an improved appraisal of current conditions and less sanguine view of the outlook. We suggested, in that in case of Germany, that the decline in the appraisal of the future was more likely to reflect caution rather than alarm as current conditions had rec<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061002h.jpg" width="353">ently been much better than anticipated. (See Chart 3) In the case of Japan, actual business conditions for all industries have been better than expectations since the series began in 2004 until the second and third quarters of this year when they equaled expectations. (See Chart 4)
With the economy in the United States slowing, attention is being brought to bear on the prospects for growth in the next two largest industrial economies. While these surveys suggest some deceleration in growth may be in the cards for Japan and Germany, the trend of growth in both countries continues to recover from the depressed years of the recent past. 

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<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J8/@J809/@J809.HTM">Japan TANKAN (%)</a></th>
<th scope="col">3Q 06</th>
<th scope="col">2Q 06</th>
<th scope="col">3Q&nbsp; 05</th>
<th scope="col">Q/Q Dif&nbsp;&nbsp;</th>
<th scope="col">Y/Y&nbsp; Dif&nbsp;</th>
<th scope="col">2006&nbsp;&nbsp;</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">ACTUAL CONDITIONS&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Large Corporations&nbsp;</td>
<td>24</td>
<td>21</td>
<td>19</td>
<td>3</td>
<td>5</td>
<td></td>
<td>18</td>
<td>21</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; Medium Corporations</td>
<td>14</td>
<td>13</td>
<td>5</td>
<td>1</td>
<td>9</td>
<td></td>
<td>7</td>
<td>10</td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Small Corporations</td>
<td>6</td>
<td>7</td>
<td>3</td>
<td>-1</td>
<td>3</td>
<td></td>
<td>3</td>
<td>2</td>
</tr>
<tr class="odd">
<td class="firstcol">FORECASTS</td>
<td>4Q 06</td>
<td>3Q 06</td>
<td>4Q&nbsp; 05</td>
<td>Q/Q Dif&nbsp;&nbsp;</td>
<td>Y/Y&nbsp; Dif&nbsp;</td>
<td>2006&nbsp;&nbsp;</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Large Corporations&nbsp;</td>
<td>21</td>
<td>22</td>
<td>18</td>
<td>-1</td>
<td>3</td>
<td>21</td>
<td>16</td>
<td>15</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp; Medium Corporations</td>
<td>11</td>
<td>13</td>
<td>6</td>
<td>-2</td>
<td>7</td>
<td>11</td>
<td>4</td>
<td>4</td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Small Corporations</td>
<td>7</td>
<td>7</td>
<td>1</td>
<td>0</td>
<td>6</td>
<td>7</td>
<td>1</td>
<td>-2</td>
</tr>
</tbody>
</table>
</body>
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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060929f.jpg" width="353">
Some weeks ago, Japan released its updated and rebased CPI. This week, New Zealand has done so. Consumers buy new products at new outlets. The compilation of inflation measures has to keep up with these spending changes. New Zealand last reweighted its CPI in 2002 and it last reselected its sample of retail outlets in 1999. This new formulation does both of these and adds some new techniques for monitoring spending behavior. In total, the inflation pattern is little altered by these changes, possibly because the revision process is frequent enough to prevent outmoded products and methods from overstaying their usefulness.
New Zealand&#39;s CPI is quarterly. The new index is based at 1000 in the so-called &quot;June quarter&quot;. The previous base period was June 1999, and on that base, the June 2006 figure was 1202. The new series, rebased to June 1999, puts the June 2006 number at 1203.4 (easily shown in DLXVG3 using the &quot;advanced functions&quot; feature and choosing &quot;Index&quot; with 19992 as the period and 1000 as the index level). Inflation over the past year has been 4.0% according to both the new and old series.
As with the Japanese revisions, a number of items were removed and new added. The listing provided by Statistics New Zealand shows 20 entirely new items, 13 old ones replaced and 10 deleted. All together, 685 items are priced. Among these changes, new entries include bottled water, nasal sprays, laptop computers and surfboards. Canned soups replaced powdered soup mixes and MP3 players replaced portable CD players. DVD players had already been introduced, but player/recorders were added this time. Refrigerators without freezers were dropped, as were hairspray and clothes lines.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060929g.jpg" width="353">
The Statistics New Zealand staff studied population changes and consequently shifted more of its polling to cities, particularly Auckland. They used private market research firms&#39; data on transactions which were obtained from analysis of barcode scanning. This enabled the staff to select more frequently used supermarkets and appliance dealers. They also found that lower priced outlets were taking an increasing share of business.
As readers can tell, we are fascinated by the selection of items in the new New Zealand CPI and also the various methodologies the New Zealanders have applied to revise their consumer price index. This discussion is incomplete in skipping over a change in seasonal adjustment policy and from the use of additive computations to geometric means, along with other actions. All of the techniques are explored in an informative and readable working paper on their website, available <a href="http://www2.stats.govt.nz/domino/external/pasfull/pasfull.nsf/4c2567ef00247c6a4c2567be0008d2f8/4c2567ef00247c6acc2571f60075d218?OpenDocument">here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/ANZ/@A2/@A204/@A2041/@A2041.HTM">New Zealand, CPI Indexes, NSA</a></th>
<th scope="col">Q2 2006 &quot;June&quot;</th>
<th scope="col">Q1 2006 &quot;March&quot;</th>
<th scope="col">Q4 2005 &quot;Dec.&quot;</th>
Annual Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">June 2006 = 1000</td>
<td>1000</td>
<td>986</td>
<td>981</td>
<td>968</td>
<td>939</td>
<td>918</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Yr/Yr % Chg</td>
<td>4.0</td>
<td>3.4</td>
<td>3.3</td>
<td>3.0</td>
<td>2.3</td>
<td>1.7</td>
</tr>
<tr>
<td class="firstcol">June 1999 = 1000, Y/Y % Chg</td>
<td>4.0</td>
<td>3.3</td>
<td>3.2</td>
<td>3.0</td>
<td>2.3</td>
<td>1.7</td>
</tr>
</tbody>
</table>
</body>
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Some weeks ago, Japan released its updated and rebased CPI. This week, New Zealand has done so. Consumers buy new products at new outlets. The compilation of inflation measures has to keep up with these spending changes. New Zealand [...]

New Zealand Restructures Its CPI; MP3 Players Are In, Hairspray Is Out. Inflation Through June Remains at 4%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060929d.jpg" width="353">
Consumer sentiment for all of September improved, according to the University of Michigan. The full month reading recouped all an August decline and rose 4.1% to 85.4, up from a mid-month read of 84.4. Consensus expectations had been for an increase to 85.2.
During the last ten years there has been a 77% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
Expected inflation during the next year fell sharply to 3.6% from 4.6%, its lowest level since February. The full month figure was unchanged from the preliminary read. The five to ten year expected rate of inflation also fell to 3.2%, reversing all of the rise during August.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060929e.jpg" width="353">
Expectations for the economy surged 15.0% m/m to the highest level since January. Expected business conditions next year rose by nearly one third and over the next five years they improved sharply for the third month. The expected change in personal finances also firmed quite a bit and reversed all of the prior month&#39;s steep decline.
The reading of current economic conditions fell sharply m/m but did improve late in the month so that the figure was the lowest since June. The current read of personal finances fell for the third consecutive month (-3.9% y/y) and perceived buying conditions for large household goods fell sharply (0.0% y/y).
Consumers&#39; opinion about gov&#39;t economic policy was unchanged for the third month (0.0% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
Making the Systematic Part of Monetary Policy Transparent from the Federal Reserve Bank of Richmond is available <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2006/hetzel.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>85.4</td>
<td>82.0</td>
<td>11.1%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>96.6</td>
<td>103.8</td>
<td>-1.5%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>78.2</td>
<td>68.0</td>
<td>23.5%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>


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Consumer sentiment for all of September improved, according to the University of Michigan. The full month reading recouped all an August decline and rose 4.1% to 85.4, up from a mid-month read of 84.4. Consensus expectations had been [...]

U.S. Consumer Sentiment Rose As Inflation Expectations Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060929a.jpg" width="353">
Personal income matched expectations and rose 0.3% last month after a downwardly revised 0.5% gain during July.
Personal consumption rose a slightly less than expected 0.1%, held back held back by a 6.5% m/m drop (-4.7% y/y) in unit vehicle sales. So far in 3Q real spending is up at a 2.7% annual rate versus last quarter, slightly better than the 2Q rate of gain.
The PCE chain price index rose an expected 0.2%, less than the 0.3% gain during the prior month. Less food &amp; energy prices also rose an expected 0.2% (2.5% y/y), the same as this year&#39;s monthly average and the same as the monthly average increase during 2005.
Wage &amp; salary disbursements ticked up 0.1% (7.7% y/y) following two months of 0.6% increase. Wages in the private service-producing industries were unchanged (8.5% y/y) and the average monthly increase this year has been 0.8%, double last year&#39;s monthly average. Factory sector wages fell 0.1% (+6.5% y/y) and the average monthly increase this year has been 0.8% versus a 0.2% average during 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060929c.jpg" width="353">
Interest income fell by 0.2% (+8.4% y/y) for the second consecutive month but dividend income surged for the third month by 1.0% (11.4% y/y).
Disposable personal income increased 0.4% (8.8% y/y). Personal taxes fell slightly (+14.0% y/y).
Adjusted for price inflation, disposable personal income increased 0.3% (5.3% y/y), up slightly from this year&#39;s 0.2% average and up from the 0.1% average monthly decline last year. Real disposable income per capita rose 0.1% (4.4% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060929b.jpg" width="353">
The personal savings rate was a slightly less negative -0.5% last month and so far in 2006 has averaged -0.5%, the same as last year. Should the Decline in the Personal Saving Rate Be a Cause for Concern? from the Federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/2Q06garn.pdf">here</a>.
Borrowing by U.S. Households from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2006/weinberg.pdf"> here</a>.
 Middle Class in Turmoil: Economic Risks Up Sharply for Most Families Since 2001 from the Center for American Progress is available <a href="http://www.americanprogress.org/atf/cf/{E9245FE4-9A2B-43C7-A521-5D6FF2E06E03}/MIDCLASSREPORT.PDF"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.3%</td>
<td>0.5%</td>
<td>9.4%</td>
<td>5.2%</td>
<td>6.2%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.1%</td>
<td>0.8%</td>
<td>5.0%</td>
<td>6.5%</td>
<td>6.6%</td>
<td>4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-0.5%</td>
<td>-0.7%</td>
<td>-3.0% (Aug. &#39;05)</td>
<td>-0.4%</td>
<td>2.0%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.2%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.5%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>


</html>

Personal income matched expectations and rose 0.3% last month after a downwardly revised 0.5% gain during July. Personal consumption rose a slightly less than expected 0.1%, held back held back by a 6.5% m/m drop (-4.7% y/y) in unit [...]

U.S. Personal Income Up As Expected, Core Price Inflation Tame

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060929a.jpg" width="353">
Personal income matched expectations and rose 0.3% last month after a downwardly revised 0.5% gain during July.
Personal consumption rose a slightly less than expected 0.1%, held back held back by a 6.5% m/m drop (-4.7% y/y) in unit vehicle sales. So far in 3Q real spending is up at a 2.7% annual rate versus last quarter, slightly better than the 2Q rate of gain.
The PCE chain price index rose an expected 0.2%, less than the 0.3% gain during the prior month. Less food &amp; energy prices also rose an expected 0.2% (2.5% y/y), the same as this year&#39;s monthly average and the same as the monthly average increase during 2005.
Wage &amp; salary disbursements ticked up 0.1% (7.7% y/y) following two months of 0.6% increase. Wages in the private service-producing industries were unchanged (8.5% y/y) and the average monthly increase this year has been 0.8%, double last year&#39;s monthly average. Factory sector wages fell 0.1% (+6.5% y/y) and the average monthly increase this year has been 0.8% versus a 0.2% average during 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060929c.jpg" width="353">
Interest income fell by 0.2% (+8.4% y/y) for the second consecutive month but dividend income surged for the third month by 1.0% (11.4% y/y).
Disposable personal income increased 0.4% (8.8% y/y). Personal taxes fell slightly (+14.0% y/y).
Adjusted for price inflation, disposable personal income increased 0.3% (5.3% y/y), up slightly from this year&#39;s 0.2% average and up from the 0.1% average monthly decline last year. Real disposable income per capita rose 0.1% (4.4% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060929b.jpg" width="353">
The personal savings rate was a slightly less negative -0.5% last month and so far in 2006 has averaged -0.5%, the same as last year. Should the Decline in the Personal Saving Rate Be a Cause for Concern? from the Federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/2Q06garn.pdf">here</a>.
Borrowing by U.S. Households from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2006/weinberg.pdf"> here</a>.
 Middle Class in Turmoil: Economic Risks Up Sharply for Most Families Since 2001 from the Center for American Progress is available <a href="http://www.americanprogress.org/atf/cf/{E9245FE4-9A2B-43C7-A521-5D6FF2E06E03}/MIDCLASSREPORT.PDF"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.3%</td>
<td>0.5%</td>
<td>9.4%</td>
<td>5.2%</td>
<td>6.2%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.1%</td>
<td>0.8%</td>
<td>5.0%</td>
<td>6.5%</td>
<td>6.6%</td>
<td>4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-0.5%</td>
<td>-0.7%</td>
<td>-3.0% (Aug. &#39;05)</td>
<td>-0.4%</td>
<td>2.0%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.2%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.5%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Rose As Inflation Expectations Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 29, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060929d.jpg" width="353">
Consumer sentiment for all of September improved, according to the University of Michigan. The full month reading recouped all an August decline and rose 4.1% to 85.4, up from a mid-month read of 84.4. Consensus expectations had been for an increase to 85.2.
During the last ten years there has been a 77% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
Expected inflation during the next year fell sharply to 3.6% from 4.6%, its lowest level since February. The full month figure was unchanged from the preliminary read. The five to ten year expected rate of inflation also fell to 3.2%, reversing all of the rise during August.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060929e.jpg" width="353">
Expectations for the economy surged 15.0% m/m to the highest level since January. Expected business conditions next year rose by nearly one third and over the next five years they improved sharply for the third month. The expected change in personal finances also firmed quite a bit and reversed all of the prior month&#39;s steep decline.
The reading of current economic conditions fell sharply m/m but did improve late in the month so that the figure was the lowest since June. The current read of personal finances fell for the third consecutive month (-3.9% y/y) and perceived buying conditions for large household goods fell sharply (0.0% y/y).
Consumers&#39; opinion about gov&#39;t economic policy was unchanged for the third month (0.0% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.
Making the Systematic Part of Monetary Policy Transparent from the Federal Reserve Bank of Richmond is available <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2006/hetzel.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>85.4</td>
<td>82.0</td>
<td>11.1%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>96.6</td>
<td>103.8</td>
<td>-1.5%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>78.2</td>
<td>68.0</td>
<td>23.5%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
New Zealand Restructures Its CPI; MP3 Players Are In, Hairspray Is Out.  Inflation Through June Remains at 4% 
by <a href="/comment/Stone.html">Carol Stone</a> September 29, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060929f.jpg" width="353">
Some weeks ago, Japan released its updated and rebased CPI. This week, New Zealand has done so. Consumers buy new products at new outlets. The compilation of inflation measures has to keep up with these spending changes. New Zealand last reweighted its CPI in 2002 and it last reselected its sample of retail outlets in 1999. This new formulation does both of these and adds some new techniques for monitoring spending behavior. In total, the inflation pattern is little altered by these changes, possibly because the revision process is frequent enough to prevent outmoded products and methods from overstaying their usefulness.
New Zealand&#39;s CPI is quarterly. The new index is based at 1000 in the so-called &quot;June quarter&quot;. The previous base period was June 1999, and on that base, the June 2006 figure was 1202. The new series, rebased to June 1999, puts the June 2006 number at 1203.4 (easily shown in DLXVG3 using the &quot;advanced functions&quot; feature and choosing &quot;Index&quot; with 19992 as the period and 1000 as the index level). Inflation over the past year has been 4.0% according to both the new and old series.
As with the Japanese revisions, a number of items were removed and new added. The listing provided by Statistics New Zealand shows 20 entirely new items, 13 old ones replaced and 10 deleted. All together, 685 items are priced. Among these changes, new entries include bottled water, nasal sprays, laptop computers and surfboards. Canned soups replaced powdered soup mixes and MP3 players replaced portable CD players. DVD players had already been introduced, but player/recorders were added this time. Refrigerators without freezers were dropped, as were hairspray and clothes lines.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060929g.jpg" width="353">
The Statistics New Zealand staff studied population changes and consequently shifted more of its polling to cities, particularly Auckland. They used private market research firms&#39; data on transactions which were obtained from analysis of barcode scanning. This enabled the staff to select more frequently used supermarkets and appliance dealers. They also found that lower priced outlets were taking an increasing share of business.
As readers can tell, we are fascinated by the selection of items in the new New Zealand CPI and also the various methodologies the New Zealanders have applied to revise their consumer price index. This discussion is incomplete in skipping over a change in seasonal adjustment policy and from the use of additive computations to geometric means, along with other actions. All of the techniques are explored in an informative and readable working paper on their website, available <a href="http://www2.stats.govt.nz/domino/external/pasfull/pasfull.nsf/4c2567ef00247c6a4c2567be0008d2f8/4c2567ef00247c6acc2571f60075d218?OpenDocument">here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/ANZ/@A2/@A204/@A2041/@A2041.HTM">New Zealand, CPI Indexes, NSA</a></th>
<th scope="col">Q2 2006 &quot;June&quot;</th>
<th scope="col">Q1 2006 &quot;March&quot;</th>
<th scope="col">Q4 2005 &quot;Dec.&quot;</th>
Annual Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">June 2006 = 1000</td>
<td>1000</td>
<td>986</td>
<td>981</td>
<td>968</td>
<td>939</td>
<td>918</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Yr/Yr % Chg</td>
<td>4.0</td>
<td>3.4</td>
<td>3.3</td>
<td>3.0</td>
<td>2.3</td>
<td>1.7</td>
</tr>
<tr>
<td class="firstcol">June 1999 = 1000, Y/Y % Chg</td>
<td>4.0</td>
<td>3.3</td>
<td>3.2</td>
<td>3.0</td>
<td>2.3</td>
<td>1.7</td>
</tr>
</tbody>
</table>


</html>

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.

260205Z1.jpg

**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.

260205Z2.jpg

**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.

260205Z3.jpg

**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.

260205Z4.jpg

**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.

260205Z5.jpg

**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.

260205Z6.jpg

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

260206E.jpg

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.

260206.jpg

**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

Winnie Tapasanun

260205X15.jpg

260205Y15.jpg

**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.

260205C15.jpg

260205D15.jpg

- 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

260205A2.jpg

260205B2.jpg

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.

260205C2.jpg

260205D2.jpg

- 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

260205E.jpg

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.

Economy in Brief: 2006

Jump to:

Japan's "Tankan" Like Germany's "IFO" Confident of the Present but Cautious of the Future

U.S. Construction Spending Up Unexpectedly

ISM Composite & Price Indexes Down

ISM Composite & Price Indexes Down

New Zealand Restructures Its CPI; MP3 Players Are In, Hairspray Is Out. Inflation Through June Remains at 4%

U.S. Consumer Sentiment Rose As Inflation Expectations Fell

U.S. Personal Income Up As Expected, Core Price Inflation Tame

U.S. Personal Income Up As Expected, Core Price Inflation Tame