Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090924e.jpg" width="353">
The National Association of Realtors reported that August sales of existing homes unexpectedly fell following four consecutive months of increase. The 2.7% m/m decline to 5.100M units (SAAR) nevertheless left sales still near the highest level since late-2007. The decline in August sales contrasted with Consensus expectations for a rise to 5.35M. Total sales include sales of condos and co-ops.
Sales of existing single-family homes alone similarly fell 2.8% to 4.480M last month but were up 10.6% from the January low. (These data have a longer history than the total sales series).
Recent sales have been helped by a tax credit for first-time home buyers. The credit of up to $8,000 extends though the end of this year. The full details of the home-buyer tax credit can be found <a href="http://www.federalhousingtaxcredit.com/2009/faq.php">here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090924f.jpg" width="353">
The median price of an existing home fell for the second straight month, to $177,700. Though prices were still lower than the year ago level, they have risen by 7.8% from the January low. The median price for a single-family home was $177,500 (-12.1% y/y). During August, the composite index of home affordability slipped during July and was down 11.4% from the April high.
In a reversal of the recent trend, potential sellers put fewer homes on the market. The number of unsold homes (condos &amp; single-family) for sale fell 10.8% during August to near the lowest level since early-2007. Year-to-year inventories were down 16.4%. At the current sales rate there was an 8.5 months&#39; supply on the market which was the lowest since mid-2007. The figure was down from 9.3 months during July. For single-family homes the inventory fell 9.1% m/m (-16.7% y/y). At the current sales rate there was an 8.2 month&#39;s supply of homes on the market, the lowest since 2007.
The data on existing home sales, prices and affordability can be found in Haver&#39;s USECON database. The regional price, affordability and inventory data is available in the REALTOR database.
Systemic Risk and the Financial Crisis from the Federal Reserve Bank of St. Louis can be found <a href="http://www.stlouisfed.org/newsroom/displayNews.cfm?article=502">here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Existing Home Sales (Thous, SAAR)</th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>5,100</td>
<td>5,240</td>
<td>3.4%</td>
<td>4,893</td>
<td>5,674</td>
<td>6,516</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Northeast</td>
<td>910</td>
<td>930</td>
<td>5.8</td>
<td>845</td>
<td>1,010</td>
<td>1,093</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>1,140</td>
<td>1,220</td>
<td>0.0</td>
<td>1,130</td>
<td>1,331</td>
<td>1,494</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; South</td>
<td>1,890</td>
<td>1,950</td>
<td>1.6</td>
<td>1,860</td>
<td>2,243</td>
<td>2,577</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>1,160</td>
<td>1,130</td>
<td>7.4</td>
<td>1,064</td>
<td>1,095</td>
<td>1,357</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>4,480</td>
<td>4,610</td>
<td>2.5</td>
<td>4,341</td>
<td>4,960</td>
<td>5,712</td>
</tr>
<tr>
<td class="firstcol">Median Price, Total, $</td>
<td>177,700</td>
<td>181,500</td>
<td>-12.5</td>
<td>197,250</td>
<td>216,633</td>
<td>222,042</td>
</tr>
</tbody>
</table>
</body>
</html>

The National Association of Realtors reported that August sales of existing homes unexpectedly fell following four consecutive months of increase. The 2.7% m/m decline to 5.100M units (SAAR) nevertheless left sales still near the [...]

U.S. Existing Home Sales Unexpectedly Fall Along With Prices

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090924d.jpg" align="left" border="0" height="265" width="353">
A slower pace of improvement in September -
The pace of improvement in the diffusion and headline index barometers
for Germany&#8217;s IFO are slowing their rate of gain this month. After
averaging increases of 3.3 points per month since they began to turn
positive in April, this month&#8217;s headline gain in the diffusion index
was 1.6. For the expectations index, similarly, the average gain has
been 5.4 but this month the rise was a more meager 1.4 diffusion points. 
 
CONTEXT! While the Sept gain is smaller than what
has been on average in this nascent recovery it is also true that
September&#8217;s report comes on the heels of a very strong August reading
where the headline diffusion index improved by 6.1 points and
expectations rose by 9.1 points. In the spirit of recognizing
volatility, if we average the two months, we are ahead of what has been
the average. There are in fact past experiences in this cycle that have
seen a slowdown followed by a spurt. For example in June, the IFO
expectations diffusion index soared by 7.1 points only to rise by just
1.7 points in July but then to spurt again by 9.1 points in August. So,
why make so much of a one month partial stumble? 
 
Separating the wheat from the chaff has always been hard - 
What is hard in these early recovery periods to separate volatility
from trend. In this business cycle in both in the US and in Europe
there seems to be a lot of pessimists that are eager to grasp the first
sign of bad news and to extrapolate it. I would warn against that here. 
 
Rolling up our sleeves&#8230;the recovery trends show us -
The diffusion values are somewhat more telling when looked at by
sector. Three of five sectors have had their largest in-recovery gain
in August. Even so two of those three still posted about as large gain
in September as they had in July before the August spurt. Manufacturing
is one exception to that and it still had a 2 diffusion point gain in
September after an August gain of 7.7 points. Services and wholesaling
displayed the strong resilience of spurting in August and still posting
a September value about as strong as they had before the spurt in July.
Retailing has been fickle in the recovery with its largest diffusion
gain in June followed by an outright drop in July which was then
followed by two solid-to-strong increases of more than two points in
each of August and Sept. Lastly, the construction sector is simply
erratic. In the seven months that the other indicators have been
increasing almost without fail, the construction index has dropped four
times. Among the other four sectors there is only one monthly set-back
(in retailing) for all of them. 
 
Summing up - On balance given that the recovery
cycle is still young it is hard to look at this month&#8217;s IFO sector
recovery patterns and to become a pessimist even on the likely speed of
recovery. Recovery itself is still in train and we saw improvement in
four of five key sectors on their diffusion gauges. The pace of
recovery did slow when compared to the previous month but that month
was a spike for many sectors. When placed in context, the recovery
speed still seems to be quite good with only the one-month result to be
a harbinger of a slowdown - and we all know how dangerous it is to base
assessments on one single data observation. That the Zew index showed
the same sort of soft spot in Sept says only something about September,
not about the future. So I will remain upbeat in the wake of this
report despite the fact that the weight of opinion is on the other side
and despite the euro taking a cue to back-off after this report. The
euro back-off makes sense because the trade-weighted and inflation
adjusted euro is already so strong. Recovery will be hard to sustain if
the euro continues to advance has it has regardless of whether the
recovery has already started to slow or not. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col">Summary of IFO Sector Diffusion readings: CLIMATE</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">CLIMATE Sum</td>
<td>Current</td>
<td>Last Mo</td>
<td colspan="6">Since Jan 1991*</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Sep-09</td>
<td>Aug-09</td>
<td>Average</td>
<td>Median</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>% Range</td>
</tr>
<tr>
<td class="firstcol">All Sectors</td>
<td>-18.1</td>
<td>-19.7</td>
<td>-9.5</td>
<td>-9.9</td>
<td>17.5</td>
<td>-36.1</td>
<td>53.6</td>
<td>33.6%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>-19.9</td>
<td>-21.9</td>
<td>-2.2</td>
<td>-0.8</td>
<td>27.6</td>
<td>-42.7</td>
<td>70.3</td>
<td>32.4%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>-25.7</td>
<td>-24.0</td>
<td>-29.4</td>
<td>-30.4</td>
<td>0.0</td>
<td>-50.1</td>
<td>50.1</td>
<td>48.7%</td>
</tr>
<tr>
<td class="firstcol">Wholesale</td>
<td>-12.2</td>
<td>-14.5</td>
<td>-14.8</td>
<td>-16.3</td>
<td>23.9</td>
<td>-39.0</td>
<td>62.9</td>
<td>42.6%</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>-12.4</td>
<td>-14.9</td>
<td>-16.1</td>
<td>-15.1</td>
<td>16.2</td>
<td>-40.4</td>
<td>56.6</td>
<td>49.5%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>3.8</td>
<td>1.4</td>
<td>10.9</td>
<td>9.5</td>
<td>28.5</td>
<td>-14.5</td>
<td>43.0</td>
<td>42.6%</td>
</tr>
<tr class="odd">
<td colspan="9">* June 2001 for Services</td>
</tr>
</tbody>
</table>
</body></html>

A slower pace of improvement in September - The pace of improvement in the diffusion and headline index barometers for Germany’s IFO are slowing their rate of gain this month. After averaging increases of 3.3 points per month since [...]

Germany's IFO Continues Steady Gain; Still Pessimists Deride Result

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090924a.jpg" align="right" border="0" height="265" width="353">
Initial
claims for jobless insurance continue to suggest labor market
improvement. The Labor Department indicated that last week claims fell
21,000 to 530,000. It was the fourth decline in the last five weeks and
left claims near their lowest level since early-January. The latest
level was down from the March peak of 674,000 and the weekly decline
exceeded expectations for a drop to 550,000 claims.In contrast, an
earlier decline in continuing claims for unemployment insurance has
slowed. During the latest week continuing claims fell 123,000 after a
158,000 rise during the prior period, though they were down by 11% from
the late-June high. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090924b.jpg" align="right" border="0" height="265" width="353">
Continuing claims provide an indication of workers'
ability to find employment. The four-week average of continuing claims
fell modestly to 6,182,500. The series dates back to
1966.&nbsp;·&nbsp;Extended benefits for unemployment insurance
held steady at 438,053 as worker rehiring continued weak. The latest
level is off just slightly from the July high.The insured rate of
unemployment dipped slightly to 4.6% and was near the lowest level
since mid-April. The rate reached a high of 5.2% during late-June.
During the last ten years, there has been a 93% correlation between the
level of the insured unemployment rate and the overall rate of
unemployment published by the Bureau of Labor Statistics.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090924c.jpg" align="right" border="0" height="265" width="353">
The highest insured unemployment rates in the week ending September 5
were in Puerto Rico (6.7 percent), Oregon (5.6), Nevada (5.4),
Pennsylvania (5.4), Michigan (5.2), Wisconsin (4.9), California (4.8),
New Jersey (4.8), Connecticut (4.7), North Carolina (4.7), and South
Carolina (4.7). The lowest rates were in South Dakota (1.1) and North
Dakota (1.4), Virginia (2.2), Wyoming (2.6), Texas (2.7), Maine (2.8),
Colorado (3.0), Minnesota (3.3), Maryland (3.4), Mississippi (3.8),
Florida (4.0), New York (4.1), and Georgia (4.1). The unemployment
insurance claims data is available in Haver's WEEKLY
database and the state data is in the REGIONW
database.Financial Crises Tend to Have Long Impact on the
Economy from the International Monetary Fund can be found <a href="http://www.imf.org/external/pubs/ft/survey/so/2009/RES092209A.htm">
here.</a>&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a>&nbsp;</th>
<th scope="col">09/19/09</th>
<th scope="col">09/12/09</th>
<th scope="col">09/05/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>530</td>
<td>551</td>
<td>557</td>
<td>9.3%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>6,138</td>
<td>6,261</td>
<td>71.4%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td>--</td>
<td>4.6</td>
<td>4.7</td>
<td>2.7 (09/2008)</td>
<td>2.5</td>
<td>1.9</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body></html>

Initial claims for jobless insurance continue to suggest labor market improvement. The Labor Department indicated that last week claims fell 21,000 to 530,000. It was the fourth decline in the last five weeks and left claims near [...]

U.S. Initial Claims For Jobless Insurance Near Cycle Low But Continuing Claims Hold Steady

U.S. Initial Claims For JoblessInsurance Near Cycle Low But Continuing Claims Hold Steady

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090923g.jpg" width="353">
In an anticipated and unanimous vote, the Federal Open Market Committee today left the Federal funds rate in a &quot;range from 0 to 1/4 percent.&quot; The discount rate also was left unchanged at 0.5%. The action was as expected and left the Fed funds rate at its lowest level ever.
The Fed indicated that &quot;economic activity has picked up following its severe downturn.&quot; In addition, as at earlier meetings, it noted &quot;Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.&quot;
Regarding inflation the FOMC statement indicated that &quot;With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090923h.jpg" width="353">
In its effort to promote economic liquidity, the Fed used similar language as in June that &quot;... to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. As previously indicated, the Committee indicated that the Federal Reserve&#146;s purchases of $300billion of Treasury securities will be completed by the end of October 2009. Moreover, &quot;The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.
For the complete text of the Fed&#39;s latest press release please follow this <a href="http://www.federalreserve.gov/newsevents/press/monetary/20090923a.htm">link</a>.
The Haver databases USECON, WEEKLY and DAILY contain the figures from the Federal Reserve Board.
Against the backdrop of monetary ease, forward indicators are signaling the possibility of future inflationary risk. The CRB Commodity Price Index has risen roughly 25% since yearend while the trade-weighted value of the dollar has fallen 13% since March.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Current</th>
<th scope="col">Last</th>
<th scope="col">December</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Federal Funds Rate, % (Target)</td>
<td>0.00 - 0.25</td>
<td>0.00 - 0.25</td>
<td>0.16</td>
<td>1.93</td>
<td>5.02</td>
<td>4.96</td>
</tr>
<tr>
<td class="firstcol">Discount Rate, %</td>
<td>0.50</td>
<td>0.50</td>
<td>0.50</td>
<td>2.39</td>
<td>5.86</td>
<td>5.96</td>
</tr>
</tbody>
</table>
</body>
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In an anticipated and unanimous vote, the Federal Open Market Committee today left the Federal funds rate in a "range from 0 to 1/4 percent." The discount rate also was left unchanged at 0.5%. The action was as expected and left the [...]

FOMC Cites Economic Improvement But Leaves Rates Unchanged

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090923d.jpg" align="right" border="0" height="265" width="353">The Mortgage
Bankers Association indicated that mortgage applications overall
increased 12.8% last week as lower interest rates spurred strength in
refinancings. Applications to refinance jumped 17.4% last week and in
September they have risen 29.3% from August. Nevertheless, since their
peak this past January refinance applications have fallen by nearly
two-thirds.I tandem, there has been lesser strength in
purchase applications. Applications rose 5.6% last week and that made
up roughly half of the prior week's decline. So far this month purchase
applications have risen 4.6% from August after that month's 3.4%
increase. Since the early-February low purchase applications have risen
22% as new and existing home sales have recovered. During the last ten
years there has been a (negative) 79% correlation between the level of
applications for purchase and the effective interest rate on a 30-year
mortgage. Moreover, during the last ten years there has been a 61%
correlation between the y/y change in purchase applications and the
change in new plus existing single family home sales.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090923e.jpg" align="right" border="0" height="265" width="353">
The effective
interest rate on a conventional 15-year mortgage fell last week to
4.67%, down from the high of 5.21% averaged during June. These figures
are near the lowest since 2003. For a 30-year mortgage the rate also
fell last week to 5.19% after reaching a high of 5.79% in early-June.
Interest rates on 15-year and 30-year mortgages are closely correlated
(&gt;90%) with the rate on 10-year Treasury securities. Rates on
adjustable 1-Year mortgages averaged 6.66% this month versus the low
near 6.0% during January. Nevertheless, the rate remained down from the
7.07% peak reached last fall. Though they have recovered of
late, since the beginning of this year fixed-rate mortgage applications
have fallen by slightly more than one-half while adjustable-rate
mortgages have more than doubled. The number of conventional loans has
fallen nearly two-thirds but gov't backed loans.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090923f.jpg" align="right" border="0" height="265" width="353">
The Mortgage
Bankers Association surveys between 20 to 35 of the top lenders in the
U.S. housing industry to derive its refinance, purchase and market
indexes. The weekly survey covers roughly 50% of all U.S. residential
mortgage applications processed each week by mortgage banks, commercial
banks and thrifts. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.&nbsp;The figures for weekly
mortgage applications are available in Haver's SURVEYW
database.TALF:
Jump-Starting the Securitization Markets from the Federal
Reserve Bank of Dallas is available <a href="http://dallasfed.org/research/eclett/2009/el0906.html%A0">
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/SURVEYW/@S5/@S5.HTM">MBA
Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">09/18/09</th>
<th scope="col">09/11/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>668.5</td>
<td>592.8</td>
<td>13.0%</td>
<td>642.9</td>
<td>652.6</td>
<td>584.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>288.3</td>
<td>272.9</td>
<td>-15.8</td>
<td>345.4</td>
<td>424.9</td>
<td>406.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,881.5</td>
<td>2,454.5</td>
<td>41.0</td>
<td>2,394.1</td>
<td>1,997.9</td>
<td>1,634.0</td>
</tr>
<tr>
<td class="firstcol">15-Year Effective Interest Rate
(%)</td>
<td>4.7%</td>
<td>4.7%</td>
<td>6.1% (9/08)</td>
<td>5.9%</td>
<td>6.2%</td>
<td>6.3%</td>
</tr>
</tbody>
</table>
</body></html>

The Mortgage Bankers Association indicated that mortgage applications overall increased 12.8% last week as lower interest rates spurred strength in refinancings. Applications to refinance jumped 17.4% last week and in September they [...]

U.S. Weekly Mortgage Applications Strengthen As Interest Rates Near The Lowest Since 2003

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090923c.jpg" align="left" border="0">
The EMU PMIs are up again &#8211; and, for the second month running,
the overall business index is over 50, showing positive growth. The two
main PMI components improved again in September with MFG index up to
40.04 from 48.24 and the services index up to 50.61 from 49.92. 
 

The MFG PMI is at its highest since June of 2008. The services
index is at its best value since April 2008. 
 
The more detailed results show that Germany is suffering some setbacks
and cross currents. That is in-keeping with other German indicators we
have recently seen. In France the improvement continues to move ahead,
with a national index of business sentiment also up sharply in
September. 
 

&#8216; V-shaped&#8217; recovery -- Europe&#8217;s PMIs
continue to sketch out a recovery that is very &#8220;V-shaped.&#8217; The MFG PMI
fell from 50 to its cycle low in eight months. Now after eight months
it has risen from its low to 49.04 , nearly back to 50. The Services
PMI slipped to its cycle low in nine months. Now, seven months later,
it is above the neutral mark of 50. 
 

Beyond the diffusion world of the PMIs - Of
course the indices are not yet back to their respective cycle peaks.
But that typically does not happen until the cycle itself actually
peaks which is a long way off (we hope). For now the recovery has been
unfolding apace. The more detailed news from Germany suggests that the
pace of recovery may be in store for some slowing, from a diffusion
standpoint. But there is plenty of room for the expansion to spread in
terms of real readings like orders and industrial output and job
growth, even if the PMIs do not advance very fast from now on. PMIs are
economic indicators; formally, they are measures of breadth- the answer
the question, &#8220;what proportion of the industries are doing better, in
terms of jobs, orders, overall performance and so on?&#8221; The PMIs do not
answer the question, &#8220;how strong is the gain?&#8221; That is the next
challenge, to expand the increase in orders and in output that has
begun, and to extend the expansion to include job gains. Then the task
is to continue to show staying power across sectors. Indicators like
the diffusion-based PMIs can be very useful, but they fall short of
giving us the true welfare picture of the economy. 
 

Shifting the focus - For this cycle the PMIs have mostly done
their job. They flagged the slow down and the move lower in the economy
ahead of most traditional economic variables and they also showed the
way for the pick up. Now they will give us some indication of how the
various sectors change speed. But the key reports from here on out will
be the traditional reports that reveal true strength instead of just
diffusion or breadth. 


 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="3" scope="col">FLASH
Readings</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td colspan="3" class="firstcol">Markit
PMIs for the E-Zone</td>
</tr>
<tr class="grey5">
<td class="firstcol">&nbsp;</td>
<td>MFG</td>
<td>Services</td>
</tr>
<tr class="grey4">
<td class="firstcol">Sep-09</td>
<td>49.04</td>
<td>50.61</td>
</tr>
<tr class="grey4">
<td class="firstcol">Aug-09</td>
<td>48.24</td>
<td>49.92</td>
</tr>
<tr class="grey4">
<td class="firstcol">Jul-09</td>
<td>46.25</td>
<td>45.69</td>
</tr>
<tr class="grey4">
<td class="firstcol">Jun-09</td>
<td>42.62</td>
<td>44.65</td>
</tr>
<tr class="grey3">
<td colspan="3" class="firstcol">Seqment
averages</td>
</tr>
<tr class="grey2">
<td class="firstcol">3-Mo</td>
<td>45.70</td>
<td>48.57</td>
</tr>
<tr class="grey2">
<td class="firstcol">6-Mo</td>
<td>41.43</td>
<td>46.34</td>
</tr>
<tr class="grey2">
<td class="firstcol">12-Mo</td>
<td>39.34</td>
<td>44.31</td>
</tr>
<tr class="grey3">
<td colspan="3" class="firstcol">127-Mo
Range</td>
</tr>
<tr class="grey1">
<td class="firstcol">High</td>
<td>60.47</td>
<td>62.36</td>
</tr>
<tr class="grey1">
<td class="firstcol">Low</td>
<td>33.55</td>
<td>39.24</td>
</tr>
<tr class="grey1">
<td class="firstcol">% Range</td>
<td>57.5%</td>
<td>49.2%</td>
</tr>
</tbody>
</table>
</body></html>

The EMU PMIs are up again – and, for the second month running, the overall business index is over 50, showing positive growth. The two main PMI components improved again in September with MFG index up to 40.04 from 48.24 and the [...]

PMIS Show Continued Growth In Europe

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090923a.jpg" align="left" border="0">
Released yesterday was the U.S. House Price Index from the
Federal Housing and Finance Agency (FHFA). The Purchase Only Index for
July rose 0.3% from June and it was the third consecutive monthly
increase. Moreover, the latest gain eased the year-to-year decline in
the nationwide average of home prices to 4.2% from its worst reading of
negative 8.9% last November. Since their peak in early-2007 home prices
nationwide have fallen 10.5%. The FHFA uses data provided by Fannie Mae
and Freddie Mac and it is not value-weighted.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090923b.jpg" align="right" border="0">
Most notable during July was the 1.6% gain in home prices in
the Pacific region of the country. It followed similarly strong 0.7%
and 1.6% increases during the prior two months. Nevertheless these
increases follow earlier home price declines that were amongst the
sharpest in the country. Versus last July prices in the region were
still down 9.0% after having fallen 17.3% during all of 2008. Recent
improvement in home prices also was evident in a 1.0% July increase in
the Mid-Atlantic region. That gain, however, only recouped the decline
during June and left prices roughly even with the year-end 2008 level.
More moderate monthly gain in home prices were logged in the West North
Central, South Atlantic and Mountain Regions of the country. In the
latter two regions, however, prices continued notably below the
year-ago level.
Continuing weak were home prices in several of the country's
regions. Despite a 0.3% July increase, prices in the Mountain states
remained off 9.8% from the year ago level and they were off 16.1% from
the 2007 peak. In the South Atlantic region prices also posted a gain
during July but the 0.6% uptick still left them off by 5.6% from one
year ago. Since their early-2007 peak prices here have fallen 12.8%. In
the populous East North Central region prices slipped another 0.3%
during July and they were flat year-to-date.
Cross-Country Causes and Consequences of the 2008
Crisis: Early Warning Signals from the Federal Reserve Bank
of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/papers/2009/wp09-17bk.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">FHFA
U.S. House Price Index Purchase Only (%)</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.3</td>
<td>0.1</td>
<td>-4.2</td>
<td>-5.8</td>
<td>1.3</td>
<td>6.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New England</td>
<td>-0.1</td>
<td>0.3</td>
<td>-2.5</td>
<td>-4.6</td>
<td>-1.7</td>
<td>1.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Middle Atlantic</td>
<td>1.0</td>
<td>-1.1</td>
<td>-2.9</td>
<td>-2.3</td>
<td>1.9</td>
<td>6.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; East North Central</td>
<td>-0.3</td>
<td>-0.2</td>
<td>-3.3</td>
<td>-4.4</td>
<td>-1.3</td>
<td>1.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West North Central</td>
<td>0.3</td>
<td>-0.3</td>
<td>-1.5</td>
<td>-2.8</td>
<td>1.0</td>
<td>3.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South Atlantic</td>
<td>0.6</td>
<td>-0.2</td>
<td>-5.6</td>
<td>-7.1</td>
<td>1.4</td>
<td>7.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; East South Central</td>
<td>-0.9</td>
<td>2.3</td>
<td>-1.7</td>
<td>-1.4</td>
<td>3.8</td>
<td>7.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; West South Central</td>
<td>-0.2</td>
<td>1.1</td>
<td>0.1</td>
<td>0.7</td>
<td>4.7</td>
<td>7.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mountain</td>
<td>0.3</td>
<td>-1.0</td>
<td>-9.8</td>
<td>-6.0</td>
<td>4.0</td>
<td>10.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Pacific</td>
<td>1.6</td>
<td>0.7</td>
<td>-9.0</td>
<td>-17.3</td>
<td>0.1</td>
<td>9.8</td>
</tr>
</tbody>
</table>
</body></html>

Released yesterday was the U.S. House Price Index from the Federal Housing and Finance Agency (FHFA). The Purchase Only Index for July rose 0.3% from June and it was the third consecutive monthly increase. Moreover, the latest gain [...]

FHFA Home Price Index Strengthens Due To Notable Gains In The Pacific & Mid-Atlantic Regions

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

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

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Winnie Tapasanun

260116R23.jpg

260116S23.jpg

Industrial production (IP) rose a more-than-expected 0.4% m/m in December following a 0.4% rise in November (+0.2% initially) and a 0.3% decline in October (-0.1% previously), data from the Federal Reserve Board showed. December marked the third m/m gain in four months. A 0.1% m/m December increase had been expected in the Action Economics Forecast Survey. The year-on-year growth rate slowed to 2.0% in December, the lowest since September, from 2.5% in November; this compared with a 0.3% y/y decline in December 2024. The December IP index at 102.3 was 3.1% above a low of 99.2 in January 2024. IP rose 0.2% q/q in Q4 2025 after a 0.6% q/q gain in Q3 2025, increasing at a 0.7% annualized rate following a 2.3% Q3 annualized pace. In 2025, IP rose 1.3% after declines of 0.7% in 2024 and 0.2% in 2023.

By **industry groups**, manufacturing production grew 0.2% (2.0% y/y) in December, up for the third time in four months, following a 0.3% increase in November (0.0% initially) and a 0.6% drop in October (-0.4% previously). Durable goods production edged up 0.1% (3.1% y/y) in December, the first m/m increase since September, after a 0.1% downtick in November. Within durables, the following categories rose m/m in December, including output rises of 2.4% (3.5% y/y) in primary metals, 1.7% (1.3% y/y) in electrical equipment, appliances & components, 1.5% (17.2% y/y) in aerospace & miscellaneous transportation equipment, 0.8% (-2.2% y/y) in furniture & related products, 0.2% (4.8% y/y) in machinery, and 0.1% (7.4% y/y) in computer & electronic products. Notably, aircraft & parts production climbed 2.1% (30.0% y/y), the third m/m increase in four months, reversing a 2.1% November drop. To the downside, the following durable goods categories fell m/m in December, including drops of 2.3% (-5.5% y/y) in wood products, 1.1% (-2.8% y/y) in motor vehicles & parts, 1.1% (-1.0% y/y) in nonmetallic mineral products, 0.1% (+2.6% y/y) in fabricated metal products, and 0.1% (-3.7% y/y) in miscellaneous durables goods.

Nondurable goods production increased 0.3% (1.0% y/y) in December, the third m/m gain in four months, after a 0.8% rebound in November. The December increase reflected m/m output rises of 1.8% (2.1% y/y) in petroleum & coal products, 0.5% (1.9% y/y) in food, beverages & tobacco, and 0.3% (-0.2% y/y) in plastics & rubber products. In contrast, the following nondurable goods categories declined m/m in December, including output drops of 1.3% (-0.8% y/y) in textiles & product mills, 1.1% (-0.5% y/y) in apparel & leather goods, 0.3% (-3.1% y/y) in paper, 0.3% (-3.4% y/y) in printing & related support activities, and 0.1% (+1.6% y/y) in chemicals.

Utilities output recovered 2.6% (2.3% y/y) in December, the third m/m rise in four months, following a 0.3% decline in November (-0.4% initially), reflecting a 1.2% rebound (1.3% y/y) in electric utilities output and a 12.0% jump (8.7% y/y) in natural gas utilities output. Mining activity, however, fell 0.7% (+1.7% y/y), the third m/m slide in four months, after an unrevised 1.7% November gain.

By **market groups**, business equipment output advanced 0.8% (10.1% y/y) in December, up for the third time in four months, after a 0.3% increase in November. Consumer goods output rose 0.7% (0.7% y/y) after a 0.7% November rebound, reflecting a 0.7% decline (-3.5% y/y) in durable consumer goods and a 1.1% gain (1.8% y/y) in nondurable consumer goods. Materials production grew 0.2% (1.7% y/y), the third m/m increase in four months, after a 0.5% November rise. In contrast, construction supplies production fell 0.3% (+1.3% y/y) in December, the second m/m fall in three months, reversing a 0.3% increase in November.

In **special classifications**, factory output of selected high-tech industries increased 0.7% (10.9% y/y) in December, the third successive m/m gain, following a downwardly revised 0.5% rise in November (+1.1% initially). Manufacturing production excluding selected high-tech industries rose 0.2% (1.7% y/y) in December after a 0.3% gain in November, and manufacturing production excluding selected high-tech and motor vehicles & parts rose 0.3% (2.1% y/y) after a 0.4% increase; both measures posted their third m/m gain in four months.

Capacity utilization rose to 76.3% in December, the highest since July, from 76.1% in November (76.0% initially). The Action Economics Forecast Survey forecasted 76.0%. The December reading was 3.2 percentage points below its long-run (1972–2024) average. Manufacturing capacity utilization held at 75.6% in December and November (75.4% previously); the December rate was 2.6 percentage points below its long-run average.

Industrial production and capacity data are in Haver’s **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.

260116T23.jpg

260116U23.jpg

- December IP +0.4% (+2.0% y/y), third m/m rise in four months, led by a 2.6% gain in utilities.
- Manufacturing +0.2% (+2.0% y/y), w/ durables +0.1% and nondurables +0.3%.
- Selected high-tech +0.7%, third consecutive m/m rise; motor vehicles -1.1%, fourth straight m/m fall.
- Mining -0.7%, third m/m decline in four months.
- Key categories in market groups mostly increase.
- Capacity utilization at a five-month-high 76.3%; mfg. capacity utilization steady at 75.6%.

U.S. Industrial Production Increases in December on Utilities Rebound

260116E.jpg

The European Monetary Union has concluded a year of weak-to-moderate growth with inflation largely toeing the line. As always, the inflation picture is more complicated than a simple statement. When we look at inflation, we look at the headline, we look at the core, to make sure that the volatile food & energy elements aren't dominating the index, and then we look across some of the main participants to see if the trend for inflation is shared broadly across the largest countries in the Monetary Union. When we apply those kinds of standards, the grading for the year is reduced. However, based on the headline alone, it was an excellent year for the ECB.

**Headline Inflation in 2025**
Headline inflation in 2025 rose by 2%, exactly on the target of the European Central Bank. It rose over six months at a 2% annual rate and then concluded the year over the last three months, rising at a 1.6% annual rate with some margin below the target set by the central bank itself.

**Country Headline Inflation Trends**
On a country basis, the performance is not nearly as good. While year-on-year results look pretty good, with Germany at 2%, France at 0.7% and Italy at 1.3%, Spain comes in at 3.1%. So the three largest monetary union economies come in at or below 2% with Spain as a rogue observation. When we look further at the sequence of inflation within the year, we see Germany at 2% over 12 months, rising to 3.1% over 6 months, rising further to 4% over 3 months. Inflation is accelerating at the end of the year even as Germany hits the target! This is something to keep an eye on. For France, the inflation rate also accelerates slightly but stays below the bar of 2% over three months, six months, and 12 months. For Italy, inflation is decelerating from 1.3% over 12 months to -0.3% over six months, and then inflation in Italy is contracting at a 1.9% annual rate over three months. Spanish inflation shows clear trouble with a 3.1% 12-month pace, rising to 4.6% at an annual rate over six months, and rising further to 5.9% at an annual rate over three months.

**Core Inflation**
For core inflation, the Monetary Union’s consolidated numbers are not yet compiled. However, for the four largest economies, we do have core or ex-energy inflation. For Germany, it's inflation excluding energy. On that basis, German inflation is 2.2% over 12 months, it rises to 2.7% over six months, then falls back to a 2% annual pace over three months All-in-all not a bad performance. For France, core inflation is below 2% over 12 months, six months, and three months. In Italy, once again, we see inflation decelerating: Italian inflation is 2% over 12 months - right on the ECB target. It falls to a 1.3% annual rate over six months and then falls further to a 0.3% annual rate over three months. For Spain, the core has another very difficult story for the Monetary Union. Inflation is 2.7% over 12 months, it rises to 3.1% over six months and stays at an annual rate of about 3% over three months. This is too high and it looks stubborn, particularly because it is the core.

260116.jpg

**Across the Big Four**
On balance, what we see is that the ECB grades-out well, based on headline inflation and based on its sequential performance for the European economic union as a whole. But large countries, show headline inflation building some steam particularly in the largest economy, Germany, and in Spain, the smallest of the BIG-4 economies. Inflation is once again mixed in the Monetary Union with German and Spanish inflation too high and with French and Italian inflation running either at or below the 2% mark and with Italy showing a tendency towards weaker prices for both the headline and the core. The change in prices over these various periods shows inflation gets the most help from oil prices over 12 months where Brent, measured in euros, falls by 22.6%; over six months Brent prices fall by 37% at an annual rate; and over three months Brent oil prices are unchanged, so that the headline isn't getting help at all from oil prices except through lagged effects.

**Summing Up**
Meanwhile, there are some signs of stronger growth taking root in Europe, especially in Germany with better industrial production being logged and with German industrial production looking significantly stronger than the PMI data, suggesting that perhaps PMI data are missing something about the rebound that is developing. Nonetheless, it was a good year for inflation and the ECB; however, it doesn't exactly end the year in the catbird’s seat. On the other hand, it does not end the year behind the curve. There are scattered pressures and needs among member countries which always makes monetary policy difficult. When some countries need higher interest rates and others need lower interest rates, the ECB is in a difficult spot. Clearly, Spain and Germany are experiencing different phenomenon than France and Italy. That could be the policy challenge for the year ahead.

Europe

Big Four Inflation in EMU 2025-Final

Andrew Cates

**The growth consensus for 2026** 
Consensus growth forecasts for 2026 have continued to firm over the past six months, with upward revisions most pronounced in economies that are more directly exposed to the global AI investment cycle. Taiwan stands out, reflecting its central role in advanced semiconductor manufacturing and the spillovers from sustained AI-related capex across the global tech supply chain. The US has also seen a sizeable upgrade, consistent with strong domestic investment in AI infrastructure and data-centre capacity, alongside resilient demand for high-value tech services. Elsewhere in Asia, upgrades to South Korea and, to a lesser extent, China and India point to a broader regional benefit from the AI-driven electronics and capital-goods cycle, even as underlying macro conditions remain mixed. Canada has also seen modest upward revisions, likely reflecting its close integration with US investment trends. By contrast, revisions across much of Europe and Japan have been more muted, while forecasts for Russia remain under downward pressure.

260115Z1.jpg

**The next steps for central bank policy** 
Based on responses to the special questions in the latest Blue Chip survey, the chart highlights how uncertain panelists remain about the precise timing of the next policy move, even where there is broad agreement on direction. Expectations for both the Fed and the Bank of England are now loosely centred on March 2026 as the most likely window for the next easing step, but the spread of responses points to limited conviction and a high sensitivity to incoming data. By contrast, panelists continue to see the ECB as largely through its easing cycle, with a clear majority expecting any further move only later, if at all. The Bank of Japan remains the clear outlier: while further tightening is still the central expectation, views are split on timing, with panelists divided between a March move and a hike pushed beyond April 2026—highlighting ongoing uncertainty over the durability of domestic inflation and wage dynamics.

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**The UK economy and BoE policy** 
While Blue Chip panelists remain divided on the precise timing of the Bank of England’s next policy cut, the latest run of UK data is tilting market expectations toward an earlier move. Economic releases have increasingly fallen short of expectations, a pattern that has coincided with a steady decline in short-dated gilt yields. The negative surprise profile reflects a combination of weak household demand and softer labour-market indicators. This has generated downside momentum in the data, reinforcing the case—at least from a market perspective—for earlier or deeper policy easing.

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**The impact of Artificial Intelligence**
Responses to the special questions in the latest Blue Chip survey also suggest that panelists are divided over the timing of AI’s macroeconomic impact in the US. A sizeable share already reports seeing noticeable effects, consistent with the rapid pace of AI-related investment and adoption over the past year. At the same time, a similarly large group expects AI’s impact to become more evident only over the next one to three years, implying a belief that productivity and growth effects will materialise with a lag. These views are notable given that a majority of panelists continue to judge anticipated AI-related gains as being overstated in financial markets, underscoring the risk of disappointment—and potential equity market volatility—if realised outcomes fail to match elevated expectations.

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**US business formation and productivity growth**
The chart points to a renewed pick-up in US productivity growth alongside a marked step-up in business applications, a combination that has naturally fuelled interest in the role of AI. The acceleration in output per hour over the past year coincides with a surge in corporate formations, potentially reflecting both heightened investment in new technologies and the emergence of new, AI-enabled business models. That said, productivity growth has historically been highly cyclical, often strengthening late in the cycle or during periods of labour hoarding and cost discipline, before fading again. As such, while AI may be contributing at the margin, it remains too early to conclude that the recent improvement marks a durable, technology-driven shift rather than another cyclical upswing.

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**China’s export growth**
This week’s China trade data revealed that its export growth has continued to rotate away from the US and toward Europe and ASEAN, a pattern that has become more pronounced over the past year. While exports to the US have fallen sharply on a year-on-year basis, shipments to both Europe and ASEAN have held up markedly better, and in recent months have returned to positive growth. This divergence is consistent with the tightening of US trade policy toward China, including higher tariffs, expanded export controls and broader efforts to “de-risk” supply chains. By contrast, trade with Europe and ASEAN appears to be benefiting from trade diversion and re-routing, as Chinese firms redirect exports toward markets where barriers remain lower and supply-chain integration is deeper.

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The global backdrop remains unsettled, reflected in rising gold prices amid geopolitical tensions—most recently around Venezuela—and renewed political noise, including questions over Federal Reserve independence. At the same time, however, many major equity indices remain at or close to all-time highs, buoyed by optimism around AI and reinforced by a run of relatively benign US inflation readings. Against this mixed backdrop, the charts this week point to a global outlook that is becoming more differentiated rather than uniformly weaker. Blue Chip forecasts for 2026 growth have edged higher over the past six months, with upgrades concentrated in economies most exposed to the AI investment cycle, notably the US and parts of Asia (chart 1). Central bank expectations remain fluid: while panelists broadly anticipate easing by the Fed and Bank of England, conviction around timing is limited, and the Bank of Japan remains an outlier with further tightening still expected (chart 2). In the UK, that uncertainty sits alongside a deteriorating data flow, with negative economic surprises increasingly tilting market expectations toward an earlier BoE rate cut (chart 3). Turning to the US, special questions highlight a divide over whether AI is already having a noticeable macro impact or whether its effects will emerge more gradually, a tension that mirrors concerns about over-optimism in financial markets (chart4). That debate is echoed in the recent pick-up in US productivity growth and the step-change in business formation—developments that may reflect AI-related dynamics but which also warrant caution given the historically cyclical nature of productivity (chart 5). Finally, China’s trade data point to a continued re-orientation of export growth away from the US and toward Europe and ASEAN, consistent with evolving US trade policy and broader supply-chain realignment (chart 6).

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Charts of the Week: Between Optimism and Uncertainty

Michael J. Moran

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The Bureau of Labor Statistics did not publish a report on export and import prices for October because of the government shutdown, and BLS was unable to construct statistics for October to include with the November report. The charts above have a gap in October, and the November figures are represented by a small dot.

Import prices have been remarkably stable in the past three years, as shown by the sideways movement in the level of the import price index (left chart). Focusing on percent changes (i.e. inflation rates) rather than the level of the index shows deflation in 2023 and early 2024 followed by higher prices more recently (right chart). Still, the net change in the past 12 months has totaled only 0.1% and the cumulative change in the past three years amounted to a decline of 0.4%.

A calm environment in the energy sector has helped to restrain import prices, as the price of crude oil showed little change in 2023 and 2024 and declined in 2025. Import prices excluding petroleum products have increased in recent years, but the changes have been modest: 0.9 in the past 12 months and 1.3% in the past three years.

The non-oil components of import prices have traced various patterns in recent years, but shifts have been largely offsetting. Prices of food and autos increased noticeably in 2023 and 2024, but they gave back much of those increases in 2025. Prices of capital goods were stable in 2023 and 2024, but they started to increase in 2025. Prices of consumer goods have been volatile, showing bursts of higher prices followed by discounting, leaving a modest net increase in the past three years.

The calm energy environment also seemed to play a role on the export side, as the industrial supply category showed little net change in prices over 2023 and 2024 before jumping in early 2025. Food prices followed a similar pattern, showing two years of restraint before moving higher in 2025. These two categories account for much of the upward movement in overall export prices in 2025. Prices of consumer goods also started to move higher in 2025 after little net change in the prior two years. Prices of capital goods and automobiles have traced reasonably steady upward paths.

Many observers might try to use the import component of this report to gain insight into the effect of tariffs on prices. That will be difficult because the figures from this report are pre-tariff; there will be no independent upward pressure on prices in this report because of tariffs. In fact, one should look for lower import prices in searching for a tariff effect. That is, if a foreign exporter were to absorb the tariff burden, that would be accomplished by reducing the pre-tariff price in order to keep the after-tariff price steady.

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Some exporters to the US may have made such efforts. The nearby chart shows the month-to-month change in import prices in 2025, and May and June both showed lower prices. These months were especially important because they followed the announcement by President Trump of marked increases in tariffs in April. Also, some of the downward pressure occurred in components that would be sensitive to price (autos and consumer goods). Of course, May and June might be too soon after the announcement of draconian tariffs for foreign exporters to assess and change their pricing strategy.

The chart on monthly changes ends in September because the absence of an October reading prevents the calculation of the month-to-month changes for October and November. However, the two-month change from September to November is easily calculated, and the increase of 0.4% suggests little or no effort to absorb the burden of tariffs.

These import and export price series are not seasonally adjusted; they can be found in Haver’s **USECON** database. Detailed figures are available in the **USINT** database. The expectations figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

- Import prices have changed little in the past three years.
- Export prices were stable in 2023-24, but moved higher in 2025.

Import & Export Prices: Generally Modest Changes

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The Empire State Manufacturing Index of General Business Conditions rose to a higher-than-expected 7.7 in January following a 17.2-drop to -3.7 in December, according to the Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. A reading of 1.0 for January had been expected in the Action Economics Forecast Survey. The positive January figure indicated that the business activity in New York State expanded for the third time in four months; it was an improvement from -7.4 in January 2025 and a low of -29.7 in January 2024, though still below a high of 16.8 in November 2024. The percentage of respondents reporting an increase in general business conditions was 34.2% in January, up from 31.7% in December; the percentage reporting a decrease was 26.5%, down from December’s 35.4%. The latest survey was conducted between January 2 and January 9.

The headline index reflects the answer to a single question concerning the state of economic activity and is not calculated from the components. Haver Analytics calculates a composite index from the five major components, which is comparable to the ISM manufacturing index. This calculated index increased to 51.2 in January following a 4.2-point decline to the neutral-level 50.0 in December (the lowest level since September); it was slightly up from 50.7 in January 2025 and well above a low of 43.0 in January 2024. The index is the average of five diffusion indexes: new orders, shipments, employment, supplier deliveries and inventories with equal weights (20% each).

In the latest survey, the new orders index rose to 6.6 in January after a 10.6-point drop to -1.0 in December, marking the third m/m gain in orders in four months and a sharp improvement from a low of -30.7 in January 2024. The shipments index jumped to 16.3 in January, the highest level since November 2024, following a 16.5-point fall to -5.0 in December; it was well above a low of -21.7 in April 2024. The unfilled orders index improved to -8.2 in January after a 9.1-point decrease to -14.9 in December, indicating that unfilled orders contracted for the eighth straight month but at a less severe pace; the index reached a low of -24.2 in January 2024. The inventories index fell to -2.1 in January, the lowest level since September, after a 2.7-point decline to 4.0 in December, signaling the first inventory contraction since October. Meanwhile, the delivery times index increased to 0.0 in January from -5.9 in December, with 12.4% of respondents reporting longer delivery times and an identical 12.4% reporting shorter times, indicating that delivery times were unchanged.

On the labor front, the number of employees index fell to -9.0 in January after a 1.0-point increase to 7.5 in December, indicating that employment contracted for the first time since September and reached its lowest level since January 2024. The index remained well below a peak of 24.9 in February 2022. In January, only 7.9% of respondents reported an increase in employment while a higher 16.8% reported a decline. The average workweek index dropped to -5.4 in January from 2.5 in December, turning negative for the first time since October and hitting the lowest level since April 2025.

Inflation pressures eased in January but remained high. The prices paid index fell to 42.8 in January, the lowest level since March 2025, after a 5.9-point decrease to 44.2 in December. Although still well below a peak of 84.9 in April 2022, the index remained above a low of 25.9 in December 2024 and a low of 20.8 in December 2023. In January, 44.5% of respondents reported higher prices paid while only 1.7% reported lower prices paid. The prices received index fell to 14.4 in January, the lowest reading since January 2025, from 25.4 in December. The index was up from a low of 7.5 in December 2024 and a low of 7.7 in July 2023 but far below a high of 51.9 in March 2022. In January, 18.9% of respondents reported higher prices received while 4.4% reported lower prices received.

Firms remained fairly optimistic about the future business outlook in the latest survey. The index for future business conditions eased to 30.3 in January after rising to 33.5 in December, with 50.6% of respondents expecting business conditions to improve over the next six months. Future new orders edged down to 33.3 in January from 34.5 in December, while future shipments rose to 34.9—the highest level since March 2022—from December’s 30.7. Growth in future employment strengthened to 14.9, the highest reading since November 2024, from December’s 7.8. Capital spending plans remained positive for the third consecutive month in January, with the future capital expenditures index rising to 10.3 from December’s 6.9. Expected prices paid fell to 52.6 in January from 55.4 in December and expected prices received fell to 36.5 from 41.6, with both measures at their lowest levels since December 2024.

The indexes in this report are diffusion indexes and measure the percentage of respondents indicating an increase minus the percentage indicating a decrease with zero separating expansion from contraction.

The New York Fed survey data are contained in Haver’s **SURVEYS** database. The expectations series is in Haver’s **AS1REPNA** database.

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- General Business Conditions Index up 11.4 pts. to 7.7 in January.
- Positive: Shipments (16.3, highest since Nov. ’24) and new orders (6.6).
- Negative: Employment (-9.0, lowest since Jan. ’24), unfilled orders (-8.2), and inventories (-2.1, a four-month low).
- Prices paid at a 10-month-low 42.8 and prices received at a one-year-low 14.4.
- Firms fairly optimistic: Future Business Conditions Index down to a still-positive 30.3; future prices paid at a one-year-low 52.6.

Economy in Brief: 2009

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