Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090915a.jpg" align="left" border="0" height="265" width="353">
US retail sales rang up strong results in August. The cash for
clunkers program aided auto sales to a greater extent that most
economists had anticipated. Sales rose by 2.7% month-over-month boosted
by vehicle sales which rose by 10.7% on the month. Most major
categories of sales rose in the month; furniture and electronics was a
minor exception dropping by 0.1% and building materials was a major
exception falling by an outsized 1.2% on the month. Stripping out
gasoline stations where sales rose 5.1% mostly on higher prices and
removing motor vehicles as well left retail sales up by 0.6% on the
month. That particular sub-group exhibits improving sequential growth
rates as well. 
 

Year-over-year sales declines are still severe and that is a
legacy of the severity of the recession and its impact on the consumer.
Over 7miln jobs have been lost in the business cycle and that is a huge
loss of income and of spending power for those consumers. But while the
Yr/Yr drops are severe there are also some distortions. Nondurable
goods sales excluding gas stations are down by only 0.9% Yr./Yr.
Durables spending is down by 5.8% Yr/Yr on large declines in building
materials and in furniture. The boost to vehicle sales this month
leaves them lower Yr/Yr by just 1%. 
 

The messages from this report are that the consumer sector has
been hit hard by recession. Cash for clunkers has boosted auto&#8217;s up
form weakness overall and has given those sales a huge boost in the
month- a boost that is likely not sustainable &#8211; that&#8217;s the bad news
looking ahead. Still, the August results leave sales in the new quarter
(Q3) expanding at an annual rate of 9.5%. Extracting the vehicle
component that growth rate comes down to 2.7%. Ex food and energy sales
are up at a pace of 8.5% in Q3 and estimating the inflation impact
leaves real core sales up at a pace of nearly 7% at an annual rate in
Q3 compared to Q2. This is the compounded growth rate for Q3, two
months into the quarter. But a drop off in auto sales is likely to trim
this impact of quarterly consumer spending on retail sales by the time
the quarter&#8217;s final numbers are in. 
 

While it is good news for August and it the best news may be
that sales have spread beyond autos, and have done so without a
government help plan. The real question is how far will auto sales fall
when the cash for clunkers program ends? There will be a spillover of
some sales into September but Q4 will have to do what it can without
any boost from this special program. All that raises some questions
about the future, despite some nice improving fundamentals for the
economy. The downside of government support programs is that those
programs one day end&#8230; a second downside factor is that somebody has to
pay for them. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="6" scope="col">Retail Sales Trends</th>
</tr>
</thead>
<tbody>
<tr class="grey5">
<td class="firstcol">&nbsp;</td>
<td>Mo/Mo</td>
<td colspan="4">Seasonally Adjusted Annual
Rate</td>
</tr>
<tr class="grey5">
<td class="firstcol">Retail Aggregates</td>
<td>2009.Aug</td>
<td>3-Mo</td>
<td>6Mo</td>
<td>Yr/Yr</td>
<td>YrAgo:Y/Y</td>
</tr>
<tr class="grey4">
<td class="firstcol">Retail &amp; Food
Service</td>
<td>2.7%</td>
<td>14.3%</td>
<td>4.7%</td>
<td>-5.3%</td>
<td>0.8%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Retail Excl
MV&amp;Parts</td>
<td>1.1%</td>
<td>5.1%</td>
<td>0.1%</td>
<td>-6.2%</td>
<td>4.7%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Retail Excl
MV&amp;Parts&amp;Gas</td>
<td>0.6%</td>
<td>1.0%</td>
<td>-2.3%</td>
<td>-2.9%</td>
<td>2.5%</td>
</tr>
<tr class="grey5">
<td class="firstcol">Durables</td>
<td>2009.Aug</td>
<td>3-Mo</td>
<td>6Mo</td>
<td>Yr/Yr</td>
<td>YrAgo:Y/Y</td>
</tr>
<tr class="grey3">
<td class="firstcol">Totals</td>
<td>5.9%</td>
<td>32.1%</td>
<td>10.8%</td>
<td>-5.8%</td>
<td>-10.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Building Materials</td>
<td>-1.2%</td>
<td>-13.6%</td>
<td>-9.5%</td>
<td>-13.6%</td>
<td>-2.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Motor Vehicles
&amp; Parts</td>
<td>10.6%</td>
<td>70.3%</td>
<td>29.5%</td>
<td>-1.0%</td>
<td>-14.4%</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp; MV Dealers</td>
<td>11.9%</td>
<td>83.3%</td>
<td>35.0%</td>
<td>-0.8%</td>
<td>-15.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Furniture,electonics,etc</td>
<td>-0.2%</td>
<td>-4.5%</td>
<td>-15.9%</td>
<td>-11.6%</td>
<td>-5.0%</td>
</tr>
<tr class="grey5">
<td class="firstcol">NonDurables</td>
<td>2009.Aug</td>
<td>3-Mo</td>
<td>6Mo</td>
<td>Yr/Yr</td>
<td>YrAgo:Y/Y</td>
</tr>
<tr class="grey2">
<td class="firstcol">Totals</td>
<td>1.4%</td>
<td>7.8%</td>
<td>2.3%</td>
<td>-5.1%</td>
<td>6.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Food&amp;Bev</td>
<td>0.5%</td>
<td>0.9%</td>
<td>1.9%</td>
<td>-1.1%</td>
<td>6.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Health</td>
<td>0.4%</td>
<td>1.3%</td>
<td>2.3%</td>
<td>2.9%</td>
<td>3.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Gasoline</td>
<td>5.1%</td>
<td>47.4%</td>
<td>24.5%</td>
<td>-26.7%</td>
<td>20.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Clothing</td>
<td>2.4%</td>
<td>1.2%</td>
<td>-4.8%</td>
<td>-5.1%</td>
<td>0.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">SportGoods</td>
<td>2.3%</td>
<td>12.8%</td>
<td>0.4%</td>
<td>-0.4%</td>
<td>0.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">GenlMerch</td>
<td>1.6%</td>
<td>5.0%</td>
<td>-1.9%</td>
<td>-0.7%</td>
<td>3.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">NonStore Retailers</td>
<td>0.1%</td>
<td>9.7%</td>
<td>2.5%</td>
<td>-2.6%</td>
<td>4.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Misc Retail</td>
<td>0.2%</td>
<td>1.3%</td>
<td>2.3%</td>
<td>2.9%</td>
<td>3.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">NonDurables EXCL Gas</td>
<td>0.8%</td>
<td>3.2%</td>
<td>-0.4%</td>
<td>-0.9%</td>
<td>3.8%</td>
</tr>
<tr class="grey5">
<td class="firstcol">Services</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food Service &amp;
Drinking</td>
<td>0.3%</td>
<td>-0.5%</td>
<td>-1.7%</td>
<td>0.7%</td>
<td>3.7%</td>
</tr>
</tbody>
</table>
</body></html>

US retail sales rang up strong results in August. The cash for clunkers program aided auto sales to a greater extent that most economists had anticipated. Sales rose by 2.7% month-over-month boosted by vehicle sales which rose by [...]

US Retail Sales Make Strong Gains...

US Retail Sales Make StrongGains...

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090914a.jpg" align="left" border="0" height="265" width="353">
Retail sales in New Zealand fell 0.46% in July, contrary to
expectations of a rise. Moreover, June sales were revised downward from
a 0.1% increase to a 0.06% decline. The upturn in sales in April and
May has fizzled out as can be seen in the first chart. Excluding motor
vehicles and related sales, sales were down 0.49% indicating that
vehicles and related sales increased slightly. Among the few other
areas where spending increased were fresh produce, clothing, and
recreation all of which represent relatively small portions of total
sales. Among the biggest losers were the more important supermarkets
and department stores, which declined 0.3% and 2.0% respectively<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090914b.jpg" align="right" border="0" height="265" width="353">.
Retail sales have become a less reliable indicator of total
consumption over the years as can be seen in the second chart that
shows the ratio of retail sales to total private consumption in the
National Accounts. In the last ten years the ratio has dropped from .62
to .51. New Zealand has yet to release national account data for the
second quarter. In spite of their diminished importance in total
consumption, the retail sales data suggest that consumption has added
little to the economy in the second quarter and so far in the third
quarter.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">NEW
ZEALAND</th>
<th scope="col">Jul 09</th>
<th scope="col">Jun&nbsp; 09</th>
<th scope="col">Jul 08</th>
<th scope="col">M/M %&nbsp;</th>
<th scope="col">Y/Y %</th>
<th scope="col">2008&nbsp;</th>
<th scope="col">2007 </th>
<th scope="col"> 2006 </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"> Retail Sales
(Millions NZ$)</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>5392</td>
<td>6417</td>
<td>5485</td>
<td>-0.46</td>
<td>-1.70</td>
<td>65847</td>
<td>65071</td>
<td>61329</td>
</tr>
<tr>
<td class="firstcol">Fresh Produce</td>
<td>87</td>
<td>85</td>
<td>79</td>
<td>2.35</td>
<td>10.13</td>
<td>911</td>
<td>893</td>
<td>921</td>
</tr>
<tr class="odd">
<td class="firstcol">Recreation</td>
<td>203</td>
<td>196</td>
<td>188</td>
<td>3.57</td>
<td>7.98</td>
<td>2276</td>
<td>2358</td>
<td>2197</td>
</tr>
<tr>
<td class="firstcol">Clothing</td>
<td>212</td>
<td>209</td>
<td>221</td>
<td>1.44</td>
<td>-4.07</td>
<td>2578</td>
<td>2594</td>
<td>2445</td>
</tr>
<tr class="odd">
<td class="firstcol">Supermarkets</td>
<td>1293</td>
<td>1297</td>
<td>1180</td>
<td>-0.31</td>
<td>9.58</td>
<td>14369</td>
<td>13518</td>
<td>12587</td>
</tr>
<tr>
<td class="firstcol">Department Stores</td>
<td>299</td>
<td>305</td>
<td>329</td>
<td>-1.97</td>
<td>-912</td>
<td>3855</td>
<td>3770</td>
<td>3570</td>
</tr>
</tbody>
</table>
</body></html>

Retail sales in New Zealand fell 0.46% in July, contrary to expectations of a rise. Moreover, June sales were revised downward from a 0.1% increase to a 0.06% decline. The upturn in sales in April and May has fizzled out as can be [...]

Disappointing Retail Sales In New Zealand

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090911c.jpg" align="left" border="0" height="265" width="353">
Manufacturing prices in the UK rose by 0.5% in August as core
prices rose by 0.4%. Over 12- to 6- to 3-months annualized rates of MFG
prices are accelerating. But over the same periods Core MFG prices look
more as if they are decelerating. 
 

The chart shows the clear upward path of overall price
inflation in the UK. It certainly has a lot to do with the ongoing
rebound in global oil prices. Yet, Yr/Yr overall MFG prices are still
falling. And Yr/Yr core prices are up by just 0.7%. While the charts
dramatize the turnaround in inflation trends don&#8217;t forget to look at
the scales. Inflation is rising from deeply negative numbers to modest
rates of increase even when compounded over short periods. Yr-over-year
headline inflation is still lower. The modest core further cements the
notion of inflation being controlled. For now the pressure is mostly
due to oil prices and the pace of price recovery should not be taken
out of its proper context. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> UK PPI MFG net output prices</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="3">%m/m</td>
<td colspan="4">%-SAAR</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td> Aug-09</td>
<td> Jul-09</td>
<td> Jun-09</td>
<td> 3-mo</td>
<td> 6-mo</td>
<td> 12-mo</td>
<td> 12-moY-Ago</td>
</tr>
<tr class="grey2">
<td class="firstcol"> MFG</td>
<td>0.5%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>3.2%</td>
<td>2.1%</td>
<td>-0.4%</td>
<td>9.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol"> Core</td>
<td>0.4%</td>
<td>0.4%</td>
<td>-0.6%</td>
<td>0.4%</td>
<td>1.1%</td>
<td>0.7%</td>
<td>5.7%</td>
</tr>
<tr class="grey1">
<td colspan="8" class="firstcol">Core: ex food beverages,
tobacco &amp; Petroleum</td>
</tr>
</tbody>
</table>
</body></html>

Manufacturing prices in the UK rose by 0.5% in August as core prices rose by 0.4%. Over 12- to 6- to 3-months annualized rates of MFG prices are accelerating. But over the same periods Core MFG prices look more as if they are [...]

UK Producer Prices Showing Steady Accelerating Rise From Lows

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090911b.jpg" align="left" border="0" height="265" width="353">
US export and import prices remained tame in August. Headline
prices shot up as oil prices scored double-digit gains in the month.
For exports the headline rise was spurred by industrial supplies and
the US does export some oil. Agricultural export prices were tame.
Export prices excluding agriculture rose by a sharp 0.8%. Import prices
excluding petroleum rose by 0.4% (after a 0.3% drop in July). The
headline price gains were more ominous-looking with an import prices up
by 2% and export prices gaining 0.7% 
 

If you look up and down the export and import categories you
see tempered price trends with the exception of petroleum prices and
industrial supplies, the category that contains industrial supplies. 
 

The US is not importing any inflation. This is just another
example of how weak the global economies still are. The dollar has been
weaker and oil prices have been rising but inflation is not getting any
traction. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col">Export and Import Prices</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/MO</td>
<td colspan="3">Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">IMPORTS</td>
<td>Aug-09</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
</tr>
<tr>
<td class="firstcol">ALL Imports</td>
<td>2.0%</td>
<td>-0.7%</td>
<td>2.7%</td>
<td>17.5%</td>
<td>15.8%</td>
<td>-15.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excl Petrol</td>
<td>0.4%</td>
<td>-0.3%</td>
<td>0.2%</td>
<td>1.1%</td>
<td>-1.1%</td>
<td>-6.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petrol</td>
<td>10.5%</td>
<td>-2.6%</td>
<td>17.2%</td>
<td>152.5%</td>
<td>193.7%</td>
<td>-38.1%</td>
</tr>
<tr>
<td class="firstcol">Foods Feeds and Beverages</td>
<td>1.7%</td>
<td>-1.0%</td>
<td>0.4%</td>
<td>4.7%</td>
<td>4.4%</td>
<td>-6.4%</td>
</tr>
<tr>
<td class="firstcol">Industrial Supplies</td>
<td>6.1%</td>
<td>-1.8%</td>
<td>8.8%</td>
<td>65.6%</td>
<td>62.8%</td>
<td>-31.7%</td>
</tr>
<tr>
<td class="firstcol">Capital goods</td>
<td>0.1%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.4%</td>
<td>-0.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles &amp; parts</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>0.7%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Consumer goods excl autos</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>-1.1%</td>
<td>-1.0%</td>
<td>-1.2%</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/MO</td>
<td colspan="3">Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">EXPORTS</td>
<td>Aug-09</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
</tr>
<tr>
<td class="firstcol">ALL Exports</td>
<td>0.7%</td>
<td>-0.3%</td>
<td>1.0%</td>
<td>5.6%</td>
<td>3.3%</td>
<td>-6.1%</td>
</tr>
<tr>
<td class="firstcol">Agriculture</td>
<td>0.2%</td>
<td>-4.9%</td>
<td>4.2%</td>
<td>-2.7%</td>
<td>6.1%</td>
<td>-14.1%</td>
</tr>
<tr>
<td class="firstcol">Non Agriculture</td>
<td>0.8%</td>
<td>0.1%</td>
<td>0.6%</td>
<td>6.1%</td>
<td>3.2%</td>
<td>-5.3%</td>
</tr>
<tr>
<td class="firstcol">Food Feeds and Beverages</td>
<td>-0.1%</td>
<td>-5.6%</td>
<td>4.4%</td>
<td>-5.6%</td>
<td>3.5%</td>
<td>-13.0%</td>
</tr>
<tr>
<td class="firstcol">Industrial Supplies</td>
<td>2.3%</td>
<td>0.0%</td>
<td>2.0%</td>
<td>18.3%</td>
<td>8.4%</td>
<td>-17.5%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>0.1%</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.0%</td>
<td>2.4%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles &amp; Parts</td>
<td>0.1%</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td>-0.7%</td>
<td>-0.4%</td>
<td>0.1%</td>
</tr>
<tr>
<td class="firstcol">Consumer goods excl autos</td>
<td>0.3%</td>
<td>0.4%</td>
<td>0.4%</td>
<td>4.1%</td>
<td>-0.5%</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
</body></html>

US export and import prices remained tame in August. Headline prices shot up as oil prices scored double-digit gains in the month. For exports the headline rise was spurred by industrial supplies and the US does export some oil. [...]

Export and Import Prices Pop But Ex-Oil Import Prices Barely Budge

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090911a.jpg" align="left" border="0" height="265" width="353">
Consumer sentiment rose sharply to 70.2 in August in the U of
M consumer sentiment preliminary report. The month&#8217;s rise in sentiment
was the 42nd largest monthly rise out of the last 380 monthly changes.
It was the fourth largest monthly rise in the index in this
recession/recovery period. The current index rose sharply making the
second highest jump in this cycle. Expectations rose by 4.2 points
marking a solid rise that is the sixth largest gain for expectations in
this cycle. The move in August preliminary report is led by the
substantial gain in the current situation. 
 

Still in terms of cycle levels the current situation is weak
standing at the 38Th percentile of its recession cycle range, while
expectations are just off their cycle peak reading of 70.8 (June 2009). 
 

Both expectations and the current situation are some 30% shy
of their respective past cycle peaks. Still the day&#8217;s report represents
a sharp gain from the cycle lows and builds some well-needed momentum
into this report after a period of being mired below peak and sinking. 
 

The consumer remains the key to this economic recovery since
there will be no investment of note until consumer spending picks up.
Exports which are doing well are simply too small to lead recovery.
Dropping imports are fools gold for growth since they only drop if
domestic demand is weak and that is the road to perdition not to crisis
contrition. 
 
 

Near term we look, not inventory building, but to less cutting
to boost GDP growth. But that will not spur growth unless final sales
pick up requiring more restocking and spurring new rounds of hiring.
The consumer sentiment report may not dictate consumer spending
month-by-month. But the broad sweep of consumer moods do set the stage
for and reflect true changes in consumer spending habits. 
 

In the month consumers have seen their personal finance
situation improve and the buying conditions are said to be the best in
three months and better than anything 15 months before that. It is an
important rise in this assessment. Importantly, expected business
conditions in the next 12 months are the best in 24 months. 
 

This is a good solid report. As the back-to-school season
kicks in, the month of September is a key one for assessing how well
the economy is mending. So far it looks good. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr class="odd">
<th colspan="4" scope="col">U of M
Consumer Sentiment-Prelim</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Sentiment</td>
<td>Current</td>
<td>Expectations</td>
</tr>
<tr class="grey3">
<td class="firstcol">Prelim</td>
<td>70.2</td>
<td>71.8</td>
<td>69.2</td>
</tr>
<tr class="grey3">
<td class="firstcol">Last Month</td>
<td>65.7</td>
<td>66.6</td>
<td>65.0</td>
</tr>
<tr class="grey2">
<td class="firstcol">Mo/Mo %</td>
<td>6.8%</td>
<td>7.8%</td>
<td>6.5%</td>
</tr>
<tr class="grey3">
<td class="firstcol">2-Mos</td>
<td>6.4%</td>
<td>1.8%</td>
<td>9.5%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Yr/Yr%</td>
<td>-0.1%</td>
<td>-4.3%</td>
<td>3.0%</td>
</tr>
<tr class="grey1">
<td colspan="4" class="firstcol">In
Recession: Max,Min, Avg
&amp; Percentile</td>
</tr>
<tr class="grey3">
<td class="firstcol">Max</td>
<td>78.4</td>
<td>94.4</td>
<td>69.4</td>
</tr>
<tr class="grey3">
<td class="firstcol">Min</td>
<td>55.3</td>
<td>57.5</td>
<td>49.2</td>
</tr>
<tr class="grey3">
<td class="firstcol">Average</td>
<td>64.6</td>
<td>72.2</td>
<td>59.7</td>
</tr>
<tr class="grey4">
<td class="firstcol">Percentile</td>
<td>64.5%</td>
<td>38.8%</td>
<td>99.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Cycle peak</td>
<td>103.8</td>
<td>113.5</td>
<td>100.1</td>
</tr>
<tr class="grey3">
<td class="firstcol">% of Peak</td>
<td>67.6</td>
<td>63.3</td>
<td>69.1</td>
</tr>
<tr class="grey1">
<td colspan="4" class="firstcol">U
of M Consumer
Sentiment-Prelim</td>
</tr>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Sentiment</td>
<td>Current</td>
<td>Expectations</td>
</tr>
<tr class="grey3">
<td class="firstcol">Max</td>
<td>112.0</td>
<td>121.1</td>
<td>108.6</td>
</tr>
<tr class="grey3">
<td class="firstcol">Min</td>
<td>51.7</td>
<td>57.5</td>
<td>44.2</td>
</tr>
<tr class="grey3">
<td class="firstcol">Average</td>
<td>86.2</td>
<td>98.4</td>
<td>78.8</td>
</tr>
<tr class="grey4">
<td class="firstcol">Percentile</td>
<td>30.7%</td>
<td>22.5%</td>
<td>38.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Rank %</td>
<td>14.6%</td>
<td>4.2%</td>
<td>23.7%</td>
</tr>
<tr class="grey1">
<td colspan="4" class="firstcol">Since January 1970</td>
</tr>
</tbody>
</table>
</body></html>

Consumer sentiment rose sharply to 70.2 in August in the U of M consumer sentiment preliminary report. The month’s rise in sentiment was the 42nd largest monthly rise out of the last 380 monthly changes. It was the fourth largest [...]

University of Michigan Sentiment Makes Surprising Jump

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090911a.jpg" align="left" border="0" height="265" width="353">
Consumer sentiment rose sharply to 70.2 in August in the U of
M consumer sentiment preliminary report. The month&#8217;s rise in sentiment
was the 42nd largest monthly rise out of the last 380 monthly changes.
It was the fourth largest monthly rise in the index in this
recession/recovery period. The current index rose sharply making the
second highest jump in this cycle. Expectations rose by 4.2 points
marking a solid rise that is the sixth largest gain for expectations in
this cycle. The move in August preliminary report is led by the
substantial gain in the current situation. 
 

Still in terms of cycle levels the current situation is weak
standing at the 38Th percentile of its recession cycle range, while
expectations are just off their cycle peak reading of 70.8 (June 2009). 
 

Both expectations and the current situation are some 30% shy
of their respective past cycle peaks. Still the day&#8217;s report represents
a sharp gain from the cycle lows and builds some well-needed momentum
into this report after a period of being mired below peak and sinking. 
 

The consumer remains the key to this economic recovery since
there will be no investment of note until consumer spending picks up.
Exports which are doing well are simply too small to lead recovery.
Dropping imports are fools gold for growth since they only drop if
domestic demand is weak and that is the road to perdition not to crisis
contrition. 
 
 

Near term we look, not inventory building, but to less cutting
to boost GDP growth. But that will not spur growth unless final sales
pick up requiring more restocking and spurring new rounds of hiring.
The consumer sentiment report may not dictate consumer spending
month-by-month. But the broad sweep of consumer moods do set the stage
for and reflect true changes in consumer spending habits. 
 

In the month consumers have seen their personal finance
situation improve and the buying conditions are said to be the best in
three months and better than anything 15 months before that. It is an
important rise in this assessment. Importantly, expected business
conditions in the next 12 months are the best in 24 months. 
 

This is a good solid report. As the back-to-school season
kicks in, the month of September is a key one for assessing how well
the economy is mending. So far it looks good. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr class="odd">
<th colspan="4" scope="col">U of M
Consumer Sentiment-Prelim</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Sentiment</td>
<td>Current</td>
<td>Expectations</td>
</tr>
<tr class="grey3">
<td class="firstcol">Prelim</td>
<td>70.2</td>
<td>71.8</td>
<td>69.2</td>
</tr>
<tr class="grey3">
<td class="firstcol">Last Month</td>
<td>65.7</td>
<td>66.6</td>
<td>65.0</td>
</tr>
<tr class="grey2">
<td class="firstcol">Mo/Mo %</td>
<td>6.8%</td>
<td>7.8%</td>
<td>6.5%</td>
</tr>
<tr class="grey3">
<td class="firstcol">2-Mos</td>
<td>6.4%</td>
<td>1.8%</td>
<td>9.5%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Yr/Yr%</td>
<td>-0.1%</td>
<td>-4.3%</td>
<td>3.0%</td>
</tr>
<tr class="grey1">
<td colspan="4" class="firstcol">In
Recession: Max,Min, Avg
&amp; Percentile</td>
</tr>
<tr class="grey3">
<td class="firstcol">Max</td>
<td>78.4</td>
<td>94.4</td>
<td>69.4</td>
</tr>
<tr class="grey3">
<td class="firstcol">Min</td>
<td>55.3</td>
<td>57.5</td>
<td>49.2</td>
</tr>
<tr class="grey3">
<td class="firstcol">Average</td>
<td>64.6</td>
<td>72.2</td>
<td>59.7</td>
</tr>
<tr class="grey4">
<td class="firstcol">Percentile</td>
<td>64.5%</td>
<td>38.8%</td>
<td>99.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Cycle peak</td>
<td>103.8</td>
<td>113.5</td>
<td>100.1</td>
</tr>
<tr class="grey3">
<td class="firstcol">% of Peak</td>
<td>67.6</td>
<td>63.3</td>
<td>69.1</td>
</tr>
<tr class="grey1">
<td colspan="4" class="firstcol">U
of M Consumer
Sentiment-Prelim</td>
</tr>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Sentiment</td>
<td>Current</td>
<td>Expectations</td>
</tr>
<tr class="grey3">
<td class="firstcol">Max</td>
<td>112.0</td>
<td>121.1</td>
<td>108.6</td>
</tr>
<tr class="grey3">
<td class="firstcol">Min</td>
<td>51.7</td>
<td>57.5</td>
<td>44.2</td>
</tr>
<tr class="grey3">
<td class="firstcol">Average</td>
<td>86.2</td>
<td>98.4</td>
<td>78.8</td>
</tr>
<tr class="grey4">
<td class="firstcol">Percentile</td>
<td>30.7%</td>
<td>22.5%</td>
<td>38.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Rank %</td>
<td>14.6%</td>
<td>4.2%</td>
<td>23.7%</td>
</tr>
<tr class="grey1">
<td colspan="4" class="firstcol">Since
January 1970</td>
</tr>
</tbody>
</table>
 Export and Import Prices Pop But
Ex-Oil Import Prices Barely Budge 
by <a href="/comment/Brusca.html">Robert
Brusca</a> September 11, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090911b.jpg" align="left" border="0" height="265" width="353">
US export and import prices remained tame in August. Headline
prices shot up as oil prices scored double-digit gains in the month.
For exports the headline rise was spurred by industrial supplies and
the US does export some oil. Agricultural export prices were tame.
Export prices excluding agriculture rose by a sharp 0.8%. Import prices
excluding petroleum rose by 0.4% (after a 0.3% drop in July). The
headline price gains were more ominous-looking with an import prices up
by 2% and export prices gaining 0.7% 
 

If you look up and down the export and import categories you
see tempered price trends with the exception of petroleum prices and
industrial supplies, the category that contains industrial supplies. 
 

The US is not importing any inflation. This is just another
example of how weak the global economies still are. The dollar has been
weaker and oil prices have been rising but inflation is not getting any
traction. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Export and
Import Prices</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/MO</td>
<td colspan="3">Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">IMPORTS</td>
<td>Aug-09</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
</tr>
<tr>
<td class="firstcol">ALL Imports</td>
<td>2.0%</td>
<td>-0.7%</td>
<td>2.7%</td>
<td>17.5%</td>
<td>15.8%</td>
<td>-15.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excl Petrol</td>
<td>0.4%</td>
<td>-0.3%</td>
<td>0.2%</td>
<td>1.1%</td>
<td>-1.1%</td>
<td>-6.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petrol</td>
<td>10.5%</td>
<td>-2.6%</td>
<td>17.2%</td>
<td>152.5%</td>
<td>193.7%</td>
<td>-38.1%</td>
</tr>
<tr>
<td class="firstcol">Foods Feeds and Beverages</td>
<td>1.7%</td>
<td>-1.0%</td>
<td>0.4%</td>
<td>4.7%</td>
<td>4.4%</td>
<td>-6.4%</td>
</tr>
<tr>
<td class="firstcol">Industrial Supplies</td>
<td>6.1%</td>
<td>-1.8%</td>
<td>8.8%</td>
<td>65.6%</td>
<td>62.8%</td>
<td>-31.7%</td>
</tr>
<tr>
<td class="firstcol">Capital goods</td>
<td>0.1%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.4%</td>
<td>-0.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles &amp; parts</td>
<td>0.2%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>0.7%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Consumer goods excl autos</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>-1.1%</td>
<td>-1.0%</td>
<td>-1.2%</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/MO</td>
<td colspan="3">Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">EXPORTS</td>
<td>Aug-09</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
</tr>
<tr>
<td class="firstcol">ALL Exports</td>
<td>0.7%</td>
<td>-0.3%</td>
<td>1.0%</td>
<td>5.6%</td>
<td>3.3%</td>
<td>-6.1%</td>
</tr>
<tr>
<td class="firstcol">Agriculture</td>
<td>0.2%</td>
<td>-4.9%</td>
<td>4.2%</td>
<td>-2.7%</td>
<td>6.1%</td>
<td>-14.1%</td>
</tr>
<tr>
<td class="firstcol">Non Agriculture</td>
<td>0.8%</td>
<td>0.1%</td>
<td>0.6%</td>
<td>6.1%</td>
<td>3.2%</td>
<td>-5.3%</td>
</tr>
<tr>
<td class="firstcol">Food Feeds and Beverages</td>
<td>-0.1%</td>
<td>-5.6%</td>
<td>4.4%</td>
<td>-5.6%</td>
<td>3.5%</td>
<td>-13.0%</td>
</tr>
<tr>
<td class="firstcol">Industrial Supplies</td>
<td>2.3%</td>
<td>0.0%</td>
<td>2.0%</td>
<td>18.3%</td>
<td>8.4%</td>
<td>-17.5%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>0.1%</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.0%</td>
<td>2.4%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles &amp; Parts</td>
<td>0.1%</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td>-0.7%</td>
<td>-0.4%</td>
<td>0.1%</td>
</tr>
<tr>
<td class="firstcol">Consumer goods excl autos</td>
<td>0.3%</td>
<td>0.4%</td>
<td>0.4%</td>
<td>4.1%</td>
<td>-0.5%</td>
<td>0.0%</td>
</tr>
</tbody>
</table>
 UK Producer Prices Showing Steady
Accelerating Rise From Lows 
by <a href="/comment/Brusca.html">Robert
Brusca</a> September 11, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090911c.jpg" align="left" border="0" height="265" width="353">
Manufacturing prices in the UK rose by 0.5% in August as core
prices rose by 0.4%. Over 12- to 6- to 3-months annualized rates of MFG
prices are accelerating. But over the same periods Core MFG prices look
more as if they are decelerating. 
 

The chart shows the clear upward path of overall price
inflation in the UK. It certainly has a lot to do with the ongoing
rebound in global oil prices. Yet, Yr/Yr overall MFG prices are still
falling. And Yr/Yr core prices are up by just 0.7%. While the charts
dramatize the turnaround in inflation trends don&#8217;t forget to look at
the scales. Inflation is rising from deeply negative numbers to modest
rates of increase even when compounded over short periods. Yr-over-year
headline inflation is still lower. The modest core further cements the
notion of inflation being controlled. For now the pressure is mostly
due to oil prices and the pace of price recovery should not be taken
out of its proper context. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> UK PPI
MFG net output prices</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="3">%m/m</td>
<td colspan="4">%-SAAR</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td> Aug-09</td>
<td> Jul-09</td>
<td> Jun-09</td>
<td> 3-mo</td>
<td> 6-mo</td>
<td> 12-mo</td>
<td> 12-moY-Ago</td>
</tr>
<tr class="grey2">
<td class="firstcol"> MFG</td>
<td>0.5%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>3.2%</td>
<td>2.1%</td>
<td>-0.4%</td>
<td>9.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol"> Core</td>
<td>0.4%</td>
<td>0.4%</td>
<td>-0.6%</td>
<td>0.4%</td>
<td>1.1%</td>
<td>0.7%</td>
<td>5.7%</td>
</tr>
<tr class="grey1">
<td colspan="8" class="firstcol">Core:
ex food beverages,
tobacco &amp; Petroleum</td>
</tr>
</tbody>
</table>
</body></html>

University of Michigan SentimentMakes Surprising Jump

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

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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.

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- 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

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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.

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**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.

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**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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