Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090821c.jpg" align="left" border="0">
PMI Signals Are Lagging - PMI&#8217;s have lagged
the pickup but they are near to neutral and the Markit overview index
has reached the neutral mark of 50 in August. Markit&#8217;s overall PMI
reading for the Euro Area rose to this neutral level of 50 in August
lagging behind the GDP signals that in Q2 already turned up for two key
E-Zone countries (Germany and France) and with the Zone&#8217;s own GDP
barely falling. Purchaser indices that usually are more sensitive than
other macro-data have not been leading in Europe and that is a point to
ponder. 
 

Large jumps in August play catch-up --
The jumps in the respective MFG and Services indices were large. For
Services it is the largest jump in its history that extends back to
mid-1998. For the MFG index it is the eighth strongest jump in a
history that goes back to mid-1997. 
 

Still, the fact that the big signal from the PMIs is lagging
is a curiosity. 
 

Thinking more about PMIs -- PMI indices are
diffusion indices and formally they are indices of the breadth of
change in a certain direction (up or down, greater or less) rather than
of strength. The overall index is a weighted average of components that
look at specific aspects of an industry getting diffusion responses on
each. However, these indices are used as a proxy for strength since the
correlation with &#8216;strength&#8217; is high for &#8216;breadth&#8217;. Still we should bear
in mind always that &#8216;strength&#8217; is not in fact &#8216;breadth&#8217;, they are
different things and sometimes the difference matters, even if most of
the time it does not. 
 

Viva la difference?? If you have never
thought of the PMIs this way before, note that this concept has been
long in play in analyzing trends in the stock market. The stock market
index is a weighted average of stocks, an index that goes up and down,
but technicians also look at indicators of &#8216;breadth&#8217;. And when they do,
they DO NOT call them &#8216;strength&#8217; but when breadth and strength go
together a rally&#8217;s strength is said to be more powerful. Sometimes the
market goes &#8216;up&#8217; but decliners &#8216;outpace&#8217; advancers. This is exactly the
same thing as looking at output Vs its diffusion. Output and diffusion
do not always go in the same direction. Manufacturing output is like
the stock index and the MFG PMI is its breath measure. Services output
is compared to the breadth of the services PMI. But in the case of our
economic statistics we get the breadth reports much more quickly than
we get the output reports and so the diffusion indices take on a life
of their own and become proxies for &#8216;output.&#8217; 

The diffusion difference - What the
diffusion indices usually do, is to pick up small improvements that
might be scattered around the economy and lost. Diffusion indices
create a signal that would otherwise get lost in the aggregation of
data with weighting always going to the largest of reporters. So this
time around it seems that the opposite is happening. A few larger
reporting firms are doing better and driving the macro -data higher
while the smaller firms are not yet on board for the ride. This is not
surprising with all the government intervention (&#8230;in Europe, the UK and
the US, in fact) since government tends to work &#8216;best&#8217; with big
business. If the assistance works properly (or at all) stimulating
output at the larger firms (like auto makers) should create some
knock-on effects that will draw other firms into the upswing. And the
PMI reports may be signaling that, in August, this is finally
happening. But this process is a bit like trying to start a fire with
wet wood on windy day. Just because you have gotten a spark does not
means you will be able to nurse a bone-warming bonfire out of it.
Still, with a spark, you have a chance. And there is some tentative
evidence that growth is spreading- at last. Getting the diffusion
indices on board is crucial &#8211; they remain important barometers of the
success in spreading growth. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="3" scope="col">FLASH
Readings </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td colspan="3">Markit PMIs for the E-Zone</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>MFG</td>
<td>Services</td>
</tr>
<tr>
<td class="firstcol">Aug-09</td>
<td>47.87</td>
<td>49.53</td>
</tr>
<tr>
<td class="firstcol">Jul-09</td>
<td>46.25</td>
<td>45.69</td>
</tr>
<tr>
<td class="firstcol">Jun-09</td>
<td>42.62</td>
<td>44.65</td>
</tr>
<tr>
<td class="firstcol">May-09</td>
<td>40.68</td>
<td>44.82</td>
</tr>
<tr class="even">
<td colspan="3" class="firstcol">Averages</td>
</tr>
<tr>
<td class="firstcol">3-Mo</td>
<td>43.18</td>
<td>46.53</td>
</tr>
<tr>
<td class="firstcol">6-Mo</td>
<td>38.98</td>
<td>44.58</td>
</tr>
<tr>
<td class="firstcol">12-Mo</td>
<td>39.28</td>
<td>44.11</td>
</tr>
<tr class="even">
<td colspan="3" class="firstcol">127-Mo
Range</td>
</tr>
<tr>
<td class="firstcol">High</td>
<td>60.47</td>
<td>62.36</td>
</tr>
<tr>
<td class="firstcol">Low</td>
<td>33.55</td>
<td>39.24</td>
</tr>
<tr>
<td class="firstcol">% Range</td>
<td>53.2%</td>
<td>44.5%</td>
</tr>
</tbody>
</table>
</body></html>

PMI Signals Are Lagging - PMI’s have lagged the pickup but they are near to neutral and the Markit overview index has reached the neutral mark of 50 in August. Markit’s overall PMI reading for the Euro Area rose to this neutral level [...]

Flash PMI’s Turn in EMU

Tom Moeller

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090821a.jpg">
The National Association of Realtors reported that sales of existing homes during July jumped for the fourth consecutive month. The 7.2% m/m rise to 5,240 (SAAR) was to the highest level since August of 2007. The increase in July sales beat Consensus expectations for sales of 5.00M homes. Total sales include sales of condos and co-ops.
Sales of existing single-family homes alone increased 5.5% last month and were up 13.8% 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>.
The improvement in home sales looks to have inspired potential sellers to put more homes on the market. The number of unsold homes (condos &amp; single-family) for sale rose 7.3% during July to the highest level since November. Nevertheless, year-to-year inventories were down 10.6%. At the current sales rate there was a 9.4 months&#39; supply on the market. The figure was stable with June and was near the lowest since June 2007. For single-family homes the inventory rose 3.1% m/m (-13.2% y/y). At the current sales rate there was an 8.6 month&#39;s supply of homes on the market, the lowest since 2007.<img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090821b.jpg">
The median price of an existing home dipped m/m to $178,400. Though prices were still lower than the year ago level, they have risen by 8.3% from the January low.
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.
Reflections on a Year of Crisis is the title of this morning&#39;s speech by Fed Chairman Ben S. Bernanke in Jackson Hole, Wyoming and it is available <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20090821a.htm"> 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">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>5,240</td>
<td>4,890</td>
<td>5.0%</td>
<td>4,893</td>
<td>5,674</td>
<td>6,516</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Northeast</td>
<td>930</td>
<td>820</td>
<td>3.3</td>
<td>845</td>
<td>1,010</td>
<td>1,093</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>1,220</td>
<td>1,100</td>
<td>8.0</td>
<td>1,130</td>
<td>1,331</td>
<td>1,494</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; South</td>
<td>1,950</td>
<td>1,820</td>
<td>5.4</td>
<td>1,860</td>
<td>2,243</td>
<td>2,577</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>1,130</td>
<td>1,150</td>
<td>1.8</td>
<td>1,064</td>
<td>1,095</td>
<td>1,357</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>4,610</td>
<td>4,330</td>
<td>5.0</td>
<td>4,341</td>
<td>4,960</td>
<td>5,712</td>
</tr>
<tr>
<td class="firstcol">Median Price, Total, $</td>
<td>178,400</td>
<td>182,000</td>
<td>-15.1</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 sales of existing homes during July jumped for the fourth consecutive month. The 7.2% m/m rise to 5,240 (SAAR) was to the highest level since August of 2007. The increase in July [...]

U.S. Existing Home Sales Rise With Distress Sales & Tax Credit

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090821a.jpg" align="left" border="0">
The National Association of Realtors reported that sales of
existing homes during July jumped for the fourth consecutive
month. The 7.2% m/m rise to 5,240 (SAAR) was to the highest level since
August of 2007. The increase in July sales beat Consensus expectations
for sales of 5.00M homes. Total sales include sales of condos and
co-ops.
Sales of existing single-family homes alone increased 5.5%
last month and were up 13.8% 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>.
The improvement in home sales looks to have inspired potential
sellers to put more homes on the market. The number of unsold homes
(condos &amp; single-family) for sale rose 7.3% during July to the
highest level since November. Nevertheless, year-to-year inventories
were down 10.6%. At the current sales rate there was a 9.4 months'
supply on the market. The figure was stable with June and was near the
lowest since June 2007. For single-family homes the inventory rose 3.1%
m/m (-13.2% y/y). At the current sales rate there was an 8.6 month's
supply of homes on the market, the lowest since 2007.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090821b.jpg" align="right" border="0">
The median price of an existing home dipped m/m to $178,400.
Though prices were still lower than the year ago level, they have risen
by 8.3% from the January low.
The data on existing home sales, prices and affordability can
be found in Haver's USECON database. The regional
price, affordability and inventory data is available in the REALTOR
database.
Reflections on a Year of Crisis is the
title of this morning's speech by Fed Chairman Ben S. Bernanke in
Jackson Hole, Wyoming and it is available <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20090821a.htm">
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">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>5,240</td>
<td>4,890</td>
<td>5.0%</td>
<td>4,893</td>
<td>5,674</td>
<td>6,516</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Northeast</td>
<td>930</td>
<td>820</td>
<td>3.3</td>
<td>845</td>
<td>1,010</td>
<td>1,093</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>1,220</td>
<td>1,100</td>
<td>8.0</td>
<td>1,130</td>
<td>1,331</td>
<td>1,494</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; South</td>
<td>1,950</td>
<td>1,820</td>
<td>5.4</td>
<td>1,860</td>
<td>2,243</td>
<td>2,577</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>1,130</td>
<td>1,150</td>
<td>1.8</td>
<td>1,064</td>
<td>1,095</td>
<td>1,357</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>4,610</td>
<td>4,330</td>
<td>5.0</td>
<td>4,341</td>
<td>4,960</td>
<td>5,712</td>
</tr>
<tr>
<td class="firstcol">Median Price, Total, $</td>
<td>178,400</td>
<td>182,000</td>
<td>-15.1</td>
<td>197,250</td>
<td>216,633</td>
<td>222,042</td>
</tr>
</tbody>
</table>
Flash PMI&#8217;s Turn in EMU 
by <a href="/comment/Brusca.html">Robert
Brusca</a> August 21, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090821c.jpg" align="left" border="0">
PMI Signals Are Lagging - PMI&#8217;s have lagged
the pickup but they are near to neutral and the Markit overview index
has reached the neutral mark of 50 in August. Markit&#8217;s overall PMI
reading for the Euro Area rose to this neutral level of 50 in August
lagging behind the GDP signals that in Q2 already turned up for two key
E-Zone countries (Germany and France) and with the Zone&#8217;s own GDP
barely falling. Purchaser indices that usually are more sensitive than
other macro-data have not been leading in Europe and that is a point to
ponder. 
 

Large jumps in August play catch-up --
The jumps in the respective MFG and Services indices were large. For
Services it is the largest jump in its history that extends back to
mid-1998. For the MFG index it is the eighth strongest jump in a
history that goes back to mid-1997. 
 

Still, the fact that the big signal from the PMIs is lagging
is a curiosity. 
 

Thinking more about PMIs -- PMI indices are
diffusion indices and formally they are indices of the breadth of
change in a certain direction (up or down, greater or less) rather than
of strength. The overall index is a weighted average of components that
look at specific aspects of an industry getting diffusion responses on
each. However, these indices are used as a proxy for strength since the
correlation with &#8216;strength&#8217; is high for &#8216;breadth&#8217;. Still we should bear
in mind always that &#8216;strength&#8217; is not in fact &#8216;breadth&#8217;, they are
different things and sometimes the difference matters, even if most of
the time it does not. 
 

Viva la difference?? If you have never
thought of the PMIs this way before, note that this concept has been
long in play in analyzing trends in the stock market. The stock market
index is a weighted average of stocks, an index that goes up and down,
but technicians also look at indicators of &#8216;breadth&#8217;. And when they do,
they DO NOT call them &#8216;strength&#8217; but when breadth and strength go
together a rally&#8217;s strength is said to be more powerful. Sometimes the
market goes &#8216;up&#8217; but decliners &#8216;outpace&#8217; advancers. This is exactly the
same thing as looking at output Vs its diffusion. Output and diffusion
do not always go in the same direction. Manufacturing output is like
the stock index and the MFG PMI is its breath measure. Services output
is compared to the breadth of the services PMI. But in the case of our
economic statistics we get the breadth reports much more quickly than
we get the output reports and so the diffusion indices take on a life
of their own and become proxies for &#8216;output.&#8217; 

The diffusion difference - What the
diffusion indices usually do, is to pick up small improvements that
might be scattered around the economy and lost. Diffusion indices
create a signal that would otherwise get lost in the aggregation of
data with weighting always going to the largest of reporters. So this
time around it seems that the opposite is happening. A few larger
reporting firms are doing better and driving the macro -data higher
while the smaller firms are not yet on board for the ride. This is not
surprising with all the government intervention (&#8230;in Europe, the UK and
the US, in fact) since government tends to work &#8216;best&#8217; with big
business. If the assistance works properly (or at all) stimulating
output at the larger firms (like auto makers) should create some
knock-on effects that will draw other firms into the upswing. And the
PMI reports may be signaling that, in August, this is finally
happening. But this process is a bit like trying to start a fire with
wet wood on windy day. Just because you have gotten a spark does not
means you will be able to nurse a bone-warming bonfire out of it.
Still, with a spark, you have a chance. And there is some tentative
evidence that growth is spreading- at last. Getting the diffusion
indices on board is crucial &#8211; they remain important barometers of the
success in spreading growth. 
 


<table border="0" cellspacing="0" width="100%"> <colgroup></colgroup>
<thead><tr>
<th colspan="3" scope="col">FLASH
Readings </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td colspan="3">Markit PMIs for the E-Zone</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>MFG</td>
<td>Services</td>
</tr>
<tr>
<td class="firstcol">Aug-09</td>
<td>47.87</td>
<td>49.53</td>
</tr>
<tr>
<td class="firstcol">Jul-09</td>
<td>46.25</td>
<td>45.69</td>
</tr>
<tr>
<td class="firstcol">Jun-09</td>
<td>42.62</td>
<td>44.65</td>
</tr>
<tr>
<td class="firstcol">May-09</td>
<td>40.68</td>
<td>44.82</td>
</tr>
<tr class="even">
<td colspan="3" class="firstcol">Averages</td>
</tr>
<tr>
<td class="firstcol">3-Mo</td>
<td>43.18</td>
<td>46.53</td>
</tr>
<tr>
<td class="firstcol">6-Mo</td>
<td>38.98</td>
<td>44.58</td>
</tr>
<tr>
<td class="firstcol">12-Mo</td>
<td>39.28</td>
<td>44.11</td>
</tr>
<tr class="even">
<td colspan="3" class="firstcol">127-Mo
Range</td>
</tr>
<tr>
<td class="firstcol">High</td>
<td>60.47</td>
<td>62.36</td>
</tr>
<tr>
<td class="firstcol">Low</td>
<td>33.55</td>
<td>39.24</td>
</tr>
<tr>
<td class="firstcol">% Range</td>
<td>53.2%</td>
<td>44.5%</td>
</tr>
</tbody>
</table>
</body></html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090820g.jpg" width="353">
The Philadelphia Federal Reserve Bank indicated that its August index of factory sector activity in the region rose to its highest since November of 2007. The level of 4.2 compared to figures near -40.0 this past fall and winter. Consensus expectations had been for a slightly negative reading of -1.5 for this month.
During the last ten years there has been a 77% correlation between the level of the Philadelphia Fed Business Conditions Index and the three-month growth in factory sector industrial production. There has been a 70% correlation with q/q growth in real GDP. The latest survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2009/bos0809.pdf">here.</a><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090820h.jpg" width="353">
Amongst the components, new orders improved to 4.2 from -2.2 and the latest figure was the highest since 2007. A sharp rise in the inventory component to its highest since 2007 may indicate that the period of strong inventory decumulation reached its end. The latest figure of 0.3 compares to a low of -55.6 reached this past March. Also showing improvement was the employment index. It rose to a still negative -12.9 but that compared with a low of -52.0 during March. During the last ten years there has been a 79% correlation between the index level and the m/m change in manufacturing sector payrolls.
Improved pricing power accompanied the gains in real activity. The prices paid index jumped to its first positive reading since last October. During the last ten years there has been a 74% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 83% correlation with the change in core intermediate goods prices.
Expected business conditions in six months also have improved. The August index ticked up to 56.8 and recovered most of its July decline. The latest figure was still near its highest level since 2003. Most of the index components moved sideways at improved levels but the inventories series jumped sharply to new cycle high.
The figures from the Philadelphia Federal Reserve can be found in Haver&#39;s SURVEYS database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Philadelphia Fed (%)</th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August &#39;08</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">General Activity Index</td>
<td>4.2</td>
<td>-7.5</td>
<td>-20.1</td>
<td>-21.3</td>
<td>5.0</td>
<td>8.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>4.2</td>
<td>-2.2</td>
<td>-15.2</td>
<td>-14.7</td>
<td>6.9</td>
<td>9.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Number of Employees</td>
<td>-12.9</td>
<td>-25.3</td>
<td>-4.6</td>
<td>-8.7</td>
<td>6.8</td>
<td>9.0</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>10.0</td>
<td>&nbsp;-3.5</td>
<td>&nbsp;53.0</td>
<td>36.4</td>
<td>26.3</td>
<td>36.7</td>
</tr>
</tbody>
</table>
</body>
</html>

The Philadelphia Federal Reserve Bank indicated that its August index of factory sector activity in the region rose to its highest since November of 2007. The level of 4.2 compared to figures near -40.0 this past fall and winter. [...]

Philadelphia Fed Index Remains Positive At Its Highest Level Since 2007

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090820e.jpg" width="353">
The Conference Board&#39;s Index of Leading Economic Indicators continued to suggest a pending economic recovery. The July composite index of leaders rose another 0.6% after gains of 0.8%, 1.2% and 1.1% during the prior three months. The combined 3.8% rise during those four months was the strongest since early-2002 while the index itself was at the highest level since last June. The leading index is based on actual reports for eight economic data series. The Conference Board initially estimates two series, orders for consumer goods and orders for capital goods.
For the fourth straight month, nearly three-quarters of the ten components of the leading index increased.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090820f.jpg" width="353">
Again suggesting that the rate of decline in the economy is slowing were the coincident indicators which were unchanged m/m. This compares with monthly declines of 0.6%-to-1.1% dating back to September.
In a sign that excesses in the U.S. economy are diminishing, the lagging index fell for the seventh month in the last eight. The ratio of coincident-to-lagging indicators (a measure of economic excess) rose again m/m to the highest level since December.
The Conference Board figures are available in Haver&#39;s BCI database. Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<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/BCI/BCI.HTM">Business Cycle Indicators</a> (%)</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">April 6-Month % (AR)</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">Leading</td>
<td>0.6</td>
<td>0.8</td>
<td>1.2</td>
<td>6.2</td>
<td>-2.8</td>
<td>-0.3</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.0</td>
<td>-0.4</td>
<td>-0.4</td>
<td>-5.4</td>
<td>-0.9</td>
<td>1.6</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>-1.0</td>
<td>-0.7</td>
<td>-0.3</td>
<td>-8.6</td>
<td>2.9</td>
<td>2.8</td>
<td>3.3</td>
</tr>
</tbody>
</table>


</html>

The Conference Board's Index of Leading Economic Indicators continued to suggest a pending economic recovery. The July composite index of leaders rose another 0.6% after gains of 0.8%, 1.2% and 1.1% during the prior three months. The [...]

U.S. Leading Indicators Signal Economic Recovery With Fourth Straight Monthly Increase

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090820d.jpg" align="left" border="0" height="265" width="353">
The 0.4% rise in real UK retail sales is the largest increase
in fourteen months. Retail sales ex autos also rose by 0.4% and put in
its second month-in-row increase. 
 

The momentum in real retail sales is positive, having
recovered from some very deep lows reached just after mid-year in 2008.
In contrast this global business cycle hit the US consumer most
strongly at the end of 2008 and in early 2009. 
 

UK food and beverage purchases have been a mainstay of growth
over the past year. But spending in this category fell in July.
Clothing and foot wear expenditures have run hot and cold and these
took a small decline in July as well. The strength in retail sales came
from other sectors in July. 
 

In the quarter to date real ex-auto retail sales are growing
at a robust 6.4% annual rate. The new quarter is only one month old but
it is off to a very good start for UK retailers.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col"> UK Real and Nominal Retail Sales
</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Nominal</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>May-09</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>Yr AGo</td>
<td>Quarter-2-date</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Retail Total</td>
<td>0.5%</td>
<td>0.7%</td>
<td>-0.5%</td>
<td>2.9%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>3.1%</td>
<td>5.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food Bev &amp;
Tobacco</td>
<td>-0.4%</td>
<td>0.7%</td>
<td>0.5%</td>
<td>3.0%</td>
<td>7.1%</td>
<td>5.2%</td>
<td>7.1%</td>
<td>1.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Clothing footwear</td>
<td>-0.1%</td>
<td>3.2%</td>
<td>-2.2%</td>
<td>3.3%</td>
<td>-1.4%</td>
<td>2.7%</td>
<td>1.0%</td>
<td>7.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</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="even">
<td class="firstcol">Real</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">&nbsp; Retail Ex auto</td>
<td>0.4%</td>
<td>1.4%</td>
<td>-0.9%</td>
<td>3.6%</td>
<td>1.8%</td>
<td>3.3%</td>
<td>1.1%</td>
<td>6.4%</td>
</tr>
</tbody>
</table>
</body></html>

The 0.4% rise in real UK retail sales is the largest increase in fourteen months. Retail sales ex autos also rose by 0.4% and put in its second month-in-row increase. The momentum in real retail sales is positive, having recovered [...]

UK Retail Sales Stir

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090820a.jpg" width="353">
The Labor Department indicated that initial claims for unemployment insurance increased unexpectedly for the second consecutive week to 576,000 after an upwardly revised rise to 561,000. The four-week moving average of claims, which smoothes out some of the volatility in the weekly numbers, increased to 570,000 but was down from the April high of 658,750 and near its lowest level since late-January. A decline in weekly claims to 550,000 had been expected.
The latest figures cover the survey period for August nonfarm payrolls and initial claims were up 17,000 (3.0%) from the July survey period. During the last ten years there has been a negative 86% correlation between the level of initial claims and the m/m change in payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090820b.jpg" width="353">
The Labor Department indicated that the largest increases in initial claims for the week ending August 8 were in Tennessee (+2,525), North Carolina (+2,469), Wisconsin (+2,078), Georgia (+1,753), and Washington (+1,697), while the largest decreases were in California (-5,635), Michigan (-1,490), Ohio (-951), Kentucky (-690), and Delaware (-226).
Continuing claims for unemployment insurance ticked higher in the latest week but remained down by nearly 10% from their late-June high, a decline which probably owes to the exhaustion of benefits. Continuing claims provide an indication of workers&#39; ability to find employment and the level of 6,241,000 claims is up sharply from the year-ago level. The four-week average of continuing claims fell modestly to 6,266,000 and that was the lowest since late-April. The series dates back to 1966.
Extended benefits for unemployment insurance fell slightly w/w at the end of July. The slip to 400,779 compared to a high of 491,684 reached during the middle of the month. Extended benefits began to rise slowly in June of 2008 but surged by January.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090820c.jpg" width="353">
The insured rate of unemployment held steady at 4.7% which was 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.
The highest insured unemployment rates in the week ending August 1 were in Puerto Rico (7.3 percent), Oregon (6.2), Pennsylvania (6.1), Michigan (5.9), Nevada (5.9), Wisconsin (5.5), California (5.3), Connecticut (5.3), New Jersey (5.3), North Carolina (5.1), and South Carolina (5.1). The lowest rates were in South Dakota (1.3) and North Dakota (1.5), Virginia (2.4), Wyoming (2.9), Texas (3.0), Maine (3.1), Colorado (3.2), Maryland (3.6), Minnesota (3.7), Florida (4.2), New York (4.2), Mississippi (4.3) and Georgia (4.7).
The unemployment insurance claims data is available in Haver&#39;s WEEKLY database and the state data is in the REGIONW database.
The Peak Oil Debate from the Federal Reserve Bank of Atlanta is available <a href="http://www.frbatlanta.org/filelegacydocs/er0902_graefe.pdf"> here</a>.

<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">08/14/09</th>
<th scope="col">08/07/09</th>
<th scope="col">07/31/09</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>576</td>
<td>561</td>
<td>554</td>
<td>31.5%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>6,241</td>
<td>6,239</td>
<td>83.2%</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>4.7</td>
<td>4.7</td>
<td>2.5</td>
<td>2.5</td>
<td>1.9</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body>
</html>

The Labor Department indicated that initial claims for unemployment insurance increased unexpectedly for the second consecutive week to 576,000 after an upwardly revised rise to 561,000. The four-week moving average of claims, which [...]

Extended Benefits Dip

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090820a.jpg" align="left" border="0" height="265" width="353">
The Labor Department indicated that initial claims for
unemployment insurance increased unexpectedly for the second
consecutive week to 576,000 after an upwardly revised rise to 561,000.
The four-week moving average of claims, which smoothes out some of the
volatility in the weekly numbers, increased to 570,000 but was down
from the April high of 658,750 and near its lowest level since
late-January. A decline in weekly claims to 550,000 had been expected.
The latest figures cover the survey period for August nonfarm
payrolls and initial claims were up 17,000 (3.0%) from the July survey
period. During the last ten years there has been a negative 86%
correlation between the level of initial claims and the m/m change in
payrolls.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090820b.jpg" align="right" border="0" height="265" width="353">
The Labor Department indicated that the largest increases in
initial claims for the week ending August 8 were in Tennessee (+2,525),
North Carolina (+2,469), Wisconsin (+2,078), Georgia (+1,753), and
Washington (+1,697), while the largest decreases were in California
(-5,635), Michigan (-1,490), Ohio (-951), Kentucky (-690), and Delaware
(-226).
Continuing claims for unemployment insurance ticked higher in
the latest week but remained down by nearly 10% from their late-June
high, a decline which probably owes to the exhaustion of benefits.
Continuing claims provide an indication of workers' ability to find
employment and the level of 6,241,000 claims is up sharply
from the year-ago level. The four-week average of continuing
claims fell modestly to 6,266,000 and that was the lowest since
late-April. The series dates back to 1966.
Extended benefits for unemployment insurance fell slightly w/w
at the end of July. The slip to 400,779 compared to a high of 491,684
reached during the middle of the month. Extended benefits began to rise
slowly in June of 2008 but surged by January.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090820c.jpg" align="left" border="0" height="265" width="353">
The insured rate of unemployment held steady at 4.7% which was
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.
The highest insured unemployment rates in the week ending
August 1 were in Puerto Rico (7.3 percent), Oregon (6.2), Pennsylvania
(6.1), Michigan (5.9), Nevada (5.9), Wisconsin (5.5), California (5.3),
Connecticut (5.3), New Jersey (5.3), North Carolina (5.1), and South
Carolina (5.1). The lowest rates were in South Dakota (1.3) and North
Dakota (1.5), Virginia (2.4), Wyoming (2.9), Texas (3.0), Maine (3.1),
Colorado (3.2), Maryland (3.6), Minnesota (3.7), Florida (4.2), New
York (4.2), Mississippi (4.3) and Georgia (4.7).
The unemployment insurance claims data is available in Haver's
WEEKLY database and the state data is in the REGIONW
database.
The Peak Oil Debate from the
Federal Reserve Bank of Atlanta is available <a href="http://www.frbatlanta.org/filelegacydocs/er0902_graefe.pdf">
here</a>.

<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">08/14/09</th>
<th scope="col">08/07/09</th>
<th scope="col">07/31/09</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>576</td>
<td>561</td>
<td>554</td>
<td>31.5%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>6,241</td>
<td>6,239</td>
<td>83.2%</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>4.7</td>
<td>4.7</td>
<td>2.5</td>
<td>2.5</td>
<td>1.9</td>
<td>1.9</td>
</tr>
</tbody>
</table>
UK Retail Sales Stir by <a href="/comment/Brusca.html">Robert
Brusca</a> August 20, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090820d.jpg" align="left" border="0" height="265" width="353">
The 0.4% rise in real UK retail sales is the largest increase
in fourteen months. Retail sales ex autos also rose by 0.4% and put in
its second month-in-row increase. 
 

The momentum in real retail sales is positive, having
recovered from some very deep lows reached just after mid-year in 2008.
In contrast this global business cycle hit the US consumer most
strongly at the end of 2008 and in early 2009. 
 

UK food and beverage purchases have been a mainstay of growth
over the past year. But spending in this category fell in July.
Clothing and foot wear expenditures have run hot and cold and these
took a small decline in July as well. The strength in retail sales came
from other sectors in July. 
 

In the quarter to date real ex-auto retail sales are growing
at a robust 6.4% annual rate. The new quarter is only one month old but
it is off to a very good start for UK retailers.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col"> UK Real
and Nominal Retail Sales
</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Nominal</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>May-09</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>Yr AGo</td>
<td>Quarter-2-date</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Retail Total</td>
<td>0.5%</td>
<td>0.7%</td>
<td>-0.5%</td>
<td>2.9%</td>
<td>2.9%</td>
<td>2.6%</td>
<td>3.1%</td>
<td>5.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Food Bev &amp;
Tobacco</td>
<td>-0.4%</td>
<td>0.7%</td>
<td>0.5%</td>
<td>3.0%</td>
<td>7.1%</td>
<td>5.2%</td>
<td>7.1%</td>
<td>1.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Clothing footwear</td>
<td>-0.1%</td>
<td>3.2%</td>
<td>-2.2%</td>
<td>3.3%</td>
<td>-1.4%</td>
<td>2.7%</td>
<td>1.0%</td>
<td>7.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</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="even">
<td class="firstcol">Real</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">&nbsp; Retail Ex auto</td>
<td>0.4%</td>
<td>1.4%</td>
<td>-0.9%</td>
<td>3.6%</td>
<td>1.8%</td>
<td>3.3%</td>
<td>1.1%</td>
<td>6.4%</td>
</tr>
</tbody>
</table>
U.S. Leading Indicators Signal
Economic Recovery With Fourth Straight Monthly Increase 
by <a href="/comment/Moeller.html">Tom
Moeller</a> August 20, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090820e.jpg" align="left" border="0" height="265" width="353">
The Conference Board's Index of Leading Economic Indicators
continued to suggest a pending economic recovery. The July composite
index of leaders rose another 0.6% after gains of 0.8%, 1.2% and 1.1%
during the prior three months. The combined 3.8% rise during those four
months was the strongest since early-2002 while the index itself was at
the highest level since last June. The leading index is based on actual
reports for eight economic data series. The Conference Board initially
estimates two series, orders for consumer goods and orders for capital
goods.
For the fourth straight month, nearly three-quarters of the
ten components of the leading index increased.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090820f.jpg" align="right" border="0" height="265" width="353">
Again suggesting that the rate of decline in the economy is
slowing were the coincident indicators which were unchanged m/m. This
compares with monthly declines of 0.6%-to-1.1% dating back to September.
In a sign that excesses in the U.S. economy are diminishing,
the lagging index fell for the seventh month in the last eight. The
ratio of coincident-to-lagging indicators (a measure of economic
excess) rose again m/m to the highest level since December.
The Conference Board figures are available in Haver's BCI
database. Visit the Conference Board's <a href="http://www.conference-board.org">site</a> for
coverage of leading indicator series from around the world.


<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/BCI/BCI.HTM">Business
Cycle Indicators</a> (%)</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">April 6-Month % (AR)</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">Leading</td>
<td>0.6</td>
<td>0.8</td>
<td>1.2</td>
<td>6.2</td>
<td>-2.8</td>
<td>-0.3</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.0</td>
<td>-0.4</td>
<td>-0.4</td>
<td>-5.4</td>
<td>-0.9</td>
<td>1.6</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>-1.0</td>
<td>-0.7</td>
<td>-0.3</td>
<td>-8.6</td>
<td>2.9</td>
<td>2.8</td>
<td>3.3</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Remains
Positive At Its Highest Level Since 2007 
by <a href="/comment/Moeller.html">Tom
Moeller</a> August 20, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090820g.jpg" align="left" border="0" height="265" width="353">
The Philadelphia Federal Reserve Bank indicated that its
August index of factory sector activity in the region rose to its
highest since November of 2007. The level of 4.2 compared to figures
near -40.0 this past fall and winter. Consensus expectations had been
for a slightly negative reading of -1.5 for this month.
During the last ten years there has been a 77% correlation
between the level of the Philadelphia Fed Business Conditions Index and
the three-month growth in factory sector industrial production. There
has been a 70% correlation with q/q growth in real GDP. The latest
survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/2009/bos0809.pdf">here.</a><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090820h.jpg" align="right" border="0" height="265" width="353">
Amongst the components, new orders improved to 4.2 from -2.2
and the latest figure was the highest since 2007. A sharp rise in the
inventory component to its highest since 2007 may indicate that the
period of strong inventory decumulation reached its end. The latest
figure of 0.3 compares to a low of -55.6 reached this past March. Also
showing improvement was the employment index. It rose to a still
negative -12.9 but that compared with a low of -52.0 during March.
During the last ten years there has been a 79% correlation between the
index level and the m/m change in manufacturing sector payrolls.
Improved pricing power accompanied the gains in real activity.
The prices paid index jumped to its first positive reading since last
October. During the last ten years there has been a 74% correlation
between the prices paid index and the three-month growth in the
intermediate goods PPI. There has been an 83% correlation with the
change in core intermediate goods prices.
Expected business conditions in six months also have improved.
The August index ticked up to 56.8 and recovered most of its July
decline. The latest figure was still near its highest level since 2003.
Most of the index components moved sideways at improved levels but the
inventories series jumped sharply to new cycle high.
The figures from the Philadelphia Federal Reserve can be found
in Haver's SURVEYS database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Philadelphia
Fed (%)</th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August '08</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">General Activity Index</td>
<td>4.2</td>
<td>-7.5</td>
<td>-20.1</td>
<td>-21.3</td>
<td>5.0</td>
<td>8.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>4.2</td>
<td>-2.2</td>
<td>-15.2</td>
<td>-14.7</td>
<td>6.9</td>
<td>9.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Number of Employees</td>
<td>-12.9</td>
<td>-25.3</td>
<td>-4.6</td>
<td>-8.7</td>
<td>6.8</td>
<td>9.0</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>10.0</td>
<td>&nbsp;-3.5</td>
<td>&nbsp;53.0</td>
<td>36.4</td>
<td>26.3</td>
<td>36.7</td>
</tr>
</tbody>
</table>
</body></html>

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.

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.

260115Z2.jpg

**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.

260115Z3.jpg

**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.

260115Z4.jpg

**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.

260115Z5.jpg

**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.

260115Z6.jpg

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).

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/2mhM227WWeJJ6kRv7sJMiE?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Between Optimism and Uncertainty

Michael J. Moran

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260115K.jpg

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.

260115L.jpg

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

260115J39.jpg

260115JK9.jpg

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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