Robert Brusca

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<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100120b.jpg" align="left" border="0" height="265" width="353"></p>
<p>Italian orders surged beyond expectations in November rising
by 2.6%, marking three straight months of increases and increases in
seven of the last eight months. These statistics register in the
sequential growth rates in the table above as Italy&#8217;s orders growth is
posting progressively higher rates of growth over shorter periods of
time. This is a sign of acceleration in action. While foreign orders
are leading the way Italy&#8217;s domestic orders have been surprisingly
strong, especially over the past three months.</p>
<p>As impressive as these results are they are distorted to some
extent by having that one drop in the past seven months (coming four
months ago) as an outsized drop of nearly 9%. Foreign orders still have
not gotten back to their July 2009 peak levels and have fallen in two
of the past four months.</p>
<p>Surprisingly, domestic orders have just moved beyond their
July level with this report and seemingly are gaining momentum. The
sequential growth rates exaggerate a bit the strength of the rebound,
yet the transition to a better industrial sector seems to be real.</p>
<p>In an economy that had fiscal excesses prior to the financial
crisis and was not able to mount the stimulus that some other countries
did, Italy&#8217;s performance is impressive. It is also impressive that at a
time that other economies are struggling mightily, Greece with debt,
Spain with real estate and Iceland with responsibility, Italy, a
favorite target of speculators, has been able to mount a very good
looking recovery.</p>
<p>Business confidence is still somewhat circumspect as is
consumer confidence, but all-in-all, the industrial rebound is looking
especially sound in November, coming at a time when others have been
foundering. Germany&#8217;s orders did snap back partially in November after
an October set back and France has had two declines in orders in a row
in October and November.</p>
<p>There are no new initiatives to account for Italy&#8217;s
improvement. For the time being we can welcome the progress while at
the same time being somewhat skeptical of this progress in the face of
difficulties elsewhere.</p>
</span>

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col"> Italy Orders</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar exept m/m</td>
<td>Nov-09</td>
<td>Oct-09</td>
<td>Sep-09</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>2.6%</td>
<td>0.6%</td>
<td>6.0%</td>
<td>42.9%</td>
<td>11.9%</td>
<td>-4.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Foreign</td>
<td>2.8%</td>
<td>-0.1%</td>
<td>8.1%</td>
<td>51.9%</td>
<td>25.3%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Domestic</td>
<td>2.4%</td>
<td>1.0%</td>
<td>4.7%</td>
<td>38.0%</td>
<td>5.9%</td>
<td>-5.6%</td>
</tr>
<tr class="odd">
<td colspan="7">Memo</td>
</tr>
<tr>
<td class="firstcol">Sales</td>
<td>1.5%</td>
<td>-1.6%</td>
<td>2.4%</td>
<td>9.4%</td>
<td>1.5%</td>
<td>-9.7%</td>
</tr>
</tbody>
</table>
</body></html>

Italian orders surged beyond expectations in November rising by 2.6%, marking three straight months of increases and increases in seven of the last eight months. These statistics register in the sequential growth rates in the table [...]

Italian Orders Continue Upswing

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<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100120a.jpg" align="left" border="0" height="265" width="353"></p>
<p>On the month the PPI was a &#8220;what-me-worry&#8217; sort of report. A
headline gain of 0.2%, the core flat, the core for consumer goods up a
scant 0.1%:. No problem. Still Yr/Yr the PPI headline is up by 4.7%
-and it is accelerating its rise over shorter periods. But the core is
complacent rising by 0.9% over 12-months and the consumer core is up by
1.6%. Moreover, the consumer core and overall Core PPI are both still
decelerating.</p>
<p>The PPI is not the Fed&#8217;s preferred inflation gauge. Still it
is good to see that core inflation is not percolating. If we look at
the correlation between the core PPI for consumer goods and the core
CPI for goods we find an R-squared relationship of 0.15, very low. The
PPI is less important that the CPI and it does not track the CPI either.</p>
<p>The Fed emphasizes core inflation at the CPI level and for
good reason. While other central banks look at the headline rate and
the while that focus made the Fed (and economists) the butt of jokes as
oil prices soared in 2008, history confirms the good judgment in
emphasizing core inflation. Food and energy prices are volatile. When
you include them in the headline you get exaggerated results when food
and energy prices move. If they advance inflation is measured as too
high; if they recede inflation is measured as too low. The core is the
best shot we have at getting to true ongoing inflation. In 2008 when
headline inflation flared the core was relatively quiescent encouraging
the Fed to not over do it with worry. In fact central banks that
targeted headline inflation were stuck in 2008 and 2009 since they had
to cut rates with inflation still way over their targets and then make
excuses. Core targeting would have made more sense.</p>
<p>In any event the PPI is not a source of worry. The year over
year rate is still accelerating as the core rate is still decelerating.
Energy and food prices each have accelerated but recently oil is
looking a bit more like its movements may be capped. If so the core
reading once again will hold sway on the outlook for inflation. It was
inevitable that headline inflation would rise as oil prices rebounded
in a global recovery. But oil has mostly come back up to where it
belongs and from now on it is less clear that oil is going to be
fueling a further rise in the headline.</p>
<p>For now we think the Fed is perfectly satisfied with
inflation&#8217;s performance and prospects. Inflation expectations are for
the most part still well contained. Today&#8217;s PPI report was as expected
an economic non-event.</p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="6" scope="col">Key Trends In Producer Prices </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Dec-09</td>
<td colspan="4">PPI Trends By Type Of
Good</td>
</tr>
<tr class="odd">
<td class="firstcol">PPI</td>
<td>1Mo:M/M</td>
<td>3-Mo:ar</td>
<td>6-Mo:ar</td>
<td>1-Yr</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Total PPI</td>
<td>0.2%</td>
<td>9.5%</td>
<td>5.0%</td>
<td>4.7%</td>
<td>-1.2%</td>
</tr>
<tr>
<td class="firstcol">Finished Consumer
Gds</td>
<td>0.3%</td>
<td>13.5%</td>
<td>7.1%</td>
<td>6.5%</td>
<td>-2.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
&nbsp;Consumer Foods</td>
<td>1.4%</td>
<td>15.0%</td>
<td>4.5%</td>
<td>1.1%</td>
<td>3.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
&nbsp; Finished C Gds Excl Foods</td>
<td>-0.2%</td>
<td>12.9%</td>
<td>7.9%</td>
<td>8.3%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Nondurables less Food</td>
<td>-0.1%</td>
<td>19.6%</td>
<td>12.0%</td>
<td>11.5%</td>
<td>-8.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;
&nbsp;ConsNonDurxF&amp;E</td>
<td>0.2%</td>
<td>3.4%</td>
<td>2.5%</td>
<td>2.5%</td>
<td>5.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;
&nbsp;Durable Goods</td>
<td>-0.1%</td>
<td>-3.0%</td>
<td>-2.3%</td>
<td>0.3%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">Finished Core Cons
Gds</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.3%</td>
<td>1.6%</td>
<td>4.6%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>-0.1%</td>
<td>-1.5%</td>
<td>-0.8%</td>
<td>0.0%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;
MFG Industries</td>
<td>-0.1%</td>
<td>-1.0%</td>
<td>-0.3%</td>
<td>-0.3%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;
NonMFG Industries</td>
<td>0.0%</td>
<td>-1.5%</td>
<td>-0.8%</td>
<td>0.1%</td>
<td>4.4%</td>
</tr>
<tr>
<td class="firstcol">Core PPI</td>
<td>0.0%</td>
<td>-0.5%</td>
<td>-0.1%</td>
<td>0.9%</td>
<td>4.5%</td>
</tr>
<tr>
<td class="firstcol">Memo: Finished
Energy</td>
<td>-0.4%</td>
<td>36.6%</td>
<td>21.5%</td>
<td>21.2%</td>
<td>-21.2%</td>
</tr>
</tbody>
</table>
</body></html>

On the month the PPI was a “what-me-worry’ sort of report. A headline gain of 0.2%, the core flat, the core for consumer goods up a scant 0.1%:. No problem. Still Yr/Yr the PPI headline is up by 4.7% -and it is accelerating its rise [...]

PPI Core Behaves; Headline Is Still Unruly

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<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100120a.jpg" align="left" border="0" height="265" width="353"></p>
<p>On the month the PPI was a &#8220;what-me-worry&#8217; sort of report. A
headline gain of 0.2%, the core flat, the core for consumer goods up a
scant 0.1%:. No problem. Still Yr/Yr the PPI headline is up by 4.7%
-and it is accelerating its rise over shorter periods. But the core is
complacent rising by 0.9% over 12-months and the consumer core is up by
1.6%. Moreover, the consumer core and overall Core PPI are both still
decelerating.</p>
<p>The PPI is not the Fed&#8217;s preferred inflation gauge. Still it
is good to see that core inflation is not percolating. If we look at
the correlation between the core PPI for consumer goods and the core
CPI for goods we find an R-squared relationship of 0.15, very low. The
PPI is less important that the CPI and it does not track the CPI either.</p>
<p>The Fed emphasizes core inflation at the CPI level and for
good reason. While other central banks look at the headline rate and
the while that focus made the Fed (and economists) the butt of jokes as
oil prices soared in 2008, history confirms the good judgment in
emphasizing core inflation. Food and energy prices are volatile. When
you include them in the headline you get exaggerated results when food
and energy prices move. If they advance inflation is measured as too
high; if they recede inflation is measured as too low. The core is the
best shot we have at getting to true ongoing inflation. In 2008 when
headline inflation flared the core was relatively quiescent encouraging
the Fed to not over do it with worry. In fact central banks that
targeted headline inflation were stuck in 2008 and 2009 since they had
to cut rates with inflation still way over their targets and then make
excuses. Core targeting would have made more sense.</p>
<p>In any event the PPI is not a source of worry. The year over
year rate is still accelerating as the core rate is still decelerating.
Energy and food prices each have accelerated but recently oil is
looking a bit more like its movements may be capped. If so the core
reading once again will hold sway on the outlook for inflation. It was
inevitable that headline inflation would rise as oil prices rebounded
in a global recovery. But oil has mostly come back up to where it
belongs and from now on it is less clear that oil is going to be
fueling a further rise in the headline.</p>
<p>For now we think the Fed is perfectly satisfied with
inflation&#8217;s performance and prospects. Inflation expectations are for
the most part still well contained. Today&#8217;s PPI report was as expected
an economic non-event.</p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="6" scope="col">Key Trends In
Producer Prices </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Dec-09</td>
<td colspan="4">PPI Trends By Type Of
Good</td>
</tr>
<tr class="odd">
<td class="firstcol">PPI</td>
<td>1Mo:M/M</td>
<td>3-Mo:ar</td>
<td>6-Mo:ar</td>
<td>1-Yr</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Total PPI</td>
<td>0.2%</td>
<td>9.5%</td>
<td>5.0%</td>
<td>4.7%</td>
<td>-1.2%</td>
</tr>
<tr>
<td class="firstcol">Finished Consumer
Gds</td>
<td>0.3%</td>
<td>13.5%</td>
<td>7.1%</td>
<td>6.5%</td>
<td>-2.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
&nbsp;Consumer Foods</td>
<td>1.4%</td>
<td>15.0%</td>
<td>4.5%</td>
<td>1.1%</td>
<td>3.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
&nbsp; Finished C Gds Excl Foods</td>
<td>-0.2%</td>
<td>12.9%</td>
<td>7.9%</td>
<td>8.3%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;
Nondurables less Food</td>
<td>-0.1%</td>
<td>19.6%</td>
<td>12.0%</td>
<td>11.5%</td>
<td>-8.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;
&nbsp;ConsNonDurxF&amp;E</td>
<td>0.2%</td>
<td>3.4%</td>
<td>2.5%</td>
<td>2.5%</td>
<td>5.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;
&nbsp;Durable Goods</td>
<td>-0.1%</td>
<td>-3.0%</td>
<td>-2.3%</td>
<td>0.3%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">Finished Core Cons
Gds</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.3%</td>
<td>1.6%</td>
<td>4.6%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>-0.1%</td>
<td>-1.5%</td>
<td>-0.8%</td>
<td>0.0%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;
MFG Industries</td>
<td>-0.1%</td>
<td>-1.0%</td>
<td>-0.3%</td>
<td>-0.3%</td>
<td>4.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;
NonMFG Industries</td>
<td>0.0%</td>
<td>-1.5%</td>
<td>-0.8%</td>
<td>0.1%</td>
<td>4.4%</td>
</tr>
<tr>
<td class="firstcol">Core PPI</td>
<td>0.0%</td>
<td>-0.5%</td>
<td>-0.1%</td>
<td>0.9%</td>
<td>4.5%</td>
</tr>
<tr>
<td class="firstcol">Memo: Finished
Energy</td>
<td>-0.4%</td>
<td>36.6%</td>
<td>21.5%</td>
<td>21.2%</td>
<td>-21.2%</td>
</tr>
</tbody>
</table>
<span id="articletitle">Italian Orders Continue Upswing</span><br>
<span id="byline">by <a href="/comment/Brusca.html">Robert
Brusca</a> January 20, 2010</span>
<span id="articletext">
<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100120b.jpg" align="left" border="0" height="265" width="353"></p>
<p>Italian orders surged beyond expectations in November rising
by 2.6%, marking three straight months of increases and increases in
seven of the last eight months. These statistics register in the
sequential growth rates in the table above as Italy&#8217;s orders growth is
posting progressively higher rates of growth over shorter periods of
time. This is a sign of acceleration in action. While foreign orders
are leading the way Italy&#8217;s domestic orders have been surprisingly
strong, especially over the past three months.</p>
<p>As impressive as these results are they are distorted to some
extent by having that one drop in the past seven months (coming four
months ago) as an outsized drop of nearly 9%. Foreign orders still have
not gotten back to their July 2009 peak levels and have fallen in two
of the past four months.</p>
<p>Surprisingly, domestic orders have just moved beyond their
July level with this report and seemingly are gaining momentum. The
sequential growth rates exaggerate a bit the strength of the rebound,
yet the transition to a better industrial sector seems to be real.</p>
<p>In an economy that had fiscal excesses prior to the financial
crisis and was not able to mount the stimulus that some other countries
did, Italy&#8217;s performance is impressive. It is also impressive that at a
time that other economies are struggling mightily, Greece with debt,
Spain with real estate and Iceland with responsibility, Italy, a
favorite target of speculators, has been able to mount a very good
looking recovery.</p>
<p>Business confidence is still somewhat circumspect as is
consumer confidence, but all-in-all, the industrial rebound is looking
especially sound in November, coming at a time when others have been
foundering. Germany&#8217;s orders did snap back partially in November after
an October set back and France has had two declines in orders in a row
in October and November.</p>
<p>There are no new initiatives to account for Italy&#8217;s
improvement. For the time being we can welcome the progress while at
the same time being somewhat skeptical of this progress in the face of
difficulties elsewhere.</p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col"> Italy Orders</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar exept m/m</td>
<td>Nov-09</td>
<td>Oct-09</td>
<td>Sep-09</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>2.6%</td>
<td>0.6%</td>
<td>6.0%</td>
<td>42.9%</td>
<td>11.9%</td>
<td>-4.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Foreign</td>
<td>2.8%</td>
<td>-0.1%</td>
<td>8.1%</td>
<td>51.9%</td>
<td>25.3%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Domestic</td>
<td>2.4%</td>
<td>1.0%</td>
<td>4.7%</td>
<td>38.0%</td>
<td>5.9%</td>
<td>-5.6%</td>
</tr>
<tr class="odd">
<td colspan="7">Memo</td>
</tr>
<tr>
<td class="firstcol">Sales</td>
<td>1.5%</td>
<td>-1.6%</td>
<td>2.4%</td>
<td>9.4%</td>
<td>1.5%</td>
<td>-9.7%</td>
</tr>
</tbody>
</table>
<span id="articletitle">Housing Starts Unwound</span><br>
<span id="byline">by <a href="/comment/Brusca.html">Robert
Brusca</a> January 20, 2010</span>
<span id="articletext">
<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100120c.jpg" align="left" border="0" height="265" width="353"></p>
<p>Housing starts unwound in December falling by 4% on the month.
Still, the drop leaves starts in a more less stabilized environment,
bumping along at one of their lowest levels of the cycle. Single unit
2-4 unit and 5-unit starts are all down by some 75% to 89% from their
max readings of the cycle. At the same time they are up 27% to 125%
from their respective cycle lows (with the small 2-4 unit category
responsible for the strong-seeming end of the range). Starts are lower
across these groupings over most horizons from 3-months to 6-months to
12-months.</p>
<p>Starts fell in December in three of four regions, the South
being the exception. The West saw a relatively small drop of 0.9% in
December while the Northeast saw starts drop by 19% and the Midwest by
18.5%. The clustering of weakness in the Northeast and Midwest suggests
that weather played a role as snow storms swept though the country in
December on a fairly intense basis.</p>
<p>By regions starts are off from their respective cycle peaks
ranging from a low of 71% in the South to a high of 81% in the West.
The weakness has been quite uniform across the country.</p>
<p>One encouraging factor is that permits rose in December and
did so across all four regions. While starts fell by 4% nationwide,
permits rose by 10.9%.</p>
<p>Housing affordability remained quite good despite some minor
upticks in mortgage rates. Despite the winter weather the report
continues to show signs of bottoming and promise of some rebound for
the months ahead as permits show steady positive momentum across all
key time horizons from three- months to six months to 12-months.</p>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col">Housing
Starts/Permits By Region </th>
</tr>
<tr>
<th colspan="9" scope="col">Housing
Starts:
Analytical Comparisons (Pct. Changes Not Compounded)
</th>
</tr>
<tr>
<th colspan="9" scope="col">Dec.2009</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="2">Northeast</td>
<td colspan="2">Midwest</td>
<td colspan="2">South</td>
<td colspan="2">West</td>
</tr>
<tr class="odd">
<td class="firstcol">In 000's of Units</td>
<td>Starts</td>
<td>Permits</td>
<td>Starts</td>
<td>Permits</td>
<td>Starts</td>
<td>Permits</td>
<td>Starts</td>
<td>Permits</td>
</tr>
<tr>
<td class="firstcol">This Month:Saar</td>
<td>&nbsp;51 </td>
<td>87 </td>
<td>88 </td>
<td>116 </td>
<td>310 </td>
<td>319 </td>
<td>108 </td>
<td>131 </td>
</tr>
<tr>
<td class="firstcol">Nov.2009</td>
<td>63 </td>
<td>68 </td>
<td>&nbsp;108 </td>
<td>105 </td>
<td>300 </td>
<td>305 </td>
<td>109 </td>
<td>111 </td>
</tr>
<tr>
<td class="firstcol">Oct.2009</td>
<td>54 </td>
<td>64 </td>
<td>99 </td>
<td>104 </td>
<td>265 </td>
<td>272 </td>
<td>106 </td>
<td>111 </td>
</tr>
<tr class="even">
<td class="firstcol">3-month avg.</td>
<td>56</td>
<td>73</td>
<td>98</td>
<td>108</td>
<td>292</td>
<td>299</td>
<td>108</td>
<td>118</td>
</tr>
<tr>
<td class="firstcol">1-mo. hg.</td>
<td>-19.0%</td>
<td>27.9%</td>
<td>-18.5%</td>
<td>10.5%</td>
<td>3.3%</td>
<td>4.6%</td>
<td>-0.9%</td>
<td>18.0%</td>
</tr>
<tr>
<td class="firstcol">3-month hg</td>
<td>-22.7%</td>
<td>35.9%</td>
<td>-15.4%</td>
<td>17.2%</td>
<td>4.0%</td>
<td>9.2%</td>
<td>-8.5%</td>
<td>9.2%</td>
</tr>
<tr>
<td class="firstcol">6-month hg</td>
<td>-37.0%</td>
<td>50.0%</td>
<td>-17.8%</td>
<td>26.1%</td>
<td>12.3%</td>
<td>4.6%</td>
<td>-14.3%</td>
<td>13.9%</td>
</tr>
<tr>
<td class="firstcol">yr/yr hg.</td>
<td>-19.0%</td>
<td>45.0%</td>
<td>15.8%</td>
<td>36.5%</td>
<td>9.5%</td>
<td>5.6%</td>
<td>-19.4%</td>
<td>12.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Drop from Max</td>
<td>-79.5%</td>
<td>-71.3%</td>
<td>-80.3%</td>
<td>-71.6%</td>
<td>-72.9%</td>
<td>-71.1%</td>
<td>-81.5%</td>
<td>-78.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">From Cycle Low</td>
<td>34.2%</td>
<td>64.2%</td>
<td>51.7%</td>
<td>46.8%</td>
<td>34.2%</td>
<td>22.7%</td>
<td>35.0%</td>
<td>29.7%</td>
</tr>
</tbody>
</table>
</body></html>

PPI Core Behaves; Headline IsStill Unruly

Tom Moeller

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<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100119g.jpg" style="width: 353px; height: 265px;" align="right">According
to The National Association of Home Builders, housing market activity
slipped again from its earlier improved level. The
Association&nbsp; reported that its January Composite Housing
Market Index edged lower to 15 from 16 in December and from 19 last
September. Nevertheless, the index remained nearly double the low of 8
last January. The index is compiled from survey questions asking
builders to rate market conditions as &#8220;good&#8221;, &#8220;fair&#8221;, &#8220;poor&#8221; or &#8220;very
high&#8221; to &#8220;very low&#8221;.<span> </span>The figure is a
diffusion index, therefore, numerical results over 50 indicate a
predominance of &#8220;good&#8221; readings. In the West the index fell hard to a
reading of 16 from 19 in December but remained up by four times since
January '09. In all other regions the m/m declines were moderate and
levels remained up sharply from January 2009.</p>
<p>The present
sales index slipped to 15 which was down from the August high but the
sub-index of sales during the next six months held steady&nbsp;
m/m. Improvement from 2009 was moderate.&nbsp;The Home Builders'
Association also reported that traffic of prospective buyers slipped
from December to the lowest level since March.</p>
<p>The
Home Builders' Housing Opportunity Index, which is the share of homes
sold that could be considered affordable to a family earning the median
income, fell in 3Q '09 to 70.1%. It had jumped earlier to a record high
of 72.5% buoyed by lower home prices, lower interest rates and higher
income. (There is a break in the series from 2002 to
2003.)</p>
<p>The NAHB has compiled the <b>Housing Market
Index</b> since 1985.<span> </span>The weights
assigned to the individual index components are .5920 for single family
detached sales, present time; .1358 for single family detached sales,
next six months; and .2722 for traffic of prospective buyers. The
results, along with other housing and remodeling indexes from NAHB
Economics, are included in Haver&#8217;s <b>SURVEYS</b> database.</p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100119h.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100119i.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b><a ;="" href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM" style="color: black;">Nat'l Association of Home Builders</a></b></th>
<th scope="col"><b>January</b></th>
<th scope="col"><b>December</b></th>
<th scope="col"><b>November</b></th>
<th scope="col"><b>&nbsp;January '09</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Housing Market Index
(All Good=100)</td>
<td>15</td>
<td>16</td>
<td>17</td>
<td>8</td>
<td>15</td>
<td>16</td>
<td>27</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-Family Sales</td>
<td>15</td>
<td>16</td>
<td>17</td>
<td>6</td>
<td>13</td>
<td>16</td>
<td>27</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-Family Sales:
Next Six Months</td>
<td>26</td>
<td>26</td>
<td>28</td>
<td>17</td>
<td>24</td>
<td>25</td>
<td>37</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Traffic of
Prospective Buyers</td>
<td>12</td>
<td>13</td>
<td>13</td>
<td>8</td>
<td>13</td>
<td>14</td>
<td>21</td>
</tr>
</tbody>
</table>
</span>
</body></html>

According to The National Association of Home Builders, housing market activity slipped again from its earlier improved level. The Association reported that its January Composite Housing Market Index edged lower to 15 from 16 in [...]

U.S. Home Builders’ Index Dips Again

Louise Curley

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<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100119d.jpg" style="width: 353px; height: 265px;" align="right">According
to
the January ZEW indicator, the percentage of German investors and
analysts optimistic about the outlook six months ahead declined for the
fourth month.&nbsp; The percent balance is now 47.2% compared with
the recent peak of 57.7% in September, however, it is still well above
the long term average of 27.1%.&nbsp; At the same time, more of
these investors see improvement in current conditions although the
pessimists still outweigh the optimists.&nbsp; The percent balance
between those who see improvement in current conditions and those who
see deterioration was -56.6% in January, 2010, compared with -60.6% in
December and the peak of -92.8% in May of 2009.&nbsp; The disparity
between the participants' views of current conditions and expectations
is not unusual as can be seen in the first chart.</p>
<p> The impact on the
Euro Area of the financial difficulties in Greece that have come to the
surface during the survey period may have had some dampening effect on
expectations and outweighed some of the more favorable economic
developments. Over the past month or so, the Euro has declined 5.5%
from $1.5120 to $1.4279 today and exports continue to rise.&nbsp;
The second chart shows the movement in the Euro on a daily basis and
the trend in monthly exports over the past year.</p>
<p> Along with the
improvement in the appraisal of current conditions there has been a
general improvement in the outlook for profits in the 13 industries
that ZEW monitors.&nbsp; The positive appraisal for profits in
Banking, Chemical, Steel/Metal, Electronic, Machinery, Utilities,
Service, Telecommunications, and Information Technology industries
increased in January and the negative percent balance for profits in
the Vehicles/Automotive industry was reduced.&nbsp; The percent
balances on only three industries declined--Insurance,
Consumption/Trade and Construction in January, but the profit outlook
in these industries has shown improvement since the low point reached
in October 2008 as can be seen in the third chart.&nbsp; There are
now only two industries where the percent balances on the profit
outlook are negative--Consumption/Trade (-12.1%) and
Vehicles/Automotive (-23.2%).&nbsp;</p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100119e.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100119f.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">ZEW
INDICATORS (% Balance)</th>
<th scope="col"><b>Jan 10</b></th>
<th scope="col"><b>Dec 09</b></th>
<th scope="col"><b>Nov 09</b></th>
<th scope="col"><b>Oct 09</b></th>
<th scope="col"><b>Sep 09</b></th>
<th scope="col"><b>Aug 09</b></th>
<th scope="col"><b>July 09</b></th>
<th scope="col"><b>June 09</b></th>
<th scope="col"><b>May 09</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Conditions</td>
<td>-56.6</td>
<td>-60.6</td>
<td>-65.6</td>
<td>-72.2</td>
<td>-74.0</td>
<td>-77.2</td>
<td>-88.3</td>
<td>-89.7</td>
<td>92.8</td>
</tr>
<tr>
<td class="firstcol">Expectations 6
Months Ahead</td>
<td>47.2</td>
<td>50.4</td>
<td>51.1</td>
<td>56.0</td>
<td>57.7</td>
<td>56.1</td>
<td>39.5</td>
<td>44.8</td>
<td>31.1</td>
</tr>
</tbody>
</table>
</span>
</body></html>

According to the January ZEW indicator, the percentage of German investors and analysts optimistic about the outlook six months ahead declined for the fourth month. The percent balance is now 47.2% compared with the recent peak of [...]

German Investors More Cautious On The General Outlook But Still See Improvement In The Profit Outlook

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<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100119a.jpg" style="width: 353px; height: 265px;" align="right">
The U.S.
economic recession brought with it the highest level of misery in over
twenty five years. The December misery index reached 12.7% which was up
from 11.8% during November. The index is calculated as the sum of the
unemployment rate and the y/y change in the consumer price index. Not
only was the index level its highest since 1983, but the 5.2 point
increase versus December '08 was the quickest since the "credit crunch"
recession of 1980.</p><p>Higher unemployment accounts the index's
stretch into double digits. At 10.0%, not only is the unemployment rate
high but its 2.6 percentage point increase over the last twelve months
is nearly the quickest since 1975. (Before the current reading, the 4.0
point rise as of June set the record.)</p><p> Low inflation has
ameliorated some of the pain caused by higher unemployment, but the
positive effect is about to diminish. The 2.8% gain in the CPI versus
last year was down sharply from the 1980 peak of 14.6% when oil prices
spiked. However, the misery index soon will reflect the increase in
energy prices.&nbsp;
</p><p>The <b> Misery Index is calculated by Haver Analytics</b>.
It is the sum of the unemployment rate and the year-over-year
percentage change in the CPI-U from the Bureau of Labor
Statistics.·&nbsp; <strong>The Fed's Monetary Policy
Response to the Current Crisis</strong> is from the San Francisco
Federal Reserve published last May and it can be found <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-17.pdf">here</a>.</p>

<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100119b.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100119c.jpg" style="width: 312px; height: 265px;">



<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"></th>
<th scope="col"><b>December</b></th>
<th scope="col"><b>November</b></th>
<th scope="col"><b>December '08</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Misery Index (%)</td>
<td>12.7</td>
<td>11.8</td>
<td>7.5</td>
<td>8.9</td>
<td>9.7</td>
<td>7.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Unemployment Rate (%)</td>
<td>10.0</td>
<td>10.0</td>
<td>7.4</td>
<td>9.3</td>
<td>5.8</td>
<td>4.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer Prices (Y/Y
%)</td>
<td>2.7</td>
<td>1.8</td>
<td>0.1</td>
<td>-0.4</td>
<td>3.8</td>
<td>2.9</td>
</tr>
</tbody>
</table>
</span></body></html>

The U.S. economic recession brought with it the highest level of misery in over twenty five years. The December misery index reached 12.7% which was up from 11.8% during November. The index is calculated as the sum of the unemployment [...]

Misery Reaches Highest Since 1983

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<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100119a.jpg" style="width: 353px; height: 265px;" align="right">The
U.S.
economic recession brought with it the highest level of misery in over
twenty five years. The December misery index reached 12.7% which was up
from 11.8% during November. The index is calculated as the sum of the
unemployment rate and the y/y change in the consumer price index. Not
only was the index level its highest since 1983, but the 5.2 point
increase versus December '08 was the quickest since the "credit crunch"
recession of 1980.</p>
<p>Higher unemployment accounts the index's
stretch into double digits. At 10.0%, not only is the unemployment rate
high but its 2.6 percentage point increase over the last twelve months
is nearly the quickest since 1975. (Before the current reading, the 4.0
point rise as of June set the record.)</p>
<p> Low inflation has
ameliorated some of the pain caused by higher unemployment, but the
positive effect is about to diminish. The 2.8% gain in the CPI versus
last year was down sharply from the 1980 peak of 14.6% when oil prices
spiked. However, the misery index soon will reflect the increase in
energy prices.&nbsp;
</p>
<p>The <b> Misery Index is calculated by Haver Analytics</b>.
It is the sum of the unemployment rate and the year-over-year
percentage change in the CPI-U from the Bureau of Labor
Statistics.·&nbsp; <strong>The Fed's Monetary Policy
Response to the Current Crisis</strong> is from the San Francisco
Federal Reserve published last May and it can be found <a href="http://www.frbsf.org/publications/economics/letter/2009/el2009-17.pdf">here</a>.</p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100119b.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100119c.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"></th>
<th scope="col"><b>December</b></th>
<th scope="col"><b>November</b></th>
<th scope="col"><b>December '08</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Misery Index (%)</td>
<td>12.7</td>
<td>11.8</td>
<td>7.5</td>
<td>8.9</td>
<td>9.7</td>
<td>7.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Unemployment Rate (%)</td>
<td>10.0</td>
<td>10.0</td>
<td>7.4</td>
<td>9.3</td>
<td>5.8</td>
<td>4.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer Prices (Y/Y
%)</td>
<td>2.7</td>
<td>1.8</td>
<td>0.1</td>
<td>-0.4</td>
<td>3.8</td>
<td>2.9</td>
</tr>
</tbody>
</table>
</span>
<span id="articletitle">German Investors More Cautious On
The General Outlook
But Still See Improvement In The Profit Outlook
</span><br>
<span id="byline">by <a href="/comment/Curley.html">Louise
Curley</a> January 19, 2010</span>
<span id="articletext">
<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100119d.jpg" style="width: 353px; height: 265px;" align="right">According
to
the January ZEW indicator, the percentage of German investors and
analysts optimistic about the outlook six months ahead declined for the
fourth month.&nbsp; The percent balance is now 47.2% compared with
the recent peak of 57.7% in September, however, it is still well above
the long term average of 27.1%.&nbsp; At the same time, more of
these investors see improvement in current conditions although the
pessimists still outweigh the optimists.&nbsp; The percent balance
between those who see improvement in current conditions and those who
see deterioration was -56.6% in January, 2010, compared with -60.6% in
December and the peak of -92.8% in May of 2009.&nbsp; The disparity
between the participants' views of current conditions and expectations
is not unusual as can be seen in the first chart.</p>
<p> The impact on the
Euro Area of the financial difficulties in Greece that have come to the
surface during the survey period may have had some dampening effect on
expectations and outweighed some of the more favorable economic
developments. Over the past month or so, the Euro has declined 5.5%
from $1.5120 to $1.4279 today and exports continue to rise.&nbsp;
The second chart shows the movement in the Euro on a daily basis and
the trend in monthly exports over the past year.</p>
<p> Along with the
improvement in the appraisal of current conditions there has been a
general improvement in the outlook for profits in the 13 industries
that ZEW monitors.&nbsp; The positive appraisal for profits in
Banking, Chemical, Steel/Metal, Electronic, Machinery, Utilities,
Service, Telecommunications, and Information Technology industries
increased in January and the negative percent balance for profits in
the Vehicles/Automotive industry was reduced.&nbsp; The percent
balances on only three industries declined--Insurance,
Consumption/Trade and Construction in January, but the profit outlook
in these industries has shown improvement since the low point reached
in October 2008 as can be seen in the third chart.&nbsp; There are
now only two industries where the percent balances on the profit
outlook are negative--Consumption/Trade (-12.1%) and
Vehicles/Automotive (-23.2%).&nbsp;</p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100119e.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100119f.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">ZEW
INDICATORS (% Balance)</th>
<th scope="col"><b>Jan 10</b></th>
<th scope="col"><b>Dec 09</b></th>
<th scope="col"><b>Nov 09</b></th>
<th scope="col"><b>Oct 09</b></th>
<th scope="col"><b>Sep 09</b></th>
<th scope="col"><b>Aug 09</b></th>
<th scope="col"><b>July 09</b></th>
<th scope="col"><b>June 09</b></th>
<th scope="col"><b>May 09</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Conditions</td>
<td>-56.6</td>
<td>-60.6</td>
<td>-65.6</td>
<td>-72.2</td>
<td>-74.0</td>
<td>-77.2</td>
<td>-88.3</td>
<td>-89.7</td>
<td>92.8</td>
</tr>
<tr>
<td class="firstcol">Expectations 6
Months Ahead</td>
<td>47.2</td>
<td>50.4</td>
<td>51.1</td>
<td>56.0</td>
<td>57.7</td>
<td>56.1</td>
<td>39.5</td>
<td>44.8</td>
<td>31.1</td>
</tr>
</tbody>
</table>
</span>
<span id="articletitle">U.S. Home Builders&#8217; Index Dips
Again</span><br>
<span id="byline">by <a href="/comment/Moeller.html">Tom
Moeller</a> January 19, 2010</span>
<span id="articletext">
<p></p>
<p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100119g.jpg" style="width: 353px; height: 265px;" align="right">According
to The National Association of Home Builders, housing market activity
slipped again from its earlier improved level. The
Association&nbsp; reported that its January Composite Housing
Market Index edged lower to 15 from 16 in December and from 19 last
September. Nevertheless, the index remained nearly double the low of 8
last January. The index is compiled from survey questions asking
builders to rate market conditions as &#8220;good&#8221;, &#8220;fair&#8221;, &#8220;poor&#8221; or &#8220;very
high&#8221; to &#8220;very low&#8221;.<span> </span>The figure is a
diffusion index, therefore, numerical results over 50 indicate a
predominance of &#8220;good&#8221; readings. In the West the index fell hard to a
reading of 16 from 19 in December but remained up by four times since
January '09. In all other regions the m/m declines were moderate and
levels remained up sharply from January 2009.</p>
<p>The present
sales index slipped to 15 which was down from the August high but the
sub-index of sales during the next six months held steady&nbsp;
m/m. Improvement from 2009 was moderate.&nbsp;The Home Builders'
Association also reported that traffic of prospective buyers slipped
from December to the lowest level since March.</p>
<p>The
Home Builders' Housing Opportunity Index, which is the share of homes
sold that could be considered affordable to a family earning the median
income, fell in 3Q '09 to 70.1%. It had jumped earlier to a record high
of 72.5% buoyed by lower home prices, lower interest rates and higher
income. (There is a break in the series from 2002 to
2003.)</p>
<p>The NAHB has compiled the <b>Housing Market
Index</b> since 1985.<span> </span>The weights
assigned to the individual index components are .5920 for single family
detached sales, present time; .1358 for single family detached sales,
next six months; and .2722 for traffic of prospective buyers. The
results, along with other housing and remodeling indexes from NAHB
Economics, are included in Haver&#8217;s <b>SURVEYS</b> database.</p>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100119h.jpg" style="width: 312px; height: 265px;">
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100119i.jpg" style="width: 312px; height: 265px;">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b><a ;="" href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM" style="color: black;">Nat'l Association of Home Builders</a></b></th>
<th scope="col"><b>January</b></th>
<th scope="col"><b>December</b></th>
<th scope="col"><b>November</b></th>
<th scope="col"><b>&nbsp;January '09</b></th>
<th scope="col"><b>2009</b></th>
<th scope="col"><b>2008</b></th>
<th scope="col"><b>2007</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Housing Market Index
(All Good=100)</td>
<td>15</td>
<td>16</td>
<td>17</td>
<td>8</td>
<td>15</td>
<td>16</td>
<td>27</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-Family Sales</td>
<td>15</td>
<td>16</td>
<td>17</td>
<td>6</td>
<td>13</td>
<td>16</td>
<td>27</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-Family Sales:
Next Six Months</td>
<td>26</td>
<td>26</td>
<td>28</td>
<td>17</td>
<td>24</td>
<td>25</td>
<td>37</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Traffic of
Prospective Buyers</td>
<td>12</td>
<td>13</td>
<td>13</td>
<td>8</td>
<td>13</td>
<td>14</td>
<td>21</td>
</tr>
</tbody>
</table>
</span>
</body></html>

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<br>

<span id="articletext">
<p></p>
<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100118a.jpg" align="right" border="0" height="265" width="353"></p>
<p>A lot of data from Japan were released today: Industrial
Production, Operating Rates, Retail and Wholesale Trade, Cash Earnings
and Input and Output prices. All the data, except for the input and
output prices which are for December, are for November,</p>
<p>Input prices in the manufacturing industry have risen and
fallen faster than output prices as shown in the first chart.<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100118b.jpg" style="width: 353px; height: 265px;" align="right" height="265" width="353">
The
swings in the price of oil probably account for much of the greater
volatility in input prices than in output prices. While other factors
influence profits, in the manufacturing industry, the performance of
input and output prices has tended to depress profits.</p>
<p>
One of the other factors influencing profits is employment
cost and here the results for manufacturing are positive. Although the
year to year changes in monthly cash wages have recovered from the big
decline of more than 13% in June they were still 4.2% below the year
ago figure in November, as shown in the second chart</p>
<p>Both industrial production and operating rates continue to
improve from the big year over year decline reached in February of this
year, as can be seen in the third chart. Industrial production, which
had declined 37% from February 2008 to February 2009, was 5.5% below
the year ago figure in November. Comparable figures for operating rates
are 44% and 4.1%.</p>
</span>
<img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100118c.jpg" style="width: 312px; height: 265px;" height="265" width="312"><img alt src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/100118d.jpg" style="width: 312px; height: 265px;" height="265" width="353">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><b>JAPAN&nbsp;
(Y/Y% Changes)</b></th>
<th scope="col"><b>Dec 09</b></th>
<th scope="col"><b>Nov 09</b></th>
<th scope="col"><b>Oct 09</b></th>
<th scope="col"><b>Sep 09</b></th>
<th scope="col"><b>Aug 09</b></th>
<th scope="col"><b>July 09</b></th>
<th scope="col"><b>June 09</b></th>
<th scope="col"><b>May 09</b></th>
<th scope="col"><b>Apr 09</b></th>
<th scope="col"><b>Mar 09</b></th>
<th scope="col"><b>Feb 09</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Input Prices (Manufacturing)</td>
<td>-3.50</td>
<td>-8.15</td>
<td>-13.40</td>
<td>-17.30</td>
<td>-19.69</td>
<td>-19.30</td>
<td>-17.33</td>
<td>-15.10</td>
<td>-13.68</td>
<td>-7.93</td>
<td>-8.85</td>
</tr>
<tr>
<td class="firstcol">Output Prices (Manufacturing)</td>
<td>-3.68</td>
<td>-5.72</td>
<td>-8.18</td>
<td>-10.38</td>
<td>-11.30</td>
<td>-11.33</td>
<td>-9.21</td>
<td>-7.82</td>
<td>-6.03</td>
<td>-4.54</td>
<td>-8.81</td>
</tr>
<tr class="odd">
<td class="firstcol">Cash Earnings (Manufacturing)</td>
<td>&nbsp;</td>
<td>-4.17</td>
<td>-2.61</td>
<td>-2.79</td>
<td>-4.37</td>
<td>-8.66</td>
<td>-13.27</td>
<td>-5.34</td>
<td>-5.30</td>
<td>-5.88</td>
<td>-5.42</td>
</tr>
<tr>
<td class="firstcol">Industrial Production
(Manufacturing)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>-5.48</td>
<td>-13.99</td>
<td>-17.28</td>
<td>-18.94</td>
<td>-22.66</td>
<td>-24.63</td>
<td>-27.72</td>
<td>-30.71</td>
<td>-35.02</td>
<td>-36.88</td>
</tr>
<tr class="odd">
<td class="firstcol">Operating Rates&nbsp;
(Manufacturing)</td>
<td>&nbsp;</td>
<td>-4.07</td>
<td>-16.52</td>
<td>-20.04</td>
<td>-20.31</td>
<td>-24.79</td>
<td>-26.93</td>
<td>-32.46</td>
<td>-35.46</td>
<td>-41.15</td>
<td>-44.31</td>
</tr>
<tr>
<td class="firstcol">Wholesale Trade</td>
<td>&nbsp;</td>
<td>-18.75</td>
<td>-24.22</td>
<td>-27.14</td>
<td>-28.04</td>
<td>-29.82</td>
<td>-28.67</td>
<td>-30.35</td>
<td>-27.78</td>
<td>-28.22</td>
<td>-25.74</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Trade</td>
<td>&nbsp;</td>
<td>-1.10</td>
<td>-0.98</td>
<td>-1.35</td>
<td>-1.80</td>
<td>-2.40</td>
<td>-2.91</td>
<td>-2.74</td>
<td>-2.81</td>
<td>-3.80</td>
<td>-5.73</td>
</tr>
</tbody>
</table>
</body></html>

A lot of data from Japan were released today: Industrial Production, Operating Rates, Retail and Wholesale Trade, Cash Earnings and Input and Output prices. All the data, except for the input and output prices which are for December, [...]

Japan Data Show Improvement but Indicators Still Below a Year Ago

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

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Andrew Cates

**China-US shipping activity** 
The economic fallout from escalating US-China trade tensions is becoming increasingly visible in the data. A clear example is the chart below, which highlights a sharp drop in vessel arrivals at the ports of Los Angeles and Long Beach, along with a notable decline in ships waiting offshore. These trends point to a tangible weakening in bilateral trade flows, as the effects of tit-for-tat tariffs imposed by both countries begin to bite. Given the outsized role the US and China play in global commerce, this slowdown is likely to reverberate through global supply chains, weighing on trade volumes, dampening demand, and curbing economic growth worldwide.

250501Z1.jpg

**GDP growth in Q1**
Data this week showed that the US economy contracted, albeit modestly, in Q1 even as the euro area recorded a modest expansion—an unusual divergence. The contraction in US GDP can be largely attributed to a sharp increase in imports, as firms rushed to front-load purchases ahead of anticipated tariff hikes. In addition, domestic demand was subdued, with weaker contributions from both consumer spending and government consumption. This decoupling between the US and euro area economies is particularly striking given the current global focus on the US dollar. While the euro area has shown unexpected signs of resilience, the US downturn raises important questions about its underlying momentum, especially as trade dynamics and policy uncertainty continue to cloud the outlook.

250501Z2.jpg

**The US dollar versus yield differentials**
Chart 3 below illustrates a sharp breakdown in the correlation between the US-Germany 10-year yield differential and the EUR/USD exchange rate. Historically, the dollar has moved closely with interest rate spreads, as yield-seeking capital flowed into US assets. But since early 2025—and more acutely following the April tariff actions—the dollar has weakened markedly even as the yield spread has narrowed only modestly. This decoupling underscores a critical shift: capital markets are reacting not just to monetary policy, but to rising trade and geopolitical uncertainty. In other words, the exchange rate is now being driven as much by risk sentiment as by interest rate arbitrage.

250501Z3.jpg

**The US economy’s structural outperformance and the dollar**
A second dynamic, captured in the next chart, reveals a tight correlation between the US real effective exchange rate and the potential GDP growth differential between the US and euro area over the past 50-60 years. This raises the question: has dollar strength (until recently) merely been a reflection of US growth leadership—or are capital inflows themselves helping to sustain this growth outperformance? In effect, the tail may be wagging the dog. Global investors have long allocated capital to the US, attracted by its macroeconomic resilience, technological leadership, and deep, liquid financial markets. The danger now is that the US trade war may disrupt this equilibrium. A sharp or sustained reduction in capital inflows could undermine growth, weaken the dollar, and trigger broader financial instability. Moreover, reversing this dynamic is not straightforward—barring a credible structural resurgence in European (or Asian) growth, the global investment landscape remains tilted toward the US.

250501Z4.jpg

**US competitiveness versus Europe, China and Japan** 
The next chart below examines relative unit labour costs across major economies since 2011. The US and China have seen a broadly similar trajectory, with steady increases in relative cost structures, while the euro area has remained flat and Japan has seen dramatic improvement. This suggests that, from a cost competitiveness standpoint, the US is not uniquely disadvantaged vis-à-vis China. However, as we discuss further below, this parallel erosion of cost competitiveness is occurring at much higher nominal wage levels in the US, which blunts its ability to regain export share through tariff-related shifts alone. The trade war strategy—absent a corresponding improvement in productivity or structural reforms—risks imposing costs without delivering material competitiveness gains.

250501Z5.jpg

**Average wages in selected developed and developing economies**
This point is reinforced by the final chart, which shows estimates for average monthly wages across countries in 2024. US labour remains much more expensive than in peer or emerging economies. So even if China’s costs rise in tandem with the US, the global supply chain has ample alternatives. 'China plus one' strategies are accelerating, and the US remains structurally misaligned with low-cost production hubs. Tariffs aimed at reshoring supply chains are unlikely to deliver sustained gains unless accompanied by deep supply-side reforms, and risk further disincentivizing foreign direct investment if global firms perceive US trade policy as erratic or punitive.

250501Z6.jpg

Financial markets found a measure of calm this week, buoyed by some subtle shifts in tone from US policymakers. A softening in the administration’s rhetoric around trade tariffs coupled with a less confrontational stance toward Federal Reserve Chair Jerome Powell, helped ease tensions that had roiled markets earlier in the month. Equities rebounded modestly, and volatility indicators edged lower, reflecting cautious optimism that the worst of the policy shocks may be behind us. But beneath the surface, significant downside risks persist. New shipping data point to a pronounced slowdown in US-China trade flows (chart 1), suggesting the damage from recent tariff escalations is already rippling through global supply chains. Meanwhile, incoming data for the US revealed an unexpected contraction in the economy in Q1 and further signs of weakness in the labour market (chart 2). The US dollar, in the meantime, while long supported by superior growth and yield differentials, has begun to decouple from traditional drivers (charts 3 and 4) suggesting growing pressure on capital flows. At the same time, structural imbalances are drawing renewed scrutiny: unit labour cost comparisons show the US steadily losing competitiveness (chart 5), while nominal wage disparities remain stark versus China and other Asian economies, further complicating any effort to restore trade balance without broader reforms (chart 6). In short, while markets may be drawing temporary comfort from a pause in tariff brinkmanship, the deeper economic and financial vulnerabilities exposed this month remain unresolved—and increasingly central to the global macro narrative.

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Charts of the Week: Tariff Truce, Tenuous Trust

250430N1.jpg

250430O1.jpg

Real GDP eased 0.3% SAAR (+2.1% y/y) during the first quarter of 2025 after increasing 2.4% in Q4’24 and 3.1% in Q3’24. A 0.4% increase had been expected in the Action Economics Forecast Survey. It was the first decline since Q1 2022.

Foreign trade subtracted 4.83 percentage points from growth last quarter as imports surged 41.3% (13.4% y/y) ahead of tariffs, which began to come into effect in the first quarter. The rise followed a 1.9% decline in Q4’24. Exports rose 1.8% (3.0% y/y) after easing 0.2% in Q4. Inventories added 2.25 percentage points to growth after subtracting 0.84 percentage point from Q4 growth.

Real final sales to domestic purchasers grew 2.3% (2.9% y/y) in Q1 after rising 3.0% in Q4. Personal consumption expenditures rose 1.8% (3.1% y/y) following a 4.0% gain. Durable goods spending fell 3.4% (+5.3% y/y) after surging 12.4% in Q4. Motor vehicle purchases declined 11.1% (+5.5% y/y) after strengthening 19.7% in Q4. Spending on home furnishings & appliances gained 1.5% (6.1% y/y) following a 5.4% rise. Recreational goods & vehicle outlays rose 2.5% (7.0% y/y) last quarter after a 13.9% Q4 increase.

Nondurable goods outlays rose 2.7% (3.0% y/y) following 3.1% growth in Q4. Apparel spending increased 6.7% (2.5% y/y) following a 5.0% rise. Food & beverage buying gained 2.5% (2.3% y/y) after a 1.8% increase. Gasoline & fuel oil purchases increased 4.6% (3.4% y/y) after falling 2.0% in Q4.

Spending on services increased 2.4% last quarter (2.7% y/y) after a 3.0% gain. Outlays on housing & utilities increased 3.4% (1.8% y/y) after rising 1.1% in Q4. Health care expenditures rose 4.0% (4.8% y/y) following a 4.7% strengthening. Transportation outlays increased 5.3% (4.6% y/y) after a 3.7% rise while recreation spending rose 4.7% (2.8% y/y) following a 4.5% rise. Restaurant & hotel expenditures declined 2.1% (+0.5% y/y) following a 2.8% rise. Financial services expenditures rose 1.9% (2.0% y/y) after a 3.1% Q4 increase.

Business fixed investment increased 9.8% (3.6% y/y) following a 3.0% decline in Q4. Expenditures on structures rose 0.4% (-0.4% y/y) after a 2.9% increase. Expenditures on producers’ durable equipment jumped 22.5% (8.0% y/y) after falling 8.7%.  Outlays on information processing equipment soared 69.3% (18.9% y/y) following a 7.3% decline. Industrial equipment investment fell 1.4% (-0.3% y/y) after easing 0.9%. Intellectual property product spending rose 4.1% (1.8% y/y) following a 0.5% decline. 

Residential structures investment increased 1.3% (-0.1% y/y) in Q1 after a 5.5% Q4 rise.

250430P1.jpg

250430Q1.jpg

Government spending fell 1.5% (+2.4% y/y) after a 3.1% Q4 rise. Federal government expenditures declined 5.1% (+2.9% y/y) after rising 4.0% in Q4. National defense expenditures declined 8.0% (+4.0% y/y) after increasing 4.8% in Q4. State & local government spending rose 0.8% (2.1% y/y) following a 2.5% rise.

The GDP price index rose 3.7% (2.6% y/y) after increasing 2.3% in Q4. It was the largest increase since Q4’22. A 2.4% increase had been expected. The PCE chain price index increased 3.6% (2.5% y/y) following a 2.4% rise. The PCE price index excluding food and energy rose 3.5% (2.8% y/y) after increasing 2.6% in Q4. The business fixed investment price index rose 0.4% (1.8% y/y) after 1.5% rise. The residential price index strengthened 3.9% (3.2% y/y) after a 1.9% rise while the government price index increased 4.7% (2.8% y/y) following a 2.1% rise.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

250430R1.jpg

250430S1.jpg

- Decline in GDP is first in three years.
- Foreign trade subtracts substantially ahead of tariffs.
- Domestic final demand growth weakens.
- Price index strengthens with higher core PCE prices.

U.S. GDP Unexpectedly Declines in Q1’25; Prices Strengthen

Michael J. Moran

250430A.jpg

250430B.jpg

High-side readings on the price indexes for personal consumption expenditures in January and February caused some concern about emerging price pressure, especially with some policies of the Trump administration possibly adding to the upward force. However, March brought notable relief, with the headline price index falling slightly (-0.04%). A marked decline in energy prices was helpful (-2.7%), but core prices also were subdued, increasing less than 0.1%.  Year-over-year changes were still above the Fed’s target of 2%, but only barely so for the headline measure (2.3%). The core index backed away from the reading of 3.0% in February, but the latest reading of 2.7% was in line with observations in the past year, and still uncomfortably above target.

Consumers roused from a winter slumber in March, with nominal outlays increasing 0.7%. With inflation restrained, real outlays also posted a gain of 0.7%. Spending on durable gods stood out, with real outlays advancing 3.2%. Real outlays for both nondurable goods and services rose 0.4%, a solid pace. Signs of life were certainly welcome after an average decline of 0.1% in January and February. The March rebound left growth of 1.8% (annual rate) in the first quarter.

The brisk increase in spending in March was supported by a solid gain in personal income (0.5% in both nominal and real terms). Growth in wage income was firm at 0.5%, while proprietors’ income was robust with a gain of 1.8% (not annualized!). The farm sector led the advance in proprietors’ income, but the nonfarm sector also was strong (0.6%).

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

250430C.jpg

250430D.jpg

- Price pressure eases.
- Spending rebounds after two soft months.

Personal Income, Consumption, and Prices in March

250430F20.jpg

250430G20.jpg

The Pending Home Sales Index, a forward-looking home sales measure based on contract signings, from the National Association of Realtors rose 6.1% to 76.5 (-0.6% y/y) during March after rising a little-revised 2.1% in February. These changes followed a 4.6% January decline.

The rise in March sales occurred as the rate on a 30-year mortgage eased to an average 6.65% from 6.84% in February. This rate was well above a low of 2.68% averaged in December 2020.

Pending home sales were up in most regions of the country. Sales in the Midwest rose 4.9% (1.4% y/y) last month after rising 1.8% in February. Sales in the South increased 9.8% (-0.4% y/y) following a 5.8% February rise. Sales in the West improved 4.8% (-2.0% y/y) after falling 3.0% in February. Sales in the Northeast were off 0.5% (-3.0% y/y) in March after falling 0.9% in February.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- Sales rise to highest level in four months.
- Strength is evident throughout most of country.

U.S. Pending Home Sales Surge in March

Sandy Batten

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The employment cost index (ECI) for civilian workers, arguably the most accurate measure of labor compensation in the United States, rose 0.9% q/q (3.6% y/y) in Q1, the same quarterly increase as in last year’s Q4, according to the Bureau of Labor Statistics. The quarterly gains have fluctuated between 0.8% and 1.0% for the past six quarters. The Action Economics Forecast Survey had expected a 0.9% q/q increase and a 3.5% y/y gain.

Wages and salaries for civilian workers rose 0.8% q/q (3.5% y/y) in Q1, down from 1.0% q/q in Q4. This tied the Q3 2024 quarterly rise as the smallest increase since Q2 2021. It was also the smallest y/y increase since Q2 2021. Benefits increased by an outsized 1.2% q/q (3.9% y/y) in Q1 versus 0.8% q/q in Q4. This is the largest quarterly gain since Q2 2022. In general, employment cost gains remain above the pace observed prior to the pandemic but are slowing gradually.

Private industry workers’ compensation rose 0.8% q/q (3.4% y/y) in Q1, down from 0.9% q/q (3.6% y/y) in Q4. Wages and salaries for private industry workers increased 0.8% q/q (3.4% y/y) in Q1 versus 0.8% q/q (3.7% y/y) in Q4. The quarterly gain in Q1 tied that in Q3 2024 as the smallest increase since Q4 2020. Benefits for private industry workers jumped 1.2% q/q (3.6% y/y). the largest quarterly gain since Q2 2022. The acceleration in benefits in Q1 was primarily in service-producing industries.

Compensation in private goods-producing industries increased 1.0% q/q (3.2% y/y) in Q1, the largest quarterly gain in five quarters, versus a 0.7% q/q increase in Q4. Compensation in construction jumped 1.3% q/q, its largest quarterly increase since Q2 2022, up from a 0.6% q/q gain in Q4. Manufacturing compensation growth slowed to 0.7% q/q, its slowest quarterly advance since Q4 2020, from 0.8% q/q in Q4. Compensation in private service-producing industries increased 0.8% q/q (3.5% y/y), down slightly from a 0.9% q/q gain in Q4. Compensation in education and health services jumped 1.3% q/q, its largest quarterly gain since Q3 2023. In contrast, compensation in other services edged up 0.1% q/q in Q1, its smallest quarterly advance since before the pandemic.

The employment cost index measures the change in the cost of labor, free from the influence of employment shifts across occupations and industries. It is provided by the Bureau of Labor Statistics and is available in Haver’s **USECON** database. Consensus estimates from the Action Economics Forecast Survey are in Haver’s **AS1REPNA** database.

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- Compensation grew 0.9 q/q in Q1, the same pace as in Q4.
- Wage growth slowed to 0.8% q/q while benefits surged 1.2% q/q, their largest quarterly increase since Q2 2022.

Economy in Brief: January 2010

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