Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060220a.jpg" width="353">
Italian industrial sales rose 2.3% in December and new orders rose 3.0%. At year end sales were 11.7% above December 2004 and new orders were up 3.3% The strong performance of industrial sales and new orders in 2005 is shown in the first chart.
The recovery in industrial sales has been one of the factors in the recent modest improvement in the Italian economy. After four years of decline, industrial production averaged an increase of 1.15% in 2005 and ended the year 2.0% above December 2004.
The cloud on the horizon is the merchandise trade balance. It was a negative 1,679 million euros in December, 2005, a deterioration of 530 million euros from November and one of 1,243 million euros from December, 2004. As a result of the growing monthly trade deficits, the merchandise trade deficit for all of 2005 rose to 11,169 million euros from a deficit of 1,946 million in 2004, as shown in the second chart. The problem that arises with the deficit is that one of the means to remedy a trade deficit, currency depreciation, is not available to the individual members of the Euro Zone.
In spite of the cloud, business confidence has improved, albeit slowly, since early 2005 and in January, 2006, was at its highest level since May, 2002 Consumer confidence weakened in the last two months, but in January was still at the highest level since September, 2003.Business and consumer confidence measures are shown in the third chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060220b.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060220c.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J5/@J5.HTM">Italy</a></th>
<th scope="col">Dec 05</th>
<th scope="col">Nov 05</th>
<th scope="col">Dec 04</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005&nbsp; </th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Sales (2000=100)</td>
<td>113.2</td>
<td>110.0</td>
<td>101.4</td>
<td>3.00</td>
<td>11.74</td>
<td>107.6</td>
<td>104.1</td>
<td>101.8</td>
</tr>
<tr>
<td class="firstcol">Industrial New Orders (2000=1000</td>
<td>107.2</td>
<td>104.8</td>
<td>103.8</td>
<td>2.29</td>
<td>3.28</td>
<td>102.8</td>
<td>98.9</td>
<td>95.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Industrial Production (200=1990</td>
<td>96.7</td>
<td>95.6</td>
<td>94.8</td>
<td>1.15</td>
<td>2.00</td>
<td>95.7</td>
<td>96.7</td>
<td>97.3</td>
</tr>
<tr>
<td class="firstcol">Deficit on Merchandise Trade (Mil. Euros)</td>
<td>-1,679</td>
<td>-1,141</td>
<td>-436</td>
<td>-538</td>
<td>-1,243</td>
<td>-11,169</td>
<td>-1,946</td>
<td>2,974</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Jan 06</td>
<td>Dec 05</td>
<td>Jan 05</td>
<td>M/M %</td>
<td>Y/Y %</td>
<td>2005&nbsp; </td>
<td>2004&nbsp;</td>
<td>2003&nbsp;&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Business Confidence (2000=100)</td>
<td>92.7</td>
<td>91.2</td>
<td>88.2</td>
<td>1.65</td>
<td>5.10</td>
<td>87.5</td>
<td>89.5</td>
<td>88.0</td>
</tr>
<tr>
<td class="firstcol">Consumer Confidence (1980=100)</td>
<td>106.4</td>
<td>108.2</td>
<td>103.2</td>
<td>-1.66</td>
<td>3.10</td>
<td>104.2</td>
<td>101.4</td>
<td>106.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Final goods</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
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Italian industrial sales rose 2.3% in December and new orders rose 3.0%. At year end sales were 11.7% above December 2004 and new orders were up 3.3% The strong performance of industrial sales and new orders in 2005 is shown in the [...]

Cross Currents in the Italian Economy: Industrial Sales and New Orders Rising, Trade Deficit Exploding

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217g.jpg" width="353">
Japan&#39;s GDP grew at a 5.5% annual rate in Q4, making three strong quarters during 2005 and bringing the Q4/Q4 growth to 4.2%. Calculations of GDP have changed in recent years, so long history is not available on this same basis, but this Q4/Q4 advance is likely the strongest performance of the Japanese economy since about 1990. Moreover, the recent range of growth is similar to the magnitudes of the halcyon period of the late 1980s. [Note that &quot;real GDP&quot; is now defined in chain prices, but is available only since 1994. Fixed-weight GDP is available back to 1980, but Q4 on this basis will not be published until after the second release next month of the chained Q4 data. So exact information on these historical comparisons is not yet available.]<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217h.jpg" width="353">
In Q4, household consumption grew at a 3.2% pace; this wasn&#39;t the highest of the year, but it brought the four-quarter growth to 3.3%, which was the highest since Q1 1997 (4.0%). The year 2005 as a whole saw 2.2% consumption growth, the largest since 1996. Similar comparisons apply to investment outlays (fixed capital formation): four-quarter growth of 6.0% is indeed the strongest since the current &quot;official&quot; GDP series begins in 1994, and the yearly total of 3.9% is the largest since 4.7% in 1996. [The good gains in 1996, it might be noted, were marked by substantial anticipatory buying ahead of an increase in Japan&#39;s consumption tax, so growth then was stimulated somewhat artificially, unlike the present, more fundamental progress.]<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217i.jpg" width="353">
Net exports made a major contribution to Q4 GDP, with a continuing double-digit pace (annualized) for growth in exports, 13% in the quarter, the third consecutive such increase. Imports declined in chain-price terms, due to a substantial increase in import prices.
We have noted here several times recently that various price measures in Japan have started to stabilize following their long bout of deflation. The GDP deflator and other related price aggregates in the national accounts are still generally falling, though, as seen in the accompanying graph. However, in the latest quarter the role of that surge in import prices is evident as the total deflator is off 1.6% from a year earlier, but that for domestic demand (which nets out exports and imports) is down &quot;only&quot; 0.6%. But the increasing vigor of domestic demand suggests the possibility of reflation of the Japanese economy. In fact, investors picked this element to focus on in the wake of the better-than-expected growth report. Stock prices fell as investors evidently interpreted the good growth as a sign that the Bank of Japan&#39;s liquefying monetary policy might be shifted to a less accommodative stance.

<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/JAPAN/@J2/@J201/@J201.HTM">Japan (SAAR, %)</a></th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Q2 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total GDP</td>
<td>5.5</td>
<td>1.4</td>
<td>5.4</td>
<td>2.8</td>
<td>2.3</td>
<td>1.8</td>
<td>0.1</td>
</tr>
<tr>
<td class="firstcol">Household Consumption</td>
<td>3.2</td>
<td>1.7</td>
<td>3.3</td>
<td>2.2</td>
<td>1.9</td>
<td>0.4</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Gross Domestic Fixed Capital Formation</td>
<td>4.3</td>
<td>6.1</td>
<td>5.9</td>
<td>3.9</td>
<td>1.0</td>
<td>0.5</td>
<td>-5.0</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>13.0</td>
<td>12.6</td>
<td>14.6</td>
<td>6.7</td>
<td>13.9</td>
<td>9.0</td>
<td>7.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>-5.1</td>
<td>13.5</td>
<td>9.0</td>
<td>6.1</td>
<td>8.5</td>
<td>4.0</td>
<td>0.8</td>
</tr>
<tr>
<td class="firstcol">Domestic Demand</td>
<td>3.2</td>
<td>1.3</td>
<td>4.6</td>
<td>2.6</td>
<td>1.5</td>
<td>1.2</td>
<td>-0.6</td>
</tr>
</tbody>
</table>
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Japan's GDP grew at a 5.5% annual rate in Q4, making three strong quarters during 2005 and bringing the Q4/Q4 growth to 4.2%. Calculations of GDP have changed in recent years, so long history is not available on this same basis, but [...]

Japan GDP Grows 5.5% in Q4; Shows Biggest Yearly Gains in 9 Years

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217c.jpg" width="353">
Consumer sentiment, according to the University of Michigan, fell this month. The preliminary sentiment index fell 4.2% m/m to 87.4 and compared to Consensus expectations for a roughly unchanged reading of 91.0.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
Lower consumer expectations led the decline with a 5.7% drop following the 1.6% January fall. The long term economic outlook deteriorated sharply as the index of expected business conditions during the next five years fell 8.8% (-15.3% y/y). The one year outlook for business conditions suffered as well with the index down 6.7% (-14.0% y/y) and expectations for personal finances slipped another 1.7% (-7.1% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217d.jpg" width="353">
The mean expected inflation rate for the next twelve months was about stable m/m at 3.7%, still well below the 5.5% expected in October &amp; September.
The current conditions index declined 2.4% as the reading of personal finances fell 2.5% (-5.0% y/y) and of buying conditions for large household goods fell 1.8%. Consumers&#39; assessment of gov&#39;t economic policy slipped m/m (-9.7% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>87.4</td>
<td>91.2</td>
<td>-7.1%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>107.7</td>
<td>110.3</td>
<td>-1.4%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>74.4</td>
<td>78.9</td>
<td>-11.8%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
</body>
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Consumer sentiment, according to the University of Michigan, fell this month. The preliminary sentiment index fell 4.2% m/m to 87.4 and compared to Consensus expectations for a roughly unchanged reading of 91.0. During the last ten [...]

U.S. Consumer Sentiment Down Unexpectedly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217f.jpg" width="353">
The Philadelphia Fed&#39;s February Index of General Business Conditions in the manufacturing sector more than reversed its recent weakness and jumped 12.1 points to 15.4, the highest level since last August. Consensus expectations had been for more moderate improvement to 9.1.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 50% correlation with q/q growth in real GDP.
The sub index measuring unfilled orders improved markedly to the highest level since 20904. New orders also rose to 12.5, its highest since October and shipments surged to 22.5the highest level since last April. The index covering the number of employees slipped marginally to 11.3. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217e.jpg" width="353">
The business conditions index reflects a separate survey question, not the sub indexes, and most of the sub indexes improved this month versus December.
The separate index of expected business conditions in six months recovered about half of the prior month&#39;s decline. Expectations for employment also moved back into positive territory.
The prices paid index fell sharply as did the index of future prices. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it&#39;s been 43%.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0206.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Feb &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>15.4</td>
<td>3.3</td>
<td>22.1</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>30.5</td>
<td>44.9</td>
<td>43.4</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
</tr>
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The Philadelphia Fed's February Index of General Business Conditions in the manufacturing sector more than reversed its recent weakness and jumped 12.1 points to 15.4, the highest level since last August. Consensus expectations had [...]

Philadelphia Fed Business Activity Index Improved

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217a.jpg" width="353">
The 0.3% increase in the January Producer Price Index for Finished Goods again outpaced Consensus expectations which had been for a 0.2% rise, although the huge 0.9% rise previously reported for December was revised lower to 0.6%.
Producer prices less food &amp; energy also were (quite a bit) stronger than expectations for a 0.2% advance and rose 0.4%. The source of the upside surprise was concentrated in a 1.1% (-2.8% y/y) gain in passenger car prices and a 0.7% (-4.8% y/y) rise in light motor trucks. Civilian aircraft prices also rose a strong 0.7% (4.3% y/y).
Prices of all finished consumer goods less food &amp; energy rose 0.4% (1.6% y/y) and core consumer nondurable goods prices gained 0.3% (2.8% y/y). Capital equipment prices increased 0.3% (1.4% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217b.jpg" width="353">
Finished energy prices were unchanged (25.1% y/y) in January as gasoline prices fell 3.5% (+40.5% y/y) and fuel oil prices fell 0.1% (+36.5% y/y). These declines were offset by residential electric power costs which rose 3.0% (9.2% y/y) and natural gas, up 0.8% (31.3% y/y).
Intermediate goods prices posted the strongest increase since October with a 1.2% gain led by a 1.0% rise in prices for core intermediate goods.
Crude goods prices fell for the third straight month. The 0.5% drop mostly reflected a 3.0% (-3.8% y/y) decline in food prices. Core crude prices slipped marginally after an upwardly revised 0.5% December increase. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.3%</td>
<td>0.6%</td>
<td>5.7%</td>
<td>4.9%</td>
<td>3.6%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.4%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>2.4%</td>
<td>1.5%</td>
<td>0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>1.2%</td>
<td>0.1%</td>
<td>9.2%</td>
<td>8.0%</td>
<td>6.6%</td>
<td>4.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.0%</td>
<td>0.3%</td>
<td>4.8%</td>
<td>5.5%</td>
<td>5.7%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-0.5%</td>
<td>-2.3%</td>
<td>22.4%</td>
<td>14.6%</td>
<td>17.5%</td>
<td>25.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>6.0%</td>
<td>4.9%</td>
<td>26.5%</td>
<td>12.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

The 0.3% increase in the January Producer Price Index for Finished Goods again outpaced Consensus expectations which had been for a 0.2% rise, although the huge 0.9% rise previously reported for December was revised lower to 0.6%. [...]

Producer Price Index Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217a.jpg" width="353">
The 0.3% increase in the January Producer Price Index for Finished Goods again outpaced Consensus expectations which had been for a 0.2% rise, although the huge 0.9% rise previously reported for December was revised lower to 0.6%.
Producer prices less food &amp; energy also were (quite a bit) stronger than expectations for a 0.2% advance and rose 0.4%. The source of the upside surprise was concentrated in a 1.1% (-2.8% y/y) gain in passenger car prices and a 0.7% (-4.8% y/y) rise in light motor trucks. Civilian aircraft prices also rose a strong 0.7% (4.3% y/y).
Prices of all finished consumer goods less food &amp; energy rose 0.4% (1.6% y/y) and core consumer nondurable goods prices gained 0.3% (2.8% y/y). Capital equipment prices increased 0.3% (1.4% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217b.jpg" width="353">
Finished energy prices were unchanged (25.1% y/y) in January as gasoline prices fell 3.5% (+40.5% y/y) and fuel oil prices fell 0.1% (+36.5% y/y). These declines were offset by residential electric power costs which rose 3.0% (9.2% y/y) and natural gas, up 0.8% (31.3% y/y).
Intermediate goods prices posted the strongest increase since October with a 1.2% gain led by a 1.0% rise in prices for core intermediate goods.
Crude goods prices fell for the third straight month. The 0.5% drop mostly reflected a 3.0% (-3.8% y/y) decline in food prices. Core crude prices slipped marginally after an upwardly revised 0.5% December increase. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.3%</td>
<td>0.6%</td>
<td>5.7%</td>
<td>4.9%</td>
<td>3.6%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.4%</td>
<td>0.1%</td>
<td>1.5%</td>
<td>2.4%</td>
<td>1.5%</td>
<td>0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>1.2%</td>
<td>0.1%</td>
<td>9.2%</td>
<td>8.0%</td>
<td>6.6%</td>
<td>4.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.0%</td>
<td>0.3%</td>
<td>4.8%</td>
<td>5.5%</td>
<td>5.7%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-0.5%</td>
<td>-2.3%</td>
<td>22.4%</td>
<td>14.6%</td>
<td>17.5%</td>
<td>25.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>6.0%</td>
<td>4.9%</td>
<td>26.5%</td>
<td>12.4%</td>
</tr>
</tbody>
</table>
Philadelphia Fed Business Activity Index Improved 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 17, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217f.jpg" width="353">
The Philadelphia Fed&#39;s February Index of General Business Conditions in the manufacturing sector more than reversed its recent weakness and jumped 12.1 points to 15.4, the highest level since last August. Consensus expectations had been for more moderate improvement to 9.1.
During the last ten years there has been a 68% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 50% correlation with q/q growth in real GDP.
The sub index measuring unfilled orders improved markedly to the highest level since 20904. New orders also rose to 12.5, its highest since October and shipments surged to 22.5the highest level since last April. The index covering the number of employees slipped marginally to 11.3. During the last ten years there has been a 64% correlation between the employment index and the three month growth in factory payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217e.jpg" width="353">
The business conditions index reflects a separate survey question, not the sub indexes, and most of the sub indexes improved this month versus December.
The separate index of expected business conditions in six months recovered about half of the prior month&#39;s decline. Expectations for employment also moved back into positive territory.
The prices paid index fell sharply as did the index of future prices. During the last ten years there has been a 75% correlation between the prices paid index and the three month growth in the intermediate goods PPI. The correlation with the finished goods PPI has been 50% and with the CPI it&#39;s been 43%.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0206.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Feb &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>15.4</td>
<td>3.3</td>
<td>22.1</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>30.5</td>
<td>44.9</td>
<td>43.4</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Down Unexpectedly 
by <a href="/comment/Moeller.html">Tom Moeller</a> February 17, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217c.jpg" width="353">
Consumer sentiment, according to the University of Michigan, fell this month. The preliminary sentiment index fell 4.2% m/m to 87.4 and compared to Consensus expectations for a roughly unchanged reading of 91.0.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
Lower consumer expectations led the decline with a 5.7% drop following the 1.6% January fall. The long term economic outlook deteriorated sharply as the index of expected business conditions during the next five years fell 8.8% (-15.3% y/y). The one year outlook for business conditions suffered as well with the index down 6.7% (-14.0% y/y) and expectations for personal finances slipped another 1.7% (-7.1% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217d.jpg" width="353">
The mean expected inflation rate for the next twelve months was about stable m/m at 3.7%, still well below the 5.5% expected in October &amp; September.
The current conditions index declined 2.4% as the reading of personal finances fell 2.5% (-5.0% y/y) and of buying conditions for large household goods fell 1.8%. Consumers&#39; assessment of gov&#39;t economic policy slipped m/m (-9.7% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>87.4</td>
<td>91.2</td>
<td>-7.1%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>107.7</td>
<td>110.3</td>
<td>-1.4%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>74.4</td>
<td>78.9</td>
<td>-11.8%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
Japan GDP Grows 5.5% in Q4; Shows Biggest Yearly Gains in 9 Years 
by <a href="/comment/Stone.html">Carol Stone</a> February 17, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217g.jpg" width="353">
Japan&#39;s GDP grew at a 5.5% annual rate in Q4, making three strong quarters during 2005 and bringing the Q4/Q4 growth to 4.2%. Calculations of GDP have changed in recent years, so long history is not available on this same basis, but this Q4/Q4 advance is likely the strongest performance of the Japanese economy since about 1990. Moreover, the recent range of growth is similar to the magnitudes of the halcyon period of the late 1980s. [Note that &quot;real GDP&quot; is now defined in chain prices, but is available only since 1994. Fixed-weight GDP is available back to 1980, but Q4 on this basis will not be published until after the second release next month of the chained Q4 data. So exact information on these historical comparisons is not yet available.]<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217h.jpg" width="353">
In Q4, household consumption grew at a 3.2% pace; this wasn&#39;t the highest of the year, but it brought the four-quarter growth to 3.3%, which was the highest since Q1 1997 (4.0%). The year 2005 as a whole saw 2.2% consumption growth, the largest since 1996. Similar comparisons apply to investment outlays (fixed capital formation): four-quarter growth of 6.0% is indeed the strongest since the current &quot;official&quot; GDP series begins in 1994, and the yearly total of 3.9% is the largest since 4.7% in 1996. [The good gains in 1996, it might be noted, were marked by substantial anticipatory buying ahead of an increase in Japan&#39;s consumption tax, so growth then was stimulated somewhat artificially, unlike the present, more fundamental progress.]<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060217i.jpg" width="353">
Net exports made a major contribution to Q4 GDP, with a continuing double-digit pace (annualized) for growth in exports, 13% in the quarter, the third consecutive such increase. Imports declined in chain-price terms, due to a substantial increase in import prices.
We have noted here several times recently that various price measures in Japan have started to stabilize following their long bout of deflation. The GDP deflator and other related price aggregates in the national accounts are still generally falling, though, as seen in the accompanying graph. However, in the latest quarter the role of that surge in import prices is evident as the total deflator is off 1.6% from a year earlier, but that for domestic demand (which nets out exports and imports) is down &quot;only&quot; 0.6%. But the increasing vigor of domestic demand suggests the possibility of reflation of the Japanese economy. In fact, investors picked this element to focus on in the wake of the better-than-expected growth report. Stock prices fell as investors evidently interpreted the good growth as a sign that the Bank of Japan&#39;s liquefying monetary policy might be shifted to a less accommodative stance.

<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/JAPAN/@J2/@J201/@J201.HTM">Japan (SAAR, %)</a></th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Q2 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total GDP</td>
<td>5.5</td>
<td>1.4</td>
<td>5.4</td>
<td>2.8</td>
<td>2.3</td>
<td>1.8</td>
<td>0.1</td>
</tr>
<tr>
<td class="firstcol">Household Consumption</td>
<td>3.2</td>
<td>1.7</td>
<td>3.3</td>
<td>2.2</td>
<td>1.9</td>
<td>0.4</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Gross Domestic Fixed Capital Formation</td>
<td>4.3</td>
<td>6.1</td>
<td>5.9</td>
<td>3.9</td>
<td>1.0</td>
<td>0.5</td>
<td>-5.0</td>
</tr>
<tr>
<td class="firstcol">Exports</td>
<td>13.0</td>
<td>12.6</td>
<td>14.6</td>
<td>6.7</td>
<td>13.9</td>
<td>9.0</td>
<td>7.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>-5.1</td>
<td>13.5</td>
<td>9.0</td>
<td>6.1</td>
<td>8.5</td>
<td>4.0</td>
<td>0.8</td>
</tr>
<tr>
<td class="firstcol">Domestic Demand</td>
<td>3.2</td>
<td>1.3</td>
<td>4.6</td>
<td>2.6</td>
<td>1.5</td>
<td>1.2</td>
<td>-0.6</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/060216f.jpg" width="353">
Germany&#39;s Federal Statistics Office reported Q4 employment data today, classified by industry. These data are an input to German GDP data, due for release next Wednesday, February 22.
Early last week (February 7), Louise Curley discussed here weakness in German industrial production for Q4 and sluggish wage performance for workers, already bringing a strike by one major union. Today&#39;s employment data give further evidence of weakening in the German economy. Total employment fell 5,000 in Q4 from Q3 and was off 0.3% from a year ago. Subtracting out government, education and other public service activities, we see that the private sector is even weaker. Jobs there decreased by 88,000 over the second half of 2005 and were off 1.0% from the year-ago period. They fell 0.8% for the year as a whole, while total employment was off 0.2% in 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060216g.jpg" width="353">
Jobs in industry declined 135,000 from Q4 2004 to Q4 2005 and the trade and transportation sector was down 102,000. Agriculture and construction employment also declined. Growth in finance and other business services, by contrast, showed a 76,000 increase across the year. Government and related jobs had a substantial 152,000 increase from Q4 2004. The sharp rise in public sector jobs clearly offset a good portion of the total 280,000 job loss in the private sector. At the same time, it increases the burden on private sector firms and workers to generate tax revenues with which to pay the public sector workers. So the support to the economy from added government workers comes with a cost to businesses, which are already weighed down with pressure from labor unions wanting greater compensation, as explained by Ms. Curley here last week.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D5/@D51/@D51.HTM">Germany (SA*, Thousands</a>)</th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</th>
<th scope="col">Q4 2004</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Domestic Employment**</td>
<td>38,779</td>
<td>38,784</td>
<td>38,907</td>
<td>38,779</td>
<td>38,869</td>
<td>38,719</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Change</td>
<td>-5</td>
<td>+29</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>+0.4%</td>
<td>-1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Industry</td>
<td>7,844</td>
<td>7,864</td>
<td>7,979</td>
<td>7,882</td>
<td>8,018</td>
<td>8,138</td>
</tr>
<tr>
<td class="firstcol">Trade***</td>
<td>9,709</td>
<td>9,735</td>
<td>9,811</td>
<td>9,737</td>
<td>9,791</td>
<td>9,716</td>
</tr>
<tr class="odd">
<td class="firstcol">Finance &amp; Business Services</td>
<td>6,443</td>
<td>6,423</td>
<td>6,369</td>
<td>6,411</td>
<td>6,309</td>
<td>6,128</td>
</tr>
<tr>
<td class="firstcol">Government/Education/Health/Etc</td>
<td>11,826</td>
<td>11,779</td>
<td>11,676</td>
<td>11,753</td>
<td>11,628</td>
<td>11,535</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Change</td>
<td>+47</td>
<td>+65</td>
<td>+1.3%</td>
<td>+1.1%</td>
<td>+0.8%</td>
<td>+0.3%</td>
</tr>
<tr>
<td class="firstcol">Total - Government/Etc</td>
<td>26,953</td>
<td>27,005</td>
<td>27,231</td>
<td>27,026</td>
<td>27,241</td>
<td>27,184</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Change</td>
<td>-52</td>
<td>-36</td>
<td>-1.0%</td>
<td>-0.8%</td>
<td>+0.2%</td>
<td>-1.5%</td>
</tr>
</tbody>
</table>
</body>
</html>

Germany's Federal Statistics Office reported Q4 employment data today, classified by industry. These data are an input to German GDP data, due for release next Wednesday, February 22. Early last week (February 7), Louise Curley [...]

German Employment Falls in Q4; Gain in Public Sector, but Private Sector Jobs Base Has Marked Erosion

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060216d.jpg" width="353">
Initial claims for jobless insurance rose 19,000 last week to 297,000, the highest level since early January. The prior week&#39;s increase was little revised so initial claims have been below 300,000 during six of the last seven weeks. Consensus expectations had been for an increase to 285,000 claims.
During the last ten years there has been a (negative) 75% correlation between the level of initial jobless insurance claims and the m/m change in payroll employment.
The four-week moving average of initial claims rose to 283,000 (-9.3% y/y).
Continuing unemployment insurance claims reversed most of the prior week&#39;s revised increase and fell 39,000.
The insured rate of unemployment remained at 2.0% for the second week.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">02/11/06</th>
<th scope="col">02/04/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>297</td>
<td>278</td>
<td>-3.6%</td>
<td>332</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,511</td>
<td>-7.2%</td>
<td>2,663</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
</body>
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Initial claims for jobless insurance rose 19,000 last week to 297,000, the highest level since early January. The prior week's increase was little revised so initial claims have been below 300,000 during six of the last seven weeks. [...]

Initial Unemployment Insurance Claims Up Again

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

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

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

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Mortgage applications eased 0.5% (+21.6% y/y) in the week ending August 22 after falling 1.4% in the prior week, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for purchase loans rose 2.2% (24.3% y/y) last week, following a 0.1% gain in the prior week. Applications to refinance a home loan fell 3.5% (+18.6% y/y) last week, following a 3.1% decline in the week of August 15.

The effective interest rate on a 30-year fixed-rate loan was unchanged at 6.86% in the week ending August 22 for the third straight week. It remained down from a high of 7.28% in the second week of January. The rate on 15-year fixed-rate mortgages rose to 6.22% in the latest week from 6.13% in the week of August 15. Conversely, the rate on 30-year Jumbo loans eased to 6.80% last week from 6.82% one week earlier. The rate on a 5-year ARM fell to 6.19% in the week of August 22 after rising to 6.24% in the prior week.

The share of applications for refinancing an existing loan fell to 45.3% of total applications in the week ending August 22 after easing to 46.1% in the prior week. The share hit a low of 34.6% in the fourth week of May. The adjustable-rate mortgage (ARM) share of activity edged lower to 8.40% in the latest week after falling to 8.60% in the week of August 15.

The average size of a mortgage loan fell 1.2% (+2.9% y/y) to $383,000 in the week of August 22, following a 2.7% decline in the prior week. The average size of a purchase loan rose 1.0% (1.5% y/y) to $433,400 in the latest week after rising 0.5% in the week ending August 15. The average size of a loan to refinance a mortgage fell 5.2% (+4.2% y/y) to $322,200 last week, after falling 7.3% to $339,800 in the prior week. It was increased from a low of $277,900 in the last week of May.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Purchase applications increase while loan refinancing eases.
- Fixed-interest rate on 30-year loan holds at four-month low.
- Average loan size declines again.

U.S. Mortgage Applications Edge Lower in Latest Week as Interest Rates Steady

Robert Brusca

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The GfK consumer climate indicator for Germany slipped in September to -23.6 from -21.7 in August. The slippage brings the index to its weakest level since April 2025 and in fact it's the weakest reading since May 2024 with only two-monthly exceptions.

The components for the GfK index are up to date through August. The economic index in August fell to -7.4, its weakest reading since December 2022. The decline in August was both sharp and deep.  Income expectations backed-off; after a reading of 15.2 in July, the index fell to 4.1 in August and was last weaker in March 2025. The propensity to buy index weakened again for the second month in a row to -10.1 in August from -9.2 in July; it's the weakest reading since February 2025.

**Percentile standings**
The percentile standing for the climate index and its components show climate is still very weak at a 9.7 percentile standing among data back to mid-2002. Economic expectations have a 23.7 percentile standing, the propensity to buy has a 28.8 percentile standing, while income expectations have a 38.8 percentile standing. These count percentiles or queue percentiles however you like to think of them, are all quite weak. The median in terms of this sort of gauge occurs at the 50th percentile reading, so all of these readings are well below their historic medians and data back to mid-2002.

**Consumer confidence – selected other Europe**
Other European confidence measures are up to date through August in France where the INSEE confidence measure slipped to 87 from 88.3 while in the United Kingdom the confidence measure improved to -17 in August from -19 in July. Italy's confidence reading is up to date only through July, and on that timeline, it showed a one-month improvement to 97.2, up from June’s 96.1. Italian confidence has the strongest standing at a 76.8 percentile standing, the U.K. has a 40.3 percentile standing, while France has a 19.8 percentile standing. There's a good deal of variation in how consumers perceive current circumstances. Based on these standings, Germany has the lowest assessment in the its lower 10 percentile, while Italy sees a top 25 percentile standing, the U.K. sees an assessment that's about 10 percentile points below its median, while France is at its 20th percentile closer to the German metric in standing. It's a substantial variation especially since three of these countries are in the European Monetary Union.

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On balance, consumers are concerned about global economic conditions. The tariff situation is in flux and beginning to settle into a hardened pattern. The Russia-Ukraine war is undergoing attempts to stop it, but neither participant seems willing to accept the conditions that the other requires for either a ceasefire or cessation of hostilities. Russia is increasingly looking as if it is beleaguered and under pressure as the U.S. seems to be edging closer to providing more support to Ukraine. Conditions in the Middle East remained as entangled and hostile as ever. Globally inflation continues to hover slightly above central banks’ targets in most places although it does not show much sign of drifting higher or lower as economic conditions continue to be weak. The Federal Reserve appears to be flirting more with the prospects of rate cuts, as the president mounts efforts to try to exert his influence or even outright control over the central bank. This is something that is going to bear some close watching.

Germany

German Climate Stabilizes But Eco-expectations Plunge

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The Conference Board's Index of Consumer Confidence declined 1.3% (-7.8% y/y) to 97.4 in August after increasing 3.7%, revised from 2.1%, in July and falling an unrevised 3.3% in June. An August reading of 96.5 had been expected in the Action Economics Forecast Survey. The index remained 13.7% below its November peak.

The Expectations Index declined 1.6% (-13.3% y/y) this month after rising 8.7% in July, revised from 6.4%, and falling 5.0% in June. The Present Situation index fell 1.2% (-2.5% y/y) after easing 0.2% in July, revised from down 1.1% and falling 1.8% in June.

The percentage of respondents assessing business conditions as “good” rose to 22.0% in August after holding steady at 20.5% in July. The index reached its highest level since October. The percentage assessing conditions as “bad” edged higher to 14.2% after falling to 13.6% in July. The appraisal of labor market conditions eased as 29.7% described “jobs plentiful” versus 29.9% in July. Jobs were viewed as “hard to get” by 20.0% of respondents this month, up from 18.9% in July. This measure has risen from 11.0% in January 2024. The labor market differential calculated by Haver Analytics (the percentage of consumers who think jobs are plentiful minus the percentage who believe that jobs are currently hard to get) fell to 9.7% compared to 11.0% in July and 12.2% in June. This measure remained below a high of 47.1% in March 2022. This series has a 60% correlation with the unemployment rate over the last ten years.

Expectations for business conditions improved this month as an increased 19.5% of respondents expect conditions to improve over the next six months, after 19.0% did so in July, while 21.9% expect them to worsen, after falling to 22.7% in July. On employment, 17.9% expect the number of jobs to increase over the next six months versus 18.0% in July. The percentage expecting the number of jobs to decline in the next six months rose to 26.8% after falling to 25.1% in July. A lessened 18.3% of respondents expect income to increase in six months, down from 18.7% in July. That remained off a high of 20.7% in November and compares to 12.6% who expect income to decrease, up from 11.8% in July.

The expected rate of price inflation over the next twelve months rose to 6.2% in August after falling to 5.7% in July. These remain up from a low of 5.0% in November. Interest rates are expected to rise this year by an increased 54.0% of respondents, and this remained up from a 45.5% November 2024 low. The percentage of respondents expecting equity prices to increase over the next twelve months fell to 47.4%, but remained up from a low of 37.6% in April and the most since January, while the percentage expecting a decline in stock prices rose to 30.3% after declining to 28.1% in July.

The percentage of respondents planning to buy a home held steady at 5.7% this month after falling from 6.1% in June. Plans to purchase an automobile rose to 12.0% this month, up from a low of 10.6% in April.

The Consumer Confidence data are available in Haver’s **CBDB** database. The total indexes, which are indexed to 1985=100, appear in **USECON**, and market expectations are in **AS1REPNA**.

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- Monthly decline is slight, level remains up sharply from April low.
- Expectations and present situation readings decline.
- Inflation expectations rise after falling for two months.

U.S. Consumer Confidence Weakens in August; Inflation Expectations Rise

Sandy Batten

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Durable goods orders fell 2.8% m/m (+3.3% y/y) in July on top of a slightly downwardly revised 9.4% monthly decline in June (previous -9.3% m/m). A 4.0% m/m decline had been expected by the Action Economics Forecast Survey. Once again, plummeting nondefense aircraft orders were the key factor behind the overall decline in July. Excluding nondefense aircraft orders, the remaining orders rose 0.2% m/m in July after a 0.3% m/m decline in June.

Orders excluding transportation increased by a solid 1.1% m/m (+3.8% y/y) in July following a 0.3% monthly gain in June. The July monthly increase matched the September 2024 gain as the largest in more than two years. Orders for nondefense aircraft plunged 32.7% m/m in July, on top of a 52.7% monthly decline in June. Apart from the plunge in aircraft orders, orders in other major groups posted solid increases. Orders for motor vehicles increased 0.3%, their third consecutive monthly gain. Orders for primary metals jumped 1.5% m/m, the largest monthly gain since April 2024. Fabricated metals orders rose 0.7% m/m after a 0.1% monthly decline in June. Machinery orders soared 1.8% m/m, the largest monthly increase since January. Orders for computers and electronic equipment increased 0.6% m/m. Orders for electrical equipment and appliances jumped 2.0% m/m, the largest increase since last December.

The capital spending data in this report augured a solid beginning for Q3 business spending on equipment. Shipments of core capital goods (nondefense capital goods shipments excluding aircraft) are a reliable coincident indicator of business spending on equipment in the national accounts. They increased 0.7% m/m in July, the largest monthly gain since April 2023, and are up more than 4% annualized in July from the Q2 average. Moreover, core capital goods orders rebounded in July, jumping 1.1% m/m after a 0.6% monthly decline in June.

Total manufacturing shipments increased 0.8% m/m (+1.8% y/y) in July following a 0.6% monthly increase in June. Shipments of durable goods rose a solid 1.4% m/m (+3.6% y/y), the largest monthly gain since May 2023. Excluding shipments of transportation goods, remaining shipments increased 1.0% m/m in July, the largest monthly increase since January 2023. Gains were widespread across major sectors with each one reporting an increase in July. Transportation shipments rose 2.3% m/m, led by a 15.5% monthly jump in shipments of nondefense aircraft and parts. Shipments of computers rose 4.5% m/m, their first monthly gain in three months. Shipments of nondurable goods edged up 0.2% m/m (-0.1% y/y), their third consecutive monthly increase.

Unfilled durable goods orders were unchanged in July from June (+7.0% y/y). Inventories of all manufactured goods increased 0.3% m/m in July (+1.4% y/y), the largest monthly gain since last December. Inventories of durable goods rose 0.3% m/m (+1.8% y/y), their fifth consecutive monthly increase. Motor vehicle inventories jumped 0.8% m/m, their largest monthly increase since October 2023. Aircraft inventories slipped 0.2% m/m, their third consecutive monthly decline. Inventories of nondurable goods increased 0.2% m/m in July (+0.8% y/y), the same monthly gain as in June.

The factory sector data are available in Haver’s **USECON** database. The Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Durable goods orders fell 2.8% m/m in July on top of a 9.4% monthly drop in June.
- Once again, weak nondefense aircraft orders were the key factor; nondefense aircraft orders plunged 33% m/m in July on top of a 53% m/m decline in June.
- In contrast, orders excluding transportation rose a solid 1.1% m/m in July, their largest monthly gain since September 2024.
- Core capital goods orders rebounded, and shipments posted a solid gain.

U.S. Advance Durable Goods Orders Dragged Down Again by Aircraft in July

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U.S. house prices weakened 0.2% (+2.6% y/y) during June after easing 0.1% in May, revised from down 0.2% and falling an unrevised 0.3% in April. The annual increase is well below its recent high of 7.2% in February 2024, according to the Federal Housing Finance Agency (FHFA) House Price Index.

House price changes were mixed across the nine Census divisions of the country. Prices fell 0.8% (+5.0% y/y) in New England and 0.1% (+4.6% y/y) in the East North Central region. Prices were down 1.1% (+0.1% y/y) in the South Atlantic region, 0.4% (+3.1% y/y) in the East South Central region and 0.3% (+1.5% y/y) in the Mountain regions. Prices also eased 0.1% (+0.7% y/y) in the Pacific region, off for the fifth straight month. House price increases were logged in the middle Atlantic region where they rose 1.1% (7.2% y/y). Prices also increased 0.3% (4.3% y/y) in the West North Central region and 0.2% (1.4% y/y) in the West South Central region.

The FHFA house price index is a weighted purchase-only index that measures average price changes in repeat sales of the same property. An associated quarterly index includes refinancing the same kind of properties. The indexes are based on transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on single-family properties are included. The FHFA data are available in Haver’s USECON database.

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- Prices edge lower for third straight month.
- Annual increase is near two-year low.
- Price changes are uneven amongst regions.

Economy in Brief: February 2006

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Cross Currents in the Italian Economy: Industrial Sales and New Orders Rising, Trade Deficit Exploding

Japan GDP Grows 5.5% in Q4; Shows Biggest Yearly Gains in 9 Years

U.S. Consumer Sentiment Down Unexpectedly

Philadelphia Fed Business Activity Index Improved

Producer Price Index Firm

Producer Price Index Firm

German Employment Falls in Q4; Gain in Public Sector, but Private Sector Jobs Base Has Marked Erosion

Initial Unemployment Insurance Claims Up Again