Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090819g.jpg" align="left" border="0" height="265" width="353">
The Confederation of British Industry continues to see very
weak orders in both its domestic and export surveys. Both total and
export orders are in the lower ten percentile of their historic range
of values. Stocks of goods with a diffusion reading that fell to +13
from +20 are now near their range mid range (standing at their 45th
percentile) and are well below their 12-monhth average, showing
inventory progress has been made. In contrast orders are weaker than
their 12-month averages. What ever is getting better it does not seem
to be boosting orders despite the gain in August. 
 

To compare with that finding we have the contrary result that
although orders are very weak output volume over the next three months
is expected to do much better. The survey measure rose to -5 in August
from -14 in July, thrusting output volume expectations into the 57th
percentile of their range, far better than the reading for orders. The
average price expected has however slipped in August to -17 from -6 in
June. That is on the lower 6 percentile of its range. These readings
contrast with the UK MFG readings from NTC which at 50.84 is indicating
expansion and stands in the 74th percentile of its range. (The NTC
survey is also a diffusion survey but it presents its statistics as
dose the US ISM rather than as an &#8216;up&#8217; minus &#8216;down&#8217; diffusion index as
the one used by the CBI. For the CBI, zero is neutral; for the NTC
index, 50 is the neutral mark. Also the NTC index is for manufacturing
not all of industry, as is the CBI report.) 
 

The outlook portion of the CBI index is relatively more
positive, but still is not as upbeat as the Markit/NTC index. And the
orders assessment from the CBI is downright depressing as its
improvement in July still leaves the index lower over three months and
longer. The picture of the UK MFG industry is curiously mixed. The
differences are not simply those between different surveys but among
somewhat related measures in the same survey. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col">UK
Industrial volume data CBI Survey </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">Reported:</td>
<td>Aug 
09</td>
<td>Jul 
09</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>Apr 
09</td>
<td>12MO Avg</td>
<td>Pcntle</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr class="grey3">
<td class="firstcol">Total Orders</td>
<td>-54</td>
<td>-59</td>
<td>-51</td>
<td>-56</td>
<td>-57</td>
<td>-43</td>
<td>7%</td>
<td>9</td>
<td>-59</td>
<td>68</td>
</tr>
<tr class="grey3">
<td class="firstcol">Export Orders</td>
<td>-48</td>
<td>-45</td>
<td>-52</td>
<td>-46</td>
<td>-34</td>
<td>-36</td>
<td>7%</td>
<td>3</td>
<td>-52</td>
<td>55</td>
</tr>
<tr class="grey3">
<td class="firstcol">Stocks: FinGds</td>
<td>13</td>
<td>20</td>
<td>22</td>
<td>30</td>
<td>28</td>
<td>25</td>
<td>45%</td>
<td>31</td>
<td>-2</td>
<td>33</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="11">Looking
ahead</td>
</tr>
<tr class="grey3">
<td class="firstcol">Output Volume: Nxt 3M</td>
<td>-5</td>
<td>-14</td>
<td>-17</td>
<td>-17</td>
<td>-32</td>
<td>-31</td>
<td>57%</td>
<td>28</td>
<td>-48</td>
<td>76</td>
</tr>
<tr class="grey3">
<td class="firstcol">Avg Prices 4Nxt 3m</td>
<td>-17</td>
<td>-6</td>
<td>-13</td>
<td>-20</td>
<td>-10</td>
<td>-1</td>
<td>6%</td>
<td>34</td>
<td>-20</td>
<td>54</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="11">From end
2000</td>
</tr>
<tr class="grey1">
<td colspan="11" class="firstcol">Compare to NTC MFG</td>
</tr>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>Jul 
09</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>Apr 
09</td>
<td>12MO Avg</td>
<td>Pcntle</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK MFG</td>
<td>&nbsp;</td>
<td>50.84</td>
<td>47.36</td>
<td>45.40</td>
<td>43.13</td>
<td>41.22</td>
<td>74%</td>
<td>56.32</td>
<td>34.93</td>
<td>21</td>
</tr>
</tbody>
</table>
</body></html>

The Confederation of British Industry continues to see very weak orders in both its domestic and export surveys. Both total and export orders are in the lower ten percentile of their historic range of values. Stocks of goods with a [...]

UK's CBI Orders Continue To Lag

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090819d.jpg" align="right" border="0" height="265" width="353">Encouraging
indications that consumer spending was improving faded during August.
During the latest week, chain store sales fell 0.9% and that was enough
to leave the August average unchanged from July after that month's 1.0%
increase from June. During the last ten years there has been a 69%
correlation between the year-to-year growth in chain store sales and
the growth in general merchandise sales. The weekly figures
are available in Haver's SURVEYW database.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090819e.jpg" align="right" border="0" height="265" width="353">

The ICSC-Goldman Sachs
retail chain-store sales index is constructed using the same-store
sales (stores open for one year) reported by 78 stores of seven
retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and
Wal-Mart.Prospects for improvement in sales
seem limited. The leading indicator of sales ticked up 0.1% (-0.3% y/y)
during the latest week and it has been flat all this year.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090819f.jpg" align="right" border="0" height="265" width="353">
The Johnson Redbook also reported soft sales of late. General
merchandise store sales so far this month slipped a seasonally adjusted
0.6% from July (-4.4% y/y). Department store sales were down 6.6% y/y
on a same-store basis while discount store sales fell a lesser 3.4% as
shoppers searched for bargains. Excluding
Items from Personal Consumption Expenditures Inflation from
the Federal Reserve Bank of Dallas is available <a href="http://dallasfed.org/research/staff/2009/staff0901.pdf">
here.</a>&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS
(SA, 1977=100)</a></th>
<th scope="col">08/14/09</th>
<th scope="col">08/07/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain
Store Sales</td>
<td>491.0</td>
<td>495.6</td>
<td>-0.6%</td>
<td>1.4%</td>
<td>2.8%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
</body></html>

Encouraging indications that consumer spending was improving faded during August. During the latest week, chain store sales fell 0.9% and that was enough to leave the August average unchanged from July after that month's 1.0% increase [...]

Weekly Chain Store Sales Remain Flat Versus July

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090819a.jpg" align="right" border="0" height="265" width="353">The Mortgage
Bankers Association indicated that mortgage applications overall
increased 5.6% last week; however, that only made up for a 3.5% decline
during the prior period. Together, the latest figures left applications
for all of August up 0.6% from July after that month's 3.7% decline.
Applications still remained near the lowest level since last November.
There has been some life in purchase applications, but it's
hardly
vibrant. Applications rose 3.9% last week after a 1.1% increase during
the prior period. Together the gains lifted applications for the month
so far by 2.2% from July when applications fell 1.3% m/m. Nevertheless
since the early-February low, purchase applications have risen 15% as
new and existing home sales have recovered.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090819b.jpg" align="right" border="0" height="265" width="353">
During the last ten years
there has been a (negative) 79% correlation between the level of
applications for purchase and the effective interest rate on a 30-year
mortgage.&nbsp; Moreover, during the last ten years there has been
a 61% correlation between the y/y change in purchase applications and
the change in new plus existing single family home sales.
Interest in
mortgage refinancing has been stifled of late by the rise in interest
rates. Applications to refinance made up merely the prior week's
decline with a 6.9% increase. So far in August, applications are 0.8%
lower than July and near the lowest level since November. Since their
peak in January, refinance applications have fallen by
three-quarters.
Since the
beginning of this year, fixed-rate
mortgage applications have fallen by slightly more than one-half while
adjustable-rate mortgages have doubled. The number of conventional
loans has fallen nearly two-thirds while gov't backed loans have fallen
by more than one-third. The earlier rise in mortgage interest rates
has stabilized, for the moment. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090819c.jpg" align="right" border="0" height="265" width="353">
The effective interest rate on a
conventional 15-year mortgage fell last week to 4.76% and for the month
averaged 4.89%. These figures are up from the April low of 4.69% but
the rate had reached a high of 5.36% in early-June. For a 30-year
mortgage, the rate also fell last week to 5.35% after reaching a high
of 5.79% in early-June.&lt;
Interest rates on 15- and 30-year mortgages are
closely correlated (&gt;90%) with the rate on 10-year Treasury
securities. Rates on adjustable 1-Year mortgages averaged 6.71% this
month versus the low near 6.0% during January. Nevertheless, the rate
remained down from the 7.07% peak reached last
fall.
The Mortgage Bankers Association surveys
between 20 to 35 of the top lenders in the U.S. housing industry to
derive its refinance, purchase and market indexes. The weekly survey
covers roughly 50% of all U.S. residential mortgage applications
processed each week by mortgage banks, commercial banks and thrifts.
Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.&nbsp;The figures for weekly
mortgage applications are available in Haver's SURVEYW
database.
 Sustaining a Global Recovery from the
International Monetary Fund can be found <a href="http://www.imf.org/external/pubs/ft/fandd/2009/09/blanchardindex.htm">here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA
Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">08/14/09</th>
<th scope="col">08/07/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>527.0</td>
<td>499.0</td>
<td>25.7%</td>
<td>642.9</td>
<td>652.6</td>
<td>584.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>277.7</td>
<td>267.2</td>
<td>-11.6%</td>
<td>345.4</td>
<td>424.9</td>
<td>406.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,982.5</td>
<td>1,853.8</td>
<td>91.6%</td>
<td>2,394.1</td>
<td>1,997.9</td>
<td>1,634.0</td>
</tr>
</tbody>
</table>

</body></html>

The Mortgage Bankers Association indicated that mortgage applications overall increased 5.6% last week; however, that only made up for a 3.5% decline during the prior period. Together, the latest figures left applications for all of [...]

U.S. Weekly Mortgage Applications Rise But Trend Remains Weak

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090819a.jpg" align="right" border="0" height="265" width="353">The Mortgage
Bankers Association indicated that mortgage applications overall
increased 5.6% last week; however, that only made up for a 3.5% decline
during the prior period. Together, the latest figures left applications
for all of August up 0.6% from July after that month's 3.7% decline.
Applications still remained near the lowest level since last November.
There has been some life in purchase applications, but it's
hardly
vibrant. Applications rose 3.9% last week after a 1.1% increase during
the prior period. Together the gains lifted applications for the month
so far by 2.2% from July when applications fell 1.3% m/m. Nevertheless
since the early-February low, purchase applications have risen 15% as
new and existing home sales have recovered.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090819b.jpg" align="right" border="0" height="265" width="353">
During the last ten years
there has been a (negative) 79% correlation between the level of
applications for purchase and the effective interest rate on a 30-year
mortgage.&nbsp; Moreover, during the last ten years there has been
a 61% correlation between the y/y change in purchase applications and
the change in new plus existing single family home sales.
Interest in
mortgage refinancing has been stifled of late by the rise in interest
rates. Applications to refinance made up merely the prior week's
decline with a 6.9% increase. So far in August, applications are 0.8%
lower than July and near the lowest level since November. Since their
peak in January, refinance applications have fallen by
three-quarters.
Since the
beginning of this year, fixed-rate
mortgage applications have fallen by slightly more than one-half while
adjustable-rate mortgages have doubled. The number of conventional
loans has fallen nearly two-thirds while gov't backed loans have fallen
by more than one-third.
 The earlier rise in mortgage interest rates
has stabilized, for the moment. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090819c.jpg" align="right" border="0" height="265" width="353">
The effective interest rate on a
conventional 15-year mortgage fell last week to 4.76% and for the month
averaged 4.89%. These figures are up from the April low of 4.69% but
the rate had reached a high of 5.36% in early-June. For a 30-year
mortgage, the rate also fell last week to 5.35% after reaching a high
of 5.79% in early-June.&lt;
Interest rates on 15- and 30-year mortgages are
closely correlated (&gt;90%) with the rate on 10-year Treasury
securities. Rates on adjustable 1-Year mortgages averaged 6.71% this
month versus the low near 6.0% during January. Nevertheless, the rate
remained down from the 7.07% peak reached last
fall.
The Mortgage Bankers Association surveys
between 20 to 35 of the top lenders in the U.S. housing industry to
derive its refinance, purchase and market indexes. The weekly survey
covers roughly 50% of all U.S. residential mortgage applications
processed each week by mortgage banks, commercial banks and thrifts.
Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.&nbsp;The figures for weekly
mortgage applications are available in Haver's SURVEYW
database.
 Sustaining a Global Recovery from the
International Monetary Fund can be found <a href="http://www.imf.org/external/pubs/ft/fandd/2009/09/blanchardindex.htm">here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA
Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">08/14/09</th>
<th scope="col">08/07/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>527.0</td>
<td>499.0</td>
<td>25.7%</td>
<td>642.9</td>
<td>652.6</td>
<td>584.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>277.7</td>
<td>267.2</td>
<td>-11.6%</td>
<td>345.4</td>
<td>424.9</td>
<td>406.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,982.5</td>
<td>1,853.8</td>
<td>91.6%</td>
<td>2,394.1</td>
<td>1,997.9</td>
<td>1,634.0</td>
</tr>
</tbody>
</table>

Weekly Chain Store Sales Remain
Flat Versus July 
by <a href="/comment/Moeller.html">Tom
Moeller</a> August 19, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090819d.jpg" align="right" border="0" height="265" width="353">Encouraging
indications that consumer spending was improving faded during August.
During the latest week, chain store sales fell 0.9% and that was enough
to leave the August average unchanged from July after that month's 1.0%
increase from June.
 During the last ten years there has been a 69%
correlation between the year-to-year growth in chain store sales and
the growth in general merchandise sales. The weekly figures
are available in Haver's SURVEYW database.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090819e.jpg" align="right" border="0" height="265" width="353">

The ICSC-Goldman
Sachs
retail chain-store sales index is constructed using the same-store
sales (stores open for one year) reported by 78 stores of seven
retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and
Wal-Mart.


Prospects for improvement in sales
seem limited. The leading indicator of sales ticked up 0.1% (-0.3% y/y)
during the latest week and it has been flat all this year.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090819f.jpg" align="right" border="0" height="265" width="353">The
Johnson Redbook also reported soft sales of late. General
merchandise store sales so far this month slipped a seasonally adjusted
0.6% from July (-4.4% y/y). Department store sales were down 6.6% y/y
on a same-store basis while discount store sales fell a lesser 3.4% as
shoppers searched for bargains.
 Excluding
Items from Personal Consumption Expenditures Inflation from
the Federal Reserve Bank of Dallas is available <a href="http://dallasfed.org/research/staff/2009/staff0901.pdf">
here.</a>&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS
(SA, 1977=100)</a></th>
<th scope="col">08/14/09</th>
<th scope="col">08/07/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain
Store Sales</td>
<td>491.0</td>
<td>495.6</td>
<td>-0.6%</td>
<td>1.4%</td>
<td>2.8%</td>
<td>3.3%</td>
</tr>
</tbody>
</table>
UK's CBI Orders Continue To Lag 
by <a href="/comment/Moeller.html">Tom
Moeller</a> August 19, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090819g.jpg" align="left" border="0" height="265" width="353">
The Confederation of British Industry continues to see very
weak orders in both its domestic and export surveys. Both total and
export orders are in the lower ten percentile of their historic range
of values. Stocks of goods with a diffusion reading that fell to +13
from +20 are now near their range mid range (standing at their 45th
percentile) and are well below their 12-monhth average, showing
inventory progress has been made. In contrast orders are weaker than
their 12-month averages. What ever is getting better it does not seem
to be boosting orders despite the gain in August. 
 

To compare with that finding we have the contrary result that
although orders are very weak output volume over the next three months
is expected to do much better. The survey measure rose to -5 in August
from -14 in July, thrusting output volume expectations into the 57th
percentile of their range, far better than the reading for orders. The
average price expected has however slipped in August to -17 from -6 in
June. That is on the lower 6 percentile of its range. These readings
contrast with the UK MFG readings from NTC which at 50.84 is indicating
expansion and stands in the 74th percentile of its range. (The NTC
survey is also a diffusion survey but it presents its statistics as
dose the US ISM rather than as an &#8216;up&#8217; minus &#8216;down&#8217; diffusion index as
the one used by the CBI. For the CBI, zero is neutral; for the NTC
index, 50 is the neutral mark. Also the NTC index is for manufacturing
not all of industry, as is the CBI report.) 
 

The outlook portion of the CBI index is relatively more
positive, but still is not as upbeat as the Markit/NTC index. And the
orders assessment from the CBI is downright depressing as its
improvement in July still leaves the index lower over three months and
longer. The picture of the UK MFG industry is curiously mixed. The
differences are not simply those between different surveys but among
somewhat related measures in the same survey. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col">UK
Industrial volume data CBI Survey </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">Reported:</td>
<td>Aug 
09</td>
<td>Jul 
09</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>Apr 
09</td>
<td>12MO Avg</td>
<td>Pcntle</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr class="grey3">
<td class="firstcol">Total Orders</td>
<td>-54</td>
<td>-59</td>
<td>-51</td>
<td>-56</td>
<td>-57</td>
<td>-43</td>
<td>7%</td>
<td>9</td>
<td>-59</td>
<td>68</td>
</tr>
<tr class="grey3">
<td class="firstcol">Export Orders</td>
<td>-48</td>
<td>-45</td>
<td>-52</td>
<td>-46</td>
<td>-34</td>
<td>-36</td>
<td>7%</td>
<td>3</td>
<td>-52</td>
<td>55</td>
</tr>
<tr class="grey3">
<td class="firstcol">Stocks: FinGds</td>
<td>13</td>
<td>20</td>
<td>22</td>
<td>30</td>
<td>28</td>
<td>25</td>
<td>45%</td>
<td>31</td>
<td>-2</td>
<td>33</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="11">Looking
ahead</td>
</tr>
<tr class="grey3">
<td class="firstcol">Output Volume: Nxt 3M</td>
<td>-5</td>
<td>-14</td>
<td>-17</td>
<td>-17</td>
<td>-32</td>
<td>-31</td>
<td>57%</td>
<td>28</td>
<td>-48</td>
<td>76</td>
</tr>
<tr class="grey3">
<td class="firstcol">Avg Prices 4Nxt 3m</td>
<td>-17</td>
<td>-6</td>
<td>-13</td>
<td>-20</td>
<td>-10</td>
<td>-1</td>
<td>6%</td>
<td>34</td>
<td>-20</td>
<td>54</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="11">From end
2000</td>
</tr>
<tr class="grey1">
<td colspan="11" class="firstcol">Compare
to NTC MFG</td>
</tr>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>Jul 
09</td>
<td>Jun 
09</td>
<td>May 
09</td>
<td>Apr 
09</td>
<td>12MO Avg</td>
<td>Pcntle</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK MFG</td>
<td>&nbsp;</td>
<td>50.84</td>
<td>47.36</td>
<td>45.40</td>
<td>43.13</td>
<td>41.22</td>
<td>74%</td>
<td>56.32</td>
<td>34.93</td>
<td>21</td>
</tr>
</tbody>
</table>
</body></html>

U.S. Weekly Mortgage ApplicationsRise But Trend Remains Weak

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090818h.jpg" align="right" border="0" height="265" width="353">
The participants in the ZEW survey--institutional investors
and analysts--have become much more positive about the outlook, six
months ahead. The ZEW Economic Sentiment indicator increased 16.6
points in August to reach a percent balance of 56.1, the highest since
April 2006 and well above the long term average of 26.5. At the same
time the appraisal of the current economic condition was somewhat <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090818i.jpg" align="right" border="0" height="265" width="353">
less
negative. The excess of pessimists regarding the current economic
situation was 77.2% compared with 89.3% in July. The two indicators are
shown in the first chart.
Recent data showing improvements in orders, production,
exports and an increase in Germany's second quarter GDP, no doubt,
influenced the improvement in both the appraisal of the current
situation and of the outlook.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090818j.jpg" align="right" border="0" height="265" width="353">
The continued high negative balance of
opinion regarding the current situation could suggest that the
financial community has yet to be convinced that recovery is underway,
but their positive view of the future suggests otherwise. (Opinions are
influenced by current economic conditions and opinions, through their
impact on "animal spirits" influence future economic conditions.)

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">ZEW</th>
<th scope="col">Aug 09</th>
<th scope="col">Jul 09</th>
<th scope="col">Aug 08</th>
<th scope="col">M/M chg&nbsp;</th>
<th scope="col">Y/Y chg</th>
<th scope="col">2008&nbsp;</th>
<th scope="col">2007 </th>
<th scope="col"> 2006 </th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Current Economic Situation (%
balance)&nbsp;&nbsp;</td>
<td>-77.2</td>
<td>-89.3</td>
<td>-9.2</td>
<td>12.1</td>
<td>-68.0</td>
<td>7.3</td>
<td>75.9</td>
<td>18.3</td>
</tr>
<tr>
<td class="firstcol">Economic Expectation (%
balance)&nbsp;</td>
<td>56.1</td>
<td>39.5</td>
<td>-55.5</td>
<td>16.6</td>
<td>111.6</td>
<td>-47.5</td>
<td>-3.0</td>
<td>22.3</td>
</tr>
</tbody>
</table>
</body></html>

The participants in the ZEW survey--institutional investors and analysts--have become much more positive about the outlook, six months ahead. The ZEW Economic Sentiment indicator increased 16.6 points in August to reach a percent [...]

Economic Sentiment In Germany's Financial Community Rises Sharply In August

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090818f.jpg" width="353">
The strong rise this year in gasoline prices stabilized last week. The pump price for regular gasoline held at an average $2.64 per gallon and that was down a nickel from last month&#39;s high. Despite this w/w stability, however, prices remain roughly one dollar (59%) higher versus the December low. Yesterday, the cash market price for gasoline of $1.87 was down from last week and down from the $1.99 averaged the week earlier. Nevertheless, gasoline prices were up off the early-July low of $1.60. The figures are reported by the U.S. Department of Energy and can be found in Haver&#39;s WEEKLY &amp; DAILY databases.
Crude oil prices also are slightly off their high. Light sweet crude oil prices (WTI) dipped last week to $69.65 per barrel but they&#39;ve roughly doubled this year. Yesterday the spot market price for light sweet crude oil fell back again, to $66.75 per barrel. Prices had reached a daily high of $72.68 earlier in July.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090818g.jpg" width="353">
Of late, the demand for gasoline hit a plateau after an earlier seasonal run-up. During the last four weeks since May, the demand for gasoline has moved sideways and is down by 3.1% y/y. Though that compares to a nearly 5% rate of decline last fall, the relative strength is diminishing. Demand for distillate also is off a sharp 20.7% though residual fuel oil demand has moved higher. Finally, oil remains plentiful as evidenced by a 14.1% y/y rise in inventories of crude oil &amp; petroleum products. Inventories of gasoline recently have firmed by 4.5% y/y and crude oil inventories less the SPR are up by 18.7%. The figures on crude oil production and inventories are available in Haver&#39;s OILWKLY database.
Natural gas prices continued their move sideways last week. At an average of $3.44 per mmbtu (-62.8% y/y), the price was down by three-quarters from the high reached in early-July of last year of $13.19/mmbtu.

<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/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">08/17/09</th>
<th scope="col">08/10/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Regular Gasoline ($ per Gallon, Regular)</td>
<td>2.64</td>
<td>2.65</td>
<td>-29.5%</td>
<td>3.25</td>
<td>2.80</td>
<td>2.57</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>69.65</td>
<td>71.57</td>
<td>-39.1%</td>
<td>100.16</td>
<td>72.25</td>
<td>66.12</td>
</tr>
</tbody>
</table>
</body>
</html>

The strong rise this year in gasoline prices stabilized last week. The pump price for regular gasoline held at an average $2.64 per gallon and that was down a nickel from last month's high. Despite this w/w stability, however, prices [...]

Gasoline Price Increase Stabilizes After A One Dollar Rise This Year

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090818d.jpg" width="353">
After two months of fairly strong increases, the momentum in the housing sector paused last month. Housing starts dipped to 581,000 (AR) units versus 587,000 during June, a level which was revised up slightly from the initial report. The latest figure fell somewhat short of Consensus expectations for 600,000 starts.
Despite the overall decline, starts of single-family homes rose 1.7% for the fifth straight month. The gains pushed the series 37.3% off the record low which dates back to 1959. During the last ten years, there has been an 84% correlation between the q/q change in single-family starts and their contribution to quarterly GDP growth.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090818e.jpg" width="353">
Starts of multi-family homes fell hard again to 91,000 which was the record low for the series. Starts of apartments, condominiums &amp; town houses remained down by roughly two-thirds from the 2006 peak.
By region starts of single-family units last month were mixed across the country. Single-family starts in the Northeast rose 14.0% to their highest level since October (-16.2% y/y). Starts in the West ticked up 1.9% for the fifth straight month of increase (-23.6% y/y) and in the South single-family starts also ticked up by 0.8% (-23.4% y/y). In the Midwest starts fell a modest 3.4% (-22.2% y/y) after five consecutive months of increase.
Overall, building permits fell 1.8% and gave back a piece of their 10.0% jump during June. Permits remained just above the record low and permits were down by roughly one-half from last May. As with starts, recent gains in building permits have been led by the single-family sector, a leading indicator of starts. During July, permits rose for the fourth straight month and were up 23.8% since December (-20.3% y/y). 
The housing starts figures can be found in Haver&#39;s USECON database.
Examining the Housing Crisis by Home Price Tier from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20090801/mtpub.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Housing Starts (000s, SAAR)</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>581</td>
<td>587</td>
<td>-37.7%</td>
<td>900</td>
<td>1,342</td>
<td>1,812</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>490</td>
<td>482</td>
<td>-22.5</td>
<td>616</td>
<td>1,036</td>
<td>1,474</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>91</td>
<td>105</td>
<td>-69.8</td>
<td>285</td>
<td>306</td>
<td>338</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>560</td>
<td>570</td>
<td>-39.4</td>
<td>895</td>
<td>1,392</td>
<td>1,844</td>
</tr>
</tbody>
</table>
</body>
</html>

After two months of fairly strong increases, the momentum in the housing sector paused last month. Housing starts dipped to 581,000 (AR) units versus 587,000 during June, a level which was revised up slightly from the initial report. [...]

U.S. Housing Starts Dip During July After Two Months Of Strong Gains Multi-family Starts Revisit Record Low

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090818a.jpg" align="right" border="0" height="265" width="353">Pricing power reflected the weakness in the U.S. economy last
month as the PPI for finished goods fell 0.9%. That reversed half of
the 1.8% jump during June and left prices down 6.4% from the year ago
level. The decline also was deeper than Consensus expectations for a
0.3% drop. In addition, a 0.1% decline in PPI less food &amp;
energy contrasted with expectations for a 0.1% increase. That decline
pulled the y/y change to 2.6% which was the weakest increase since
early 2008.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090818b.jpg" align="right" border="0" height="265" width="353">
Lower energy prices led the decline in last month's PPI with a
2.4% drop (-29.6% y/y) after increases during the prior two months. The
July decline was led by a 10.2% fall in gasoline prices (-45.1% y/y)
which reversed most of the increase during June. Working the other way,
natural gas prices firmed again last month and posted a 3.3% (-30.9%
y/y) increase.
The PPI for finished consumer goods less food &amp; energy
fell by 0.1% (+3.1% y/y) after a firm 0.5% jump during June. Finished
durables prices reversed most of the June gain with a 0.5% decline
(+2.7% y/y). Posting a moderate increase were prices of core finished
nondurable goods. They gained 0.4% and the y/y increase of 3.5% is off
from the 5.9% rise as of the end of last year. Capital equipment prices
also reflected the weakness in demand and fell 0.2%. That pulled the
y/y increase to 1.9% after a 4.3% rise as of last December.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090818c.jpg" align="right" border="0" height="265" width="353">
Prices for intermediate goods ticked 0.2% lower led by a 2.0%
decline in food prices (-15.0% y/y). That decline was in addition to a
1.4% drop (-34.5% y/y) in energy prices. Less food &amp; energy,
intermediate goods prices ticked 0.2% higher for only the second
increase since last September.
The crude materials PPI reversed all of its June increase with
a 4.5% decline. That was led by a 6.1% (-25.7% y/y) drop in food prices
and a 6.2% decline in crude energy prices (-59.6% y/y). Core pricing
power at the crude level improved for the third straight month and
posted a 2.9% increase.
The producer price data is available in Haver's USECON
database. More detailed data is in the PPI and in
the PPIR databases.

<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">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>-0.9</td>
<td>1.8</td>
<td>-6.4</td>
<td>6.4</td>
<td>3.9</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.1</td>
<td>0.5</td>
<td>2.6</td>
<td>3.4</td>
<td>2.0</td>
<td>1.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-0.2</td>
<td>1.9</td>
<td>-15.0</td>
<td>10.5</td>
<td>4.0</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.2</td>
<td>0.4</td>
<td>-8.2</td>
<td>7.4</td>
<td>2.8</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-4.5</td>
<td>4.6</td>
<td>-45.0</td>
<td>21.4</td>
<td>11.9</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>2.9</td>
<td>2.6</td>
<td>&nbsp;-35.7</td>
<td>14.8</td>
<td>15.6</td>
<td>20.8</td>
</tr>
</tbody>
</table>
</body></html>

Pricing power reflected the weakness in the U.S. economy last month as the PPI for finished goods fell 0.9%. That reversed half of the 1.8% jump during June and left prices down 6.4% from the year ago level. The decline also was [...]

U.S. PPI Posts Broad-Based Decline With Energy Prices Leading The Fall

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

US production rebounded in Q2, but demand continued to slow

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

Negative US inflation surprises leading G10 down

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Winnie Tapasanun

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

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

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

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

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

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

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

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

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

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

Robert Brusca

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

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

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

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

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

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

Europe

Big Four Inflation in EMU 2025-Final

Andrew Cates

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

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

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

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

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

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

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

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Charts of the Week: Between Optimism and Uncertainty

Michael J. Moran

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

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

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

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

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

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

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

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

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

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

Import & Export Prices: Generally Modest Changes

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

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

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

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

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

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

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

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

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

Economy in Brief: 2009

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