Sandy Batten

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The 0.2% q/q saar decline in Q1 real GDP was revised significantly weaker to a 0.5% saar quarterly decline. The Action Economics Forecast Survey looked for no revision. The major factor behind the downward revision was much weaker personal consumption expenditures (PCE) than previously estimated. PCE advanced only 0.5% q/q, down from 1.2% in the previous estimate and 1.8% in the advance estimate. Within PCE, spending on services slowed markedly, increasingly just 0.6%, the slowest advance since Q2 2020 when spending collapsed after the COVID lockdown. The BEA noted that the revision to spending on services reflected new data from the Quarterly Services Survey. In the second estimate, spending on services had risen 1.7%.

The sharp widening of the trade deficit continued to be a major drag on GDP in Q1. Goods imports were revised down slightly from a 53.3% q/q saar surge in the second estimate to a still gigantic 51.6% quarterly increase. Export growth was revised markedly slower at 0.4% from 2.4% previously. The net effect was that net exports subtracted 4.6%-points after this revision, down from 4.9%-points previously. Some of the surge in imports landed in inventories, which rose $154 billion 2017$ and boosted GDP by 2.6%-points, essentially unchanged from the previous estimate.

The underlying health of the economy was not as good as previously estimated as domestic demand measures were revised down again. Final sales to domestic purchasers growth was revised down to 1.5% q/q saar from 2.0% in the second estimate, 2.3% in the advance report and 3.0% in last year’s Q4. Final sales to private domestic purchasers (a favorite measure of the Fed) slowed to 1.9% from 2.5% in the previous estimate, 3.0% in the advance report and 2.9% in Q4. After this revision, it is now clear that the economy has slowed markedly since the end of last year.

On a more positive note, nonresidential fixed investment continued to provide a meaningful boost to Q1 GDP. Growth of total nonresidential fixed investment was unrevised at 10.3% q/q saar, the largest quarterly advance since Q1 2022. This was led by a 23.7% quarterly surge in business spending on equipment, revised down slightly from 24.6% in the second estimate. This was still the fastest pace of equipment spending since the rebound from COVID lockdown in Q3 2020. By contrast, residential investment in Q1 was revised weaker in this estimate, falling 1.3% versus the previously estimated -0.6%.

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Government spending was essentially unrevised, falling 0.6%q/q saar, led by an unrevised 7.1% decline in spending on national defense. Spending by state and local governments was revised slightly stronger with a 2.0% quarterly gain versus 1.7% in the previous estimate.

GDP price inflation was revised up a tick to 3.8% q/q saar from 3.7% previously and still a marked acceleration from 2.3% in Q4. PCE price inflation was also revised up a tick to 3.7%, well above the Fed’s 2% target, from 3.6% previously.

The previously reported 2.9% q/q not annualized decline in corporate profits was revised up to a 2.3% decrease. Domestic profits slipped 1.5% versus -2.5% previously while foreign profits slumped 7.3% versus -5.9% previously.

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

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- The previously reported 0.2% q/q saar decline was revised to -0.5%.
- Consumer spending weakened markedly to a tepid 0.5% from 1.2% previously.
- Net exports were still the major drag while inventory investment still made a key contribution.
- GDP and PCE inflation were each revised up slightly.

U.S. Q1 GDP Revised Weaker in Third Estimate

Tom Moeller

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The Pending Home Sales Index rose 1.8% in May (1.1% y/y) to 72.6 after falling an unrevised 6.3% in April and rising an unrevised 5.5% in March according to the National Association of Realtors (NAR). The Index remained 42.0% below its most recent peak of 125.1 in October 2021. The index is a forward-looking measure of home sales based on contract signings.

The rise in May pending home sales occurred as the average rate on a 30-year mortgage rose to 6.82% in May after rising to 6.73% in April. These rates remained well above a low of 5.22% in August 2022 and more than double a record-low 2.68% in December 2020.

Pending home sales rose in each of the four major regions of the country last month. Sales in the West increased 6.0% (-1.2% y/y) in May after falling in five of the six prior months. Sales in the Northeast rose 2.1% (-0.5% y/y) after easing 0.6% in April. In the South, sales increased 1.0% (2.0% y/y) following a 7.8% April decline while sales in the Midwest edged 0.3% higher (2.6% y/y) following a 5.0% April weakening.

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

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

- Rise recaptures part of earlier decline.
- Regional gains are widespread.

U.S. Pending Home Sales Rise in May

Michael J. Moran

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New orders for durable goods surged 16.4% in May, led by a striking advance of 182.9% in bookings for new aircraft. Published figures by Boeing (303 new aircraft bookings) led analysts to expect strong results, but the outcome far exceeded expectations (Action Economics showed a median estimate of 9.0%). The advance in the headline number was the strongest in more than 10 years and the third firmest on record (data started 1992). The jump in May, combined with another strong month for aircraft in March, pulled the 6-month trend well above the previous range (chart, left).

While the volatile aircraft component accounted for most of the positive surprise, orders elsewhere were favorable as well, as shown by an increase of 0.5% excluding transportation – one of the better readings in the past three years. This increase also was notable because of its breadth, with all six components other than aircraft posting gains. Bookings for computers and electronics stood out with growth of 1.5%, but all areas were at least respectable. The May increase excluding transportation, while welcome, did little to alter the underlying trend, as the 6-month average increase remained within the narrow range seen in the past two to three years (chart, right).

Unfilled orders merit attention. If new orders were to soften, a sizeable backlog could keep manufacturers operating at normal levels for a time. The headline figure on unfilled orders was robust (3.4%), but as with new orders, the aircraft component dominated this reading; unfilled orders were unchanged excluding transportation. From a longer-term perspective, unfilled orders were strong from late 2020 through 2022 as the economy recovered from the pandemic, but they inched lower during 2023 and most of 2024. Backlogs showed hints of improvement in late 2024 and early this year, but 6-month average growth is now showing no change excluding transportation (chart, left).

The report on orders for durable goods includes a series that carries significance in the current environment. Many economic forecasts for 2025 involve weak investment spending by businesses because of policy uncertainty associated with tariffs. The series on bookings for nondefense capital goods other than aircraft provides insight into this crucial sector (chart, right).

Interestingly, capital spending seems to be holding up well. The Q1 GDP report showed strong growth in equipment spending by businesses (23.7%), and today’s report on durable goods orders offered encouraging news with growth of 1.7 percent in orders for nondefense capital goods other than aircraft. This increase, along with strong results in January, has pulled 6-month average growth into positive territory, a notable improvement from negative readings seen during most of 2023 and 2024. 

Manufacturers’ orders and shipments of durable and nondurable goods, along with unfilled orders and inventories, are compiled by the U.S. Census Bureau. They are available in Haver’s **USECON** database. The Action Economics forecast data are in the **AS1REPNA** database.

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- Fueled by robust orders for aircraft, but also respectable elsewhere.
- Demand for capital goods holding up well.

New Orders for Durable Goods: Firm Reading for May

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The advance estimate of the U.S. international trade deficit in goods widened to $96.6 billion during May after narrowing to $87.0 billion in April. A deficit of $91.0 had been expected in the Action Economics Forecast Survey. The deficit reached a record $162.0 billion in March according to the U.S. Census Bureau.

Total goods exports declined 4.9% (+7.5% y/y) during May after rising for four consecutive months. Industrial supplies & materials exports weakened 13.2% (+12.8% y/y) after increasing 16.4% in April. Foods, feeds & beverage exports declined 2.3% (+3.8% y/y) following a 3.4% drop. Capital goods exports were off 3.2% (+9.7% y/y) following a 2.6% April increase. Working higher, nonauto consumer goods exports surged 11.5% in May (1.8% y/y) after a 6.4% April decline. Automobile & parts exports rose 3.6% (-13.0% y/y) following a 21.4% decline. Exports of other goods edged 0.8% higher (14.2% y/y) following a 10.9% April gain.

Total goods imports eased 0.1% during May (+3.2% y/y) after falling 19.4% in April. Nonauto consumer goods imports declined 5.8% (+3.4% y/y) after weakening 32.3% in April. Industrial supplies materials imports fell 1.9% (-10.1% y/y) after cratering 30.5% in April. Foods, feeds & beverages imports eased 0.8% (+4.6% y/y) last month, the fourth consecutive monthly decline. Moving higher, auto imports jumped 10.6% (-7.6% y/y) after an 18.1% April decline. Capital goods imports edged 0.2% higher (16.6% y/y) after falling 2.5%. Imports of other goods jumped 9.9% (11.8% y/y) following a 0.5% rise during April.

The advance international trade data can be found in Haver's **USECON** database. The expectation figure is from the Action Economics Forecast Survey, which is in **AS1REPNA**.

- Deficit rise follows substantial narrowing.
- Sharp export decline reverses earlier increase.
- Imports are little changed following huge decline.

U.S. Goods Trade Deficit Increases in May

Winnie Tapasanun

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The Chicago Fed National Activity Index (CFNAI) was at -0.28 in May, up from -0.36 in April (-0.25 initially) and down from +0.16 in March (+0.03 previously), today’s report from the Federal Reserve Bank of Chicago showed. The May CFNAI registered the second consecutive negative reading following two positive figures; it was down from its recent high of +0.39 in February, +0.16 in May 2024, and a high of +0.37 in February 2024.

The index's three-month moving average (CFNAI-MA3), which smooths out the m/m volatility in the index, decreased to -0.16 in May after holding at +0.06 in April (+0.05 initially), posting the first negative reading since January and the lowest since November; it was slightly below -0.14 in May 2024. The CFNAI-MA3 is expressed in standard deviation units from zero (with a value of zero defined as trend real GDP growth). Research at the Chicago Fed indicates that an average reading of -0.70 or below is consistent with the economy being in a recession. Therefore, the May reading confirmed that the U.S. economy is not currently in a recession.

The May negative reading reflected m/m increases in two of the four CFNAI key components and three negative contributions. The contribution of the Production & Income index moved up to -0.11 in May from -0.18 in April; it was down from its recent high of +0.33 in February and +0.12 in May 2024 but above a low of -0.59 in December 2022. The contribution of the Sales, Orders & Inventories index improved to a neutral value (0.00) in May after dropping to -0.14 in April; it was marginally down from +0.01 in May 2024 but above a low of -0.26 in January 2024. Meanwhile, the Employment, Unemployment & Hours index contributed -0.05 in May, down from -0.02 in April and +0.02 in May 2024. The contribution of the Personal Consumption & Housing index to the CFNAI fell to -0.12 in May, the lowest reading since January, after falling to -0.03 in April; it was also down from +0.02 in May 2024 and a high of +0.17 in January 2023.

The CFNAI Diffusion Index, which measures the breadth of change in the component series and is also a three-month moving average, fell to -0.24 in May, the lowest reading since November, from -0.03 in April (-0.05 initially) and a neutral value (0.00) in March (-0.02 previously). A reading of zero indicates that all of the indicators are growing at their long-term average. The May reading was down from its recent high of +0.16 in February and -0.14 in May 2024 but above a low of -0.34 in October 2023.

The CFNAI is a weighted average of 85 indicators of national economic activity. It is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.

These figures are available in Haver's **SURVEYS** database.

- CFNAI -0.28 in May; -0.36 in April.
- Two of four CFNAI components up m/m, but three make negative contributions.
- Personal Consumption & Housing index falls to -0.12, a four-month low.
- CFNAI-MA3 drops to -0.16, the first negative figure since Jan.; still above -0.70 (recession signal).

Chicago Fed National Activity Index Improves to a Still-Negative Level in May

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance were 236,000 in the week ending June 21, a decrease of 10,000 from 246,000 in the week ending June 14, revised from 245,000. The Action Economics Forecast Survey expected 245,000. These data are seasonally adjusted by the Department of Labor. The 4-week moving average was 245,000, a decrease of 750 from the previous week’s average of 245,750, revised from 245,500.

The total number of unemployment insurance beneficiaries – also known as “continuing claims” – in the week ended June 14 was 1.974 million, up 37,000 from 1.937 million in the prior week, revised from 1.945 million. This is the highest level for continuing claims since November 6, 2021, when it was 2.041 million. The 4-week moving average was 1.941 million, up 16,750 from the previous week’s average of 1.924 million, revised from 1.926 million. This is the highest level for this average since November 20, 2021, when it was 2.004 million.

The insured unemployment rate for the week ending June 14, that is, the number of unemployment beneficiaries as a % of covered employment, was unchanged at 1.3% for the third consecutive week.

Economic conditions vary widely across states and territories. In the week ended June 7, the highest unemployment rates were in New Jersey (2.20%), California (2.05%), Washington (2.03%), Rhode Island (1.98%), and Massachusetts (1.96%). The lowest rates were in South Dakota (0.27%), Florida (0.36%), Alabama and North Carolina (both 0.47%), and Virginia (0.52%). Rates in other notable states include Illinois (1.62%), New York (1.57%), Pennsylvania (1.56%) and Texas (1.21%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Initial claims for unemployment insurance declined by 10,000 in the week ended June 21.
- Total beneficiaries rose by 37,000 in the June 14 week.
- The insured unemployment rate was unchanged at 1.3%.

U.S. Initial Jobless Claims Eased in Latest Week

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Sales of new single-family home sales declined 13.7% (-6.3% y/y) in May to 623,000 (SAAR) from 722,000 in April, revised from 743,000, and 659,000 in March, revised from 670,000 according to the U.S. Census Bureau. The Action Economics Forecast Survey expected sales of 693,000 during May. The sales gain occurred as the average 30-year fixed-rate mortgage rose to an average 6.82% last month from 6.73% in April, according to Freddie Mac. It compares to a low of 6.18% averaged in September of last year.

By region, new home sales varied across the country last month. Sales of new homes in the Midwest fell 7.1% (-3.7% y/y) to 78,000, after surging 29.2% during April. In the South, new home sales fell 21.0% (-15.5% y/y) to 349,000, following an 8.3% April rise. Sales of new homes in the West weakened 5.4% (+8.9% y/y) to 159,000, after rising 5.7% in April. To the upside, new home sales in the Northeast increased 32.1% (48.0% y/y) to 37,000 in May, after rising 3.7% in April.

The median sales price of a new home rose 3.7% (3.0% y/y) to $426,600 (NSA) in May after rising 1.9% to $411,400 in April. The average sales price of a new home rose 2.2% (4.6% y/y) to $522,200 in May, following a 1.0% April increase to $511,200 during April. The average price was 3.5% below a high of $541,200 in July 2022. These sales price data are not seasonally adjusted.

The number of unsold new homes on the market rose 1.4% (8.1% y/y) to 507,000 (SA) in May, after a 1.0% April decline. The seasonally adjusted months' supply of new homes for sale jumped to 9.8 months in May, the highest level since September 2022, after falling to 8.3 months in April. The latest reading remained above a low of 6.9 months in May 2023.

The median number of months a new home stayed on the market eased to 2.7 months in May, but remained up from a June 2024 low of 2.1 months. The latest number stood well above its record low of 1.5 months in both September and October of 2022, but remained below a high of 5.1 months in March 2021. These figures date back to January 1975.

New home sales are recorded when the sales contract is signed. New home sales activity and prices are available in Haver's **USECON** database. The consensus expectation figure from Action Economics is available in the **AS1REPNA** database.

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- Sales fall to lowest level since October.
- Declines spread throughout most of country.
- Median sales price strengthens to highest since January.

U.S. New Home Sales Decline Sharply in May; Prices Strengthen

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Mortgage applications rose 1.1% w/w (18.3% y/y) in the week ending June 20 following a 2.6% decrease in the week ending June 13, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. The latest reading was the second w/w rise in three weeks to the index level of 250.8. Applications for loans to purchase a house fell 0.4% (+11.8% y/y) in the June 20 week, the third w/w fall in four weeks, on top of a 3.0% drop in the June 13 week. Applications for loan refinancing rebounded 3.0% (29.1% y/y) in the June 20 week, up for the second week in three, following a 2.1% decline in the previous week.

The effective interest rate on a 30-year fixed-rate loan increased 3bps to 7.06% in the week ending June 20 after dropping to 7.03% in the week ending June 13; it was up from a low of 6.29% in the September 20 week but down from a peak of 8.12% in the week of October 20, 2023. The rate on 15-year fixed-rate mortgages eased 2bps to 6.29% in the June 20 week, the lowest since the May 9 week, after declining to 6.31% in the previous week; it was up from a low of 5.60% in the September 20 week but down from a high of 7.44% in the week of October 27, 2023. The rate on 30-year jumbo loans rose 6bps to 7.05% in the June 20 week after falling to 6.99% in the prior week; it was up from a low of 6.57% in the September 13 week but below a high of 7.99% in the week of October 27, 2023. The rate on a 5-year ARM rose 5bps to 6.36% in the June 20 week, the highest since the May 23 week, after declining to 6.31% in the previous week; it was above a low of 5.84% in the September 13 week but down from a high of 7.31% in the week of October 27, 2023.

The share of applications for refinancing an existing loan rose to 38.4% of total applications in the week ending June 20 from 37.3% in the week ending June 13, registering the fourth straight w/w rise and the highest since the April 11 week; however, that was well below a peak of 55.7% in the September 20 week. Meanwhile, the adjustable-rate mortgage (ARM) share of activity, down for the third week in four, fell to 6.9% in the June 20 week, the lowest since the March 28 week, after declining to 7.1% in the prior week; it was up from a low of 4.7% in the January 3 week but below its recent high of 9.6% in the April 11 week and a high of 10.7% in the week of October 27, 2023.

The average size of a mortgage loan, down for the sixth week in seven, fell 0.5% w/w (+1.1% y/y) to $378,300 in the June 20 week, the lowest level since the January 17 week, after a 0.9% fall to $380,200 in the June 13 week. The average size of a purchase loan, down for the fifth week in six, slid 0.6% (+1.3% y/y) to $436,300 in the June 20 week, the lowest level since the January 17 week, following a 0.7% decrease to $439,000 in the prior week. To the upside, the average size of a loan to refinance a mortgage rebounded 1.2% (5.6% y/y) to $285,100 in the June 20 week, the highest level since the May 16 week, reversing a 0.6% decline to $281,600 in the previous week.

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 fall 0.4% w/w while refinancing loan applications recover 3.0% w/w.
- Effective interest rate on 30-year fixed-rate loans rises to 7.06%.
- Average loan size declines to the lowest level since the January 17 week.

U.S. Mortgage Applications Rebound 1.1% in the June 20 Week

Robust US demand for advanced technology products

China's export growth rotating away from the US

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

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The Producer Price Index rose 0.5% in December, exceeding both the expected increase of 0.2% and the average advance of 0.3% in the prior six months. However, a surge of 0.7% in the service category accounted for much of the increase. The service component often moves erratically, and thus the sizeable increase in the headline index is not especially troubling. Within services, trade services are especially volatile, and prices here jumped 1.7% in December. Lower prices of food and energy (-0.3% and -1.4%, respectively) offset some of the pressure in the service area.

Prices of goods excluding food and energy, a grouping that shows less volatility than the food, energy, and service areas, rose 0.4% in December. The increase exceeded the average of 0.3% in the prior six months, but goods destined for export pushed the measure higher, jumping 0.7%. Goods intended for the domestic market (consumers, businesses, governments) saw price increases close to the recent average of 0.3%.

While the latest report on producer prices showed several notable shifts, underlying trends were little changed. The year-over-year increase in final-demand prices (the headline measure in this report) totaled 3.0% in December, a reading comfortably within the range evident since mid-2024 (chart, above left). The year-over-year increases in the goods and services categories changed only marginally: slightly higher for services and a tad lower for goods (chart, above right).

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The monthly report on the PPI also includes prices on intermediate goods and services, which might provide insight into final prices in coming months. The service category has been moving along a steady path, with year-over-year changes running in a range of approximately 1.5% to 2.5%. Prices of intermediate goods have been trending upward, moving from deflation during much of 2023-24 to an average year-over-year increase of approximately 3.5% in the past four months.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver’s **USECON** database. Further detail is contained in **PPI** and **PPIR**. The expectations figures are available in the **AS1REPNA** database.

- Prices of food and energy declined in December, but service prices surged.
- Prices of goods excluding food and energy rose more than the recent average, but the change did little damage to the underlying trend.

December PPI: Marked Shifts in Volatile Areas; Underlying Trends Steady

Robert Brusca

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GDP in the European Monetary Union rose by 1.3% at an annual rate quarter-to-quarter in the fourth quarter of 2025. This is a step up from 1.1% in the third quarter and from 0.6% in the second quarter. Year-over-year growth in the monetary union slowed to 1.3% in the fourth quarter compared to 1.4% in the third quarter and 1.5% in the second quarter; however, GDP growth is holding up well, and the quarterly profile suggests that the current growth rate is solid.

**Early-stage GDP reporters**
At this early stage, only seven countries have reported publicly GDP figures, and we see them in the table. Among them, the strongest growth rate in the fourth quarter is from Portugal at 3.2%, followed by Spain at 3.1%, and then the Netherlands at 2.1%; the weakest growth rate reported in the table is from France at 0.7% at an annual rate in Q4.

**Quarterly acceleration/deceleration**
In the fourth quarter with GDP measured quarter to quarter, GDP has accelerated in the monetary union from 1.1% in Q3 to 1.3% in Q4. At the country level, there are accelerations in Germany, Italy, Portugal, and Spain; the Netherlands logs the same growth rate in Q3 as in Q4 at 2.1%. Belgium and France log slowdowns, with Belgian growth posting a 0.8% annual rate in Q4 compared to 1.0% in Q3 and with France at 0.7% in Q4 compared to 2.1% in Q3.

**Year-on-year trends**
Year-over-year trends are different from this, however. On a year-over-year basis, the monetary union shows slightly slower growth at 1.3% in Q4 compared to 1.4% in Q3. Accelerating comparisons show Belgium, France, Germany, Italy, and the Netherlands all on rising growth rate profiles for year-on-year growth. Growth slows quarter-to-quarter in Portugal and in Spain.

**Growth in historic context**
The year-on-year growth rate overall ranked on data back to 1997 shows only Italy and Portugal with rates of growth above their respective medians for the period (back to 1997). Italy's growth rate has a 55.4 percentile standing, the same as for Portugal. Spain’s 48.9 percentile standing places its growth rate near its median, while the other countries produce growth rates largely in the mid-30th to low 40th percentiles for this period.

**Large economy/small economy**
Comparing growth rates for the largest four economies to the rest of the monetary union, we have the large economies growing stronger quarter-to-quarter in the fourth quarter of 2025 at 1.4% compared to 1.2%; this is a reversal of the pattern that we saw in Q3 and Q2. In fact, the year over year growth rates show the four largest economies growing slower than the rest of the monetary union, for the last four quarters. In the fourth quarter, they have a 40.2 percentile standing on growth rates back to 1997 while the rest of the monetary union comes in very close to its median growth rate with a percentile standing at 48.9%. It doesn't appear that any particular part of the monetary union is doing especially well, but the smaller countries appear to be closer to normal than the larger countries where growth remains more significantly challenged than it has been over the last 30 years.

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Europe

EMU GDP Steps Up on the Quarter

Andrew Cates

**Global Growth Conditions**
Flash PMI readings for January 2026 point to a global growth backdrop that remains uneven, with notable differences across economies in both activity levels and recent momentum. Several economies, including the UK, Australia and Japan, are firmly in expansionary territory above the 50 threshold and have also recorded solid positive three-month gains, suggesting some strengthening in activity entering the new year. The euro area and Germany are also comfortably above 50, indicating ongoing expansion, although recent momentum has been more subdued compared with some peers. France stands out as the main laggard, with the composite PMI still below the expansion threshold despite an improvement over the past three months. The US, meanwhile, has seen some softening in recent momentum even as activity remains in expansionary territory. India continues to post the strongest headline reading, though with little additional acceleration. Overall, the flash PMI data continue to portray a global economy that is expanding, but in a differentiated and uneven fashion rather than through a synchronised upswing.

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**The US dollar**
Alongside the uneven global growth signals, financial markets have also begun to reflect a shifting pattern in demand for US assets. The chart below shows a notable depreciation in the broad nominal effective exchange rate of the US dollar through the first half of 2025, followed by a period of relative stabilisation in the second half of the year and a more abrupt weakening at the start of 2026. While the earlier decline likely reflected narrowing growth and interest-rate differentials, the recent sharper move points more clearly to changing capital-flow dynamics and a partial erosion of the dollar’s safe-haven appeal. Although far from a disorderly adjustment, the renewed softness has revived discussion of a broader “sell America” theme, suggesting that geopolitical uncertainty and policy risk may now be playing a larger role in currency markets alongside traditional cyclical drivers.

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**Consumer confidence in the US and Europe**
The recent depreciation in the US dollar has coincided with a marked relative weakness in US consumer confidence compared with other major economies. As the chart illustrates, this week’s data from the Conference Board revealed that US sentiment has fallen well below its long-run average and now sits at notably weaker levels than in both the euro area and the UK (based on normalised readings), where confidence has shown tentative signs of stabilisation. The deterioration in US readings appears less related to financial conditions and arguably more reflective of political uncertainty and a softening in labour-market perceptions.

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**Financial markets and data surprises**
Despite the recent softness in the US dollar and signs of shifting capital flows, global equity markets have remained relatively upbeat, reflecting a still-supportive macro backdrop. As the chart illustrates, periods of stronger global growth surprises have tended to coincide with weaker inflation surprises, a combination that has historically been favourable for risk assets and has again been evident in recent months. This pattern tentatively points to an improving supply-side dynamic, where activity has been outperforming expectations without a corresponding resurgence in price pressures. One possible factor behind this development is the early impact of productivity-enhancing technologies, including artificial intelligence, which may be helping to lift growth while easing inflation constraints at the margin.

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**The US economy and AI**
Hard data released this week also continue to point to robust demand for advanced technology products in the US economy. The latest durable goods orders figures showed further strength in new orders for computers and related products, reinforcing the upward trend evident over the past two years. At the same time, recent trade data highlight a sustained rise in US imports of information and communications equipment, suggesting that domestic investment demand is being complemented by strong inflows of high-tech capital goods. Together, these series underscore the resilience of technology-related spending, consistent with ongoing investment linked to digitalisation, cloud infrastructure and artificial intelligence.

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**Industrial production in Taiwan**
The strength in US technology-related demand is also being echoed upstream in global supply chains, particularly in East Asia. As the chart shows, Taiwan’s industrial production has rebounded sharply over the past year, led by a pronounced acceleration in output of computers, electronic and optical products. Growth in electronic parts and components has likewise strengthened, outpacing the broader industrial sector and underscoring the central role of the semiconductor and advanced electronics cycle in the current upturn. This pickup aligns closely with the robust US orders and import data discussed above, suggesting that strong end-demand for high-tech equipment is translating into rising production across key manufacturing hubs.

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Financial markets have seen renewed gyrations in recent weeks, with a weaker US dollar, higher interest rate volatility and shifting capital flows reviving discussion of a “Sell America” narrative — so far more a marginal rebalancing than a wholesale retreat. The Federal Open Market Committee left the federal funds rate unchanged at its latest meeting, as widely expected, but communications around the outlook for future easing were arguably a little more hawkish than anticipated, reinforcing a cautious and increasingly data-dependent policy stance. In our charts this week we begin with January’s flash PMIs, which point to ongoing expansion across most major economies but with clear cross-country divergence in momentum (chart 1). That uneven real-economy picture has been mirrored in FX: the broad trade-weighted dollar depreciated through the first half of 2025, stabilised later in the year, but has now softened more abruptly at the start of 2026—suggesting a shift in risk premia and capital-flow dynamics (chart 2). Consistent with that, consumer confidence has weakened noticeably in the US relative to the euro area and UK, with the deterioration looking more tied to politics and labour-market perceptions (chart 3). Even so, global equity sentiment has remained comparatively upbeat, supported by a still-favourable macro mix in which global growth surprises have tended to run ahead of expectations while inflation surprises have been softer—tentatively consistent with an improving supply-side backdrop that markets increasingly associate with AI (chart 4). Finally, that theme is reinforced by hard activity indicators: US orders and imports of advanced technology products remain strong (chart 5), and Taiwan’s production data show a parallel surge in electronics output upstream (chart 6), pointing to a still-powerful global tech cycle even as broader macro and market narratives become more unsettled.

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Charts of the Week: Weaker Dollar, Stronger Tech

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Total factory orders rose a more-than-expected 2.7% m/m in November after a 1.2% drop in October and a 0.2% increase in September, data from the U.S. Census Bureau showed. November registered the third m/m rise in four months following m/m declines in July and June. The Action Economics Forecast Survey had expected a 0.6% m/m November increase. The year-on-year growth rate accelerated to 5.4% in November, the fastest pace since June, up from 2.3% in October and -0.9% in November 2024, while remaining well below a peak of 39.6% in April 2021. Notably, orders for nondefense aircraft & parts surged 97.6% m/m in November after falling 17.9% in October and 6.8% in September. Factory orders excluding defense rebounded 3.2% (5.3% y/y), the first m/m increase since August, after a 0.8% October decline. Factory orders excluding the transportation sector grew 0.2% (1.0% y/y), the second m/m increase in three months, after a 0.1% October easing.

Durable goods orders rose 5.3% (12.3% y/y) in November, up for the third time in four months, following a 2.1% decline in October (matching +5.3% m/m in the advance report on January 26). The November rise reflected m/m increases across nearly all major categories, led by a 14.7% rebound in transportation equipment (the third m/m rise in four months and the largest since May; +29.1% y/y), followed by increases of 1.0% (6.0% y/y) in electrical equipment, appliances & components, 0.9% (5.2% y/y) in fabricated metal products, 0.4% (1.4% y/y) in furniture & related products, 0.3% (7.7% y/y) in machinery, and 0.1% (4.4% y/y) in primary metals. Meanwhile, orders for computers & electronic products were virtually unchanged (+5.1% y/y) after two consecutive m/m rises.

Nondurable goods orders, which equal nondurable goods shipments, held steady (-1.3% y/y) in November following a 0.3% decline in October. The flat November reading reflected m/m increases of 5.0% (-9.3% y/y) in leather & allied products, 0.8% (3.6% y/y) in chemical products, 0.5% (-1.5% y/y) in textile mills, 0.3% (1.3% y/y) in apparel, 0.3% (-0.4% y/y) in printing, 0.2% (0.3% y/y) in paper products, and 0.2% (0.6% y/y) in plastics & rubber products. To the downside, the following nondurable goods shipments declined m/m in November: textile products (-1.7%; -0.1% y/y), petroleum & coal products (-1.1%; -12.2% y/y), beverage & tobacco products (-0.6%; +3.8% y/y), and food products (-0.1%; -0.3% y/y).

Total shipments dipped 0.1% (+2.1% y/y) in November following a 0.1% uptick in October and two successive m/m declines. Excluding transportation, shipments rose 0.2% (0.6% y/y), the second m/m rise in three months, after a 0.1% October dip. Shipments of durable goods industries fell 0.3% (+5.6% y/y), the first m/m fall since August, after a 0.5% October increase. This reflected m/m durable goods shipments declines of 1.7% (+10.3% y/y) in transportation equipment, 0.1% (+3.7% y/y) in primary metals, and 0.1% (-3.3% y/y) in wood products. In contrast, the following durable goods shipments rose m/m in November: furniture & related products (1.3%; 2.6% y/y), computers & electronic products (0.9%; 4.9% y/y), fabricated metal products (0.9%; 3.5% y/y), miscellaneous durable goods (0.6%; 2.6% y/y), nonmetallic mineral products (0.5%; 1.0% y/y), and machinery (0.2%; 5.8% y/y). Meanwhile, durable goods shipments for electrical equipment, appliances & components were essentially unchanged (4.2% y/y) in November after five straight m/m rises.

Unfilled orders advanced 1.4% (9.3% y/y) in November, the largest of four consecutive m/m gains, on top of a 0.2% increase in October. Excluding transportation, unfilled orders rose 0.3% (1.3% y/y), up for the fourth straight month, after a 0.3% October rise. Backlogs of durable goods increased 1.4% (9.3% y/y) in November, led by m/m gains of 2.0% (14.7% y/y) in transportation equipment and 0.7% (3.0% y/y) in electrical equipment, appliances & components, partially offset by a 0.1% decline (-0.8% y/y) in computers & electronic products.

Inventories edged up 0.1% (1.1% y/y) in November after holding steady in October and declining 0.1% in both September and August. Excluding transportation, inventories ticked up 0.1% (1.2% y/y), the sixth m/m increase in seven months, after no change in October. Durable goods inventories rose 0.2% (1.5% y/y) following a 0.2% October rise and two successive 0.1% declines, while nondurable goods inventories inched up 0.1% (0.3% y/y) after a 0.2% October decrease.

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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- Factory orders +2.7% m/m in Nov.; +5.4% y/y, largest y/y increase since June.
- Durable goods +5.3% m/m; nondurable goods orders flat; shipments marginally down.
- Transportation orders +14.7% m/m, led by a 97.6% surge in nondefense aircraft orders.
- Unfilled orders +1.4%, biggest of four straight m/m gains.
- Inventories +0.1% after October’s flat reading.

U.S. Factory Orders Rebound in November; Third M/M Gain in Four Months

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Revised data show no adjustment to the initial estimate of 4.9% growth in labor productivity during the third quarter (nonfarm business sector). This strong showing reflected a robust advance in output (5.4%) with little increase in labor input (0.5%).

Productivity figures often swing widely from quarter-to-quarter, and thus, quarterly observations should be interpreted cautiously. In this case, though, the strong results continued a pattern of generally firm increases that have been evident since late 2022. In the chart above, the 8-quarter moving average (to smooth volatility) shows stronger results than those seem before the pandemic. Average compound productivity growth from the end of 2022 to the present totaled 2.6%, up considerably from the average of 1.1 percent in the 2013-18 period.

The chart shows a jump in productivity in 2020-21. However, this gain probably reflects emergency measures adopted by businesses to survive during the Covid pandemic rather than genuine gains in efficiency, although lessons might have been learned that added momentum in subsequent quarters.

Productivity is a key factor in an economy’s inflation environment, as healthy efficiency gains allow businesses to absorb labor costs without raising prices. With strong gains in productivity, unit labor costs (labor compensation adjusted for productivity) have settled recently. Indeed, unit labor costs have declined in the past two quarters and the latest reading on the 8-quarter moving average totaled only 1.8%, easily consistent with the Federal Reserve’s inflation target of 2.0%.

The productivity and labor cost data are available in Haver’s **USECON** database. The Action Economics expectations figures are in the **AS1REPNA** database.

- Strong growth in output with little increase in labor input reinforced a firm underlying trend in productivity.
- Efficiency gains in Q3 more than offset growth in labor compensation.

Economy in Brief: 2025

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