Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071214d.jpg" align="left" border="0" height="265" width="353">
The inflation trends tell the story. It&#8217;s a clear story of
angst at the ECB. The sequential growth rates (3Mo Vs 6Mo Vs 12Mo) show
a steady quickening of the pace of inflation in the more recent time
periods. Over 12 months (ECB&#8217;s preferred horizon) three of our four key
EMU countries show ex food ex energy and ex alcohol inflation at a pace
above the ECB ceiling. Over the more recent periods that situation has
only gotten worse. As to headline inflation: forget about it. The
history on the graph on the let shows that once headline inflation
spurts the core rise usually follows in a year or so. The year 2005 was
an exception when the core fell by itself. There is nothing automatic
about headline-&gt; core inflation transmission. But there is
enough correlation to make the ECB&#8217;s fears of second or third round
effects real. On top of that the current core pace is simply
unacceptable. 
 

If the multi-central bank dollar credit facility is
&#8216;successful&#8217; it could hasten the time when the ECB hikes rates. Whether
that widens interest differentials with the US depends on whether US
circumstances normalize and whether such normalization brings with it a
rebalancing of the economy (where consumer confidence is sagging so
badly and in a way that it does not appear to be wholly determined by
credit market issues). 
 

While the credit turmoil, crisis, scam or whatever you may
want to call it, is a real and essentially global phenomenon, it is not
the only concern in town. And that applies to the evolution of European
growth as well as in the US. In Europe arguably much of the outlook
hangs in the balance on what the euro does from here on out. What
inflation does and how the ECB responds to it will be a large par of
that. 



<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> Trends in HICP</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU-13</td>
<td>0.7%</td>
<td>0.4%</td>
<td>0.4%</td>
<td style="color: red;">6.1%</td>
<td style="color: red;">3.7%</td>
<td style="color: red;">3.1%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.2%</td>
<td style="color: red;">3.4%</td>
<td style="color: red;">2.5%</td>
<td style="color: red;">2.3%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>1.0%</td>
<td>0.8%</td>
<td>1.0%</td>
<td style="color: red;">11.8%</td>
<td style="color: red;">3.7%</td>
<td style="color: red;">3.4%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>-0.5%</td>
<td>-2.4%</td>
<td style="color: black;">1.2%</td>
<td style="color: red;">2.5%</td>
<td>2.1%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">HICP</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.9%</td>
<td>0.2%</td>
<td>0.7%</td>
<td style="color: red;">7.1%</td>
<td style="color: red;">4.1%</td>
<td style="color: red;">3.3%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.8%</td>
<td>0.2%</td>
<td>0.1%</td>
<td style="color: red;">4.6%</td>
<td style="color: red;">3.4%</td>
<td style="color: red;">2.6%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.3%</td>
<td>0.7%</td>
<td>0.3%</td>
<td style="color: red;">5.1%</td>
<td style="color: red;">3.3%</td>
<td style="color: red;">2.5%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.8%</td>
<td>0.7%</td>
<td>0.4%</td>
<td style="color: red;">7.4%</td>
<td style="color: red;">4.7%</td>
<td style="color: red;">4.1%</td>
<td>2.7%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Core Excl Food Energy
&amp; Alcohol</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.4%</td>
<td>0.2%</td>
<td>0.3%</td>
<td style="color: red;">3.5%</td>
<td style="color: red;">2.5%</td>
<td style="color: red;">2.4%</td>
<td>1.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.1%</td>
<td style="color: red;">2.6%</td>
<td style="color: red;">2.3%</td>
<td style="color: red;">1.9%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.2%</td>
<td>0.5%</td>
<td>0.4%</td>
<td style="color: red;">4.3%</td>
<td style="color: red;">2.7%</td>
<td style="color: red;">2.2%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.3%</td>
<td>0.7%</td>
<td>0.2%</td>
<td style="color: red;">4.9%</td>
<td style="color: red;">3.9%</td>
<td style="color: red;">3.3%</td>
<td>2.7%</td>
</tr>
</tbody>
</table>
</body></html>

The inflation trends tell the story. It’s a clear story of angst at the ECB. The sequential growth rates (3Mo Vs 6Mo Vs 12Mo) show a steady quickening of the pace of inflation in the more recent time periods. Over 12 months (ECB’s [...]

EMU Inflation Surges as Core Dallies Over Top-Allowed Pace

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071214c.jpg" align="left" border="0" height="265" width="353">
The CBI Industrial Survey shows still firm readings for
measures of activity. Orders are still in the 86th percentile of their
range. Export orders remain in the 98th percentile of their range.
Output volume is much softer in the 55th percentile of its range.
Stocks are a bit above mid range as well in their 57th percentile,
roughly balanced with the position of sales. Average prices expected
remain elevated with a +15 reading, down from +21 in November but still
in the 82nd percentile of their range. 
 

Orders are surprisingly resilient especially for exports a
surprise given the buoyancy of the pound sterling and given the slowing
signals we have seen for the Euro area, to say nothing of slowing in
the US. But output volume has sunken well below its 12-month average of
+15 to stand at +3. There is some disconnect between orders and output
trends. Clearly one aspect is that the overseas economies are holding
up better than is the UK economy. Meanwhile, the average inflation
reading over 12 months is +17 and that is only a touch stronger than
the +15 reading for December that lingers as current output readings
have softened. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col">UK
Industrial Volume Data CBI Survey </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Reported:</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>12MO Avg</td>
<td>Pcntle</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr>
<td class="firstcol">Total Orders</td>
<td>2</td>
<td>8</td>
<td>-6</td>
<td>6</td>
<td>3</td>
<td>86%</td>
<td>9</td>
<td>-40</td>
<td>49</td>
</tr>
<tr class="odd">
<td class="firstcol">Export Orders</td>
<td>2</td>
<td>-4</td>
<td>-9</td>
<td>-2</td>
<td>-3</td>
<td>98%</td>
<td>3</td>
<td>-50</td>
<td>53</td>
</tr>
<tr>
<td class="firstcol">Stocks: Finished Goods</td>
<td>14</td>
<td>14</td>
<td>14</td>
<td>7</td>
<td>10</td>
<td>57%</td>
<td>26</td>
<td>-2</td>
<td>28</td>
</tr>
<tr class="odd">
<td class="firstcol">Output Volume: Next 3-Mo</td>
<td>3</td>
<td>9</td>
<td>10</td>
<td>17</td>
<td>15</td>
<td>55%</td>
<td>28</td>
<td>-28</td>
<td>56</td>
</tr>
<tr>
<td class="firstcol">Avg Prices 4Nxt 3m</td>
<td>15</td>
<td>21</td>
<td>14</td>
<td>16</td>
<td>17</td>
<td>82%</td>
<td>25</td>
<td>-30</td>
<td>55</td>
</tr>
<tr class="grey1">
<td colspan="10" class="firstcol">From end
2000</td>
</tr>
</tbody>
</table>
</body></html>

The CBI Industrial Survey shows still firm readings for measures of activity. Orders are still in the 86th percentile of their range. Export orders remain in the 98th percentile of their range. Output volume is much softer in the 55th [...]

CBI Survey Shows Industrial Slowing and Lingering Inflation

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071214a.jpg" width="353">
The consumer price index (CPI-U) rose 0.8% last month due to the surge in energy prices. The gain was the quickest since September of 2005, a month when higher energy prices similarly raised the index.A 0.6% rise in the November CPI had been expected by a Consensus of economists. The y/y gain in prices of 4.3% was its quickest since June of last year.
Core consumer price inflation picked up slightly to 0.3% after five months of 0.2% increase. A 0.2% gain was the general expectation. The y/y increase of 2.3% was its quickest in six months and the three month rise, to 2.6% (AR), has shown acceleration this year.
Energy prices soared 5.7%, the fastest rise since a 5.9% increase during March of this year. Those two gains were the quickest since an 11.8% surge in 2005. That was subsequently followed by m/m declines and/or more moderate gains in energy prices. Gasoline prices jumped 9.3% (37.1% y/y) last month but the weekly data already indicate a slight m/m decline in December. Prices for fuel oil &amp; other fuels surged 11.9% (28.4% y/y) but natural gas &amp; electricity prices rose just 0.7% (4.4% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071214b.jpg" width="353">
Food &amp; beverage prices rose 0.3% (4.7% y/y) but that was enough to lift the y/y increase to its fastest since 1991. Prices of dairy products were notably strong and rose 0.6% (14.0% y/y). Prices for fruits &amp; vegetable jumped 1.6% (4.5% y/y) but prices for meats, poultry &amp; fish fell 0.1% (5.4% y/y).
Core goods prices rose 0.2% after slight declines during each of the prior three months. Apparel prices surged 0.8% (-0.4% y/y) after having been unchanged in October. New &amp; used motor vehicle prices were unchanged (-0.4% y/y) after two months of decline. Prices of household furnishings &amp; operation rose a slight 0.1% (-0.7% y/y) after four straight months of decline.Tobacco prices increased 0.2% (8.2% y/y) for the second month but the y/y gain was its strongest since early 2003. The core CPI less tobacco rose 0.3% (2.3%).
Core services prices rose 0.3% (3.2% y/y). Shelter prices increased 0.3% (3.1% y/y) and that y/y change was its slowest since early this year. Owners equivalent rent of primary residence, a measure not equivalent to other house price measures, rose 0.3%, reducing the y/y gain to 2.8% y/y. Since a low several months ago of 1.8%, the three month change has picked up to 3.4%, its firmest since January. Public transportation prices rose 1.8% (6.1% y/y) and medical care services prices rose 0.3% (5.8% y/y). Education service prices rose 0.6% (5.5% y/y) after a firm 0.7% October gain but communication prices fell (-0.1% y/y) for the second consecutive month.
The chained CPI, which adjusts for shifts in the mix of consumer purchases rose 0.4% (3.6% y/y) but the core measure was unchanged. This latter measure is similar to the core PCE price index but its treatment of housing price differs
A Comparison of Measures of Core Inflation from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/epr/07v13n3/0712rich.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer Price Index</a> </th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.8%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>4.3%&nbsp;</td>
<td>3.2%</td>
<td>3.4%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.3%&nbsp;</td>
<td>2.5%</td>
<td>2.2%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods less Food &amp; Energy</td>
<td>0.2%</td>
<td>-0.0%</td>
<td>-0.0%</td>
<td>0.0%&nbsp;</td>
<td>0.2%</td>
<td>0.5%</td>
<td>-0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.2%&nbsp;</td>
<td>3.4%</td>
<td>2.8%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Energy</td>
<td>5.7%</td>
<td>1.4%</td>
<td>0.3%</td>
<td>21.3%&nbsp;</td>
<td>11.1%</td>
<td>16.9%</td>
<td>10.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food &amp; Beverages</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.5%</td>
<td>4.8%&nbsp;</td>
<td>2.3%</td>
<td>2.4%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td>&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained CPI: Total (NSA)</a>&nbsp;</td>
<td>0.4%</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.6%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy&nbsp;</td>
<td>0.0%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>2.3%</td>
<td>1.9%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>


</html>

The consumer price index (CPI-U) rose 0.8% last month due to the surge in energy prices. The gain was the quickest since September of 2005, a month when higher energy prices similarly raised the index.A 0.6% rise in the November CPI [...]

U.S. CPI Total & Core Slightly Above Expectations

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071214a.jpg" align="left" border="0" height="265" width="353">
The consumer price index (CPI-U) rose 0.8%
last month due to the surge in energy prices. The gain was the quickest
since September of 2005, a month when higher energy prices similarly
raised the index.A 0.6% rise in the November CPI had been expected by a
Consensus of economists. The y/y gain in prices of 4.3% was its
quickest since June of last year.
Core consumer price inflation picked up
slightly to 0.3% after five months of 0.2% increase. A 0.2% gain was
the general expectation. The y/y increase of 2.3% was its quickest in
six months and the three month rise, to 2.6% (AR), has shown
acceleration this year.
Energy prices soared 5.7%, the fastest
rise since a 5.9% increase during March of this year. Those two gains
were the quickest since an 11.8% surge in 2005. That was subsequently
followed by m/m declines and/or more moderate gains in energy prices.
Gasoline prices jumped 9.3% (37.1% y/y) last month but the weekly data
already indicate a slight m/m decline in December. Prices for fuel oil
&amp; other fuels surged 11.9% (28.4% y/y) but natural gas
&amp; electricity prices rose just 0.7% (4.4% y/y). <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071214b.jpg" align="right" border="0" height="265" width="353">
Food &amp; beverage prices rose 0.3%
(4.7% y/y) but that was enough to lift the y/y increase to its fastest
since 1991. Prices of dairy products were notably strong and rose 0.6%
(14.0% y/y). Prices for fruits &amp; vegetable jumped 1.6% (4.5%
y/y) but prices for meats, poultry &amp; fish fell 0.1% (5.4% y/y).
Core goods prices rose 0.2% after slight
declines during each of the prior three months. Apparel prices surged
0.8% (-0.4% y/y) after having been unchanged in October. New &amp;
used motor vehicle prices were unchanged (-0.4% y/y) after two months
of decline. Prices of household furnishings &amp; operation rose a
slight 0.1% (-0.7% y/y) after four straight months of decline.Tobacco
prices increased 0.2% (8.2% y/y) for the second month but the y/y gain
was its strongest since early 2003. The core CPI less tobacco rose 0.3%
(2.3%).
Core services prices rose 0.3% (3.2% y/y).
Shelter prices increased 0.3% (3.1% y/y) and that y/y change was its
slowest since early this year. Owners equivalent rent of primary
residence, a measure not equivalent to other house price measures, rose
0.3%, reducing the y/y gain to 2.8% y/y. Since a low several months ago
of 1.8%, the three month change has picked up to 3.4%, its firmest
since January. Public transportation prices rose 1.8% (6.1% y/y) and
medical care services prices rose 0.3% (5.8% y/y). Education service
prices rose 0.6% (5.5% y/y) after a firm 0.7% October gain but
communication prices fell (-0.1% y/y) for the second consecutive month.
The chained CPI, which adjusts for shifts
in the mix of consumer purchases rose 0.4% (3.6% y/y) but the core
measure was unchanged. This latter measure is similar to the core PCE
price index but its treatment of housing price differs


A Comparison of Measures of Core Inflation
from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/epr/07v13n3/0712rich.pdf">
here</a>.
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM">Consumer
Price Index</a> </th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.8%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>4.3%&nbsp;</td>
<td>3.2%</td>
<td>3.4%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less Food &amp; Energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.3%&nbsp;</td>
<td>2.5%</td>
<td>2.2%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods less Food &amp; Energy</td>
<td>0.2%</td>
<td>-0.0%</td>
<td>-0.0%</td>
<td>0.0%&nbsp;</td>
<td>0.2%</td>
<td>0.5%</td>
<td>-0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.2%&nbsp;</td>
<td>3.4%</td>
<td>2.8%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Energy</td>
<td>5.7%</td>
<td>1.4%</td>
<td>0.3%</td>
<td>21.3%&nbsp;</td>
<td>11.1%</td>
<td>16.9%</td>
<td>10.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food &amp; Beverages</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.5%</td>
<td>4.8%&nbsp;</td>
<td>2.3%</td>
<td>2.4%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td>&nbsp;&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM">Chained
CPI: Total (NSA)</a>&nbsp;</td>
<td>0.4%</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.6%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food
&amp; Energy&nbsp;</td>
<td>0.0%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>2.3%</td>
<td>1.9%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
U.S. Industrial Production Rose
0.3% and Recouped Half of the October Decline 
by <a href="/comment/Moeller.html">Tom
Moeller</a> December 14 2007


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071214e.jpg" align="left" border="0" height="265" width="353">
Industrial production rose 0.3% last month but the increase
recovered less than half of the downwardly revised 0.7% drop in
October. The Consensus expectation had been for a 0.2% rise.
Factory output also recovered from an October drop that was
revised deeper. The 0.4% November increase left the three month change
in output at -0.3%.
Output gains were broad based. Production in the motor vehicle
&amp; parts industries rose 1.6% and recovered all of the prior
month's 1.5% drop. However that still left output down 1.6% from a year
earlier. Output of furniture &amp; related products bounced 0.4%
(-2.0% y/y) following two months of sharp decline and output of
construction supplies was unchanged (1.0% y/y).
Also in the consumer goods sector, production of computers
&amp; electronics rose 1.5% (+13.4% y/y). Output of apparel was
unchanged (-3.8% y/y) but output of chemical products was down for the
fourth straight month (-0.5% y/y).<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071214f.jpg" align="right" border="0" height="265" width="353">
Output of business equipment rose a solid 1.0% (4.0% y/y).
Output of information &amp; processing equipment surged 2.3% (9.3%
y/y). Three month growth amounted to 11.9% (AR). Production of
industrial equipment inched up 0.2% after a 0.9% October shortfall.
Three month growth recovered to 2.7% (AR), well below the 6.7% growth
of last year.
In the materials category output rose 0.5% and recovered all
of the prior month's decline. Production of durable consumer parts rose
0.9% (5.0 y/y). Production of durable equipment parts surged 1.4% (7.4%
y/y) but consumer durable parts output only rose 0.5% (-0.5% y/y) after
three months of sharp decline.
Capacity utilization inched up to 81.5% from a revised 81.4%
in October. Utilization in the factory sector also rose slightly m/m to
79.8% and averaged 80.2% last year. Capacity rose 0.1% (1.8% y/y).
The Macroeconomics of Oil Shocks from the
Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/files/br/2007/br_q1-2007-3_oil-shocks.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">INDUSTRIAL
PRODUCTION (SA)</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.3%</td>
<td>-0.7%</td>
<td>2.2%</td>
<td>4.0%</td>
<td>3.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;
Manufacturing</td>
<td>0.4%</td>
<td>-0.7%</td>
<td>2.3%</td>
<td>5.0%</td>
<td>4.0%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mining</td>
<td>1.2%</td>
<td>-0.7%</td>
<td>2.2%</td>
<td>2.7%</td>
<td>-1.6%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>-1.4%</td>
<td>-1.4%</td>
<td>1.2%</td>
<td>0.2%</td>
<td>2.0%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>
 CBI Survey Shows
IndustrialSlowing and Lingering
Inflation
 
by <a href="/comment/Brusca.html">Robert
Brusca</a> December 14, 2007


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071214c.jpg" align="left" border="0" height="265" width="353">
The CBI Industrial Survey shows still firm readings for
measures of activity. Orders are still in the 86th percentile of their
range. Export orders remain in the 98th percentile of their range.
Output volume is much softer in the 55th percentile of its range.
Stocks are a bit above mid range as well in their 57th percentile,
roughly balanced with the position of sales. Average prices expected
remain elevated with a +15 reading, down from +21 in November but still
in the 82nd percentile of their range. 
 

Orders are surprisingly resilient especially for exports a
surprise given the buoyancy of the pound sterling and given the slowing
signals we have seen for the Euro area, to say nothing of slowing in
the US. But output volume has sunken well below its 12-month average of
+15 to stand at +3. There is some disconnect between orders and output
trends. Clearly one aspect is that the overseas economies are holding
up better than is the UK economy. Meanwhile, the average inflation
reading over 12 months is +17 and that is only a touch stronger than
the +15 reading for December that lingers as current output readings
have softened. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col">UK
Industrial Volume Data CBI Survey </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Reported:</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>12MO Avg</td>
<td>Pcntle</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr>
<td class="firstcol">Total Orders</td>
<td>2</td>
<td>8</td>
<td>-6</td>
<td>6</td>
<td>3</td>
<td>86%</td>
<td>9</td>
<td>-40</td>
<td>49</td>
</tr>
<tr class="odd">
<td class="firstcol">Export Orders</td>
<td>2</td>
<td>-4</td>
<td>-9</td>
<td>-2</td>
<td>-3</td>
<td>98%</td>
<td>3</td>
<td>-50</td>
<td>53</td>
</tr>
<tr>
<td class="firstcol">Stocks: Finished Goods</td>
<td>14</td>
<td>14</td>
<td>14</td>
<td>7</td>
<td>10</td>
<td>57%</td>
<td>26</td>
<td>-2</td>
<td>28</td>
</tr>
<tr class="odd">
<td class="firstcol">Output Volume: Next 3-Mo</td>
<td>3</td>
<td>9</td>
<td>10</td>
<td>17</td>
<td>15</td>
<td>55%</td>
<td>28</td>
<td>-28</td>
<td>56</td>
</tr>
<tr>
<td class="firstcol">Avg Prices 4Nxt 3m</td>
<td>15</td>
<td>21</td>
<td>14</td>
<td>16</td>
<td>17</td>
<td>82%</td>
<td>25</td>
<td>-30</td>
<td>55</td>
</tr>
<tr class="grey1">
<td colspan="10" class="firstcol">From end
2000</td>
</tr>
</tbody>
</table>
EMU Inflation Surges as Core
Dallies Over Top-Allowed Pace 
by <a href="/comment/Brusca.html">Robert
Brusca</a> December 14, 2007


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071214d.jpg" align="left" border="0" height="265" width="353">
The inflation trends tell the story. It&#8217;s a clear story of
angst at the ECB. The sequential growth rates (3Mo Vs 6Mo Vs 12Mo) show
a steady quickening of the pace of inflation in the more recent time
periods. Over 12 months (ECB&#8217;s preferred horizon) three of our four key
EMU countries show ex food ex energy and ex alcohol inflation at a pace
above the ECB ceiling. Over the more recent periods that situation has
only gotten worse. As to headline inflation: forget about it. The
history on the graph on the let shows that once headline inflation
spurts the core rise usually follows in a year or so. The year 2005 was
an exception when the core fell by itself. There is nothing automatic
about headline-&gt; core inflation transmission. But there is
enough correlation to make the ECB&#8217;s fears of second or third round
effects real. On top of that the current core pace is simply
unacceptable. 
 

If the multi-central bank dollar credit facility is
&#8216;successful&#8217; it could hasten the time when the ECB hikes rates. Whether
that widens interest differentials with the US depends on whether US
circumstances normalize and whether such normalization brings with it a
rebalancing of the economy (where consumer confidence is sagging so
badly and in a way that it does not appear to be wholly determined by
credit market issues). 
 

While the credit turmoil, crisis, scam or whatever you may
want to call it, is a real and essentially global phenomenon, it is not
the only concern in town. And that applies to the evolution of European
growth as well as in the US. In Europe arguably much of the outlook
hangs in the balance on what the euro does from here on out. What
inflation does and how the ECB responds to it will be a large par of
that. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Trends
in HICP</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU-13</td>
<td>0.7%</td>
<td>0.4%</td>
<td>0.4%</td>
<td style="color: red;">6.1%</td>
<td style="color: red;">3.7%</td>
<td style="color: red;">3.1%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.2%</td>
<td style="color: red;">3.4%</td>
<td style="color: red;">2.5%</td>
<td style="color: red;">2.3%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>1.0%</td>
<td>0.8%</td>
<td>1.0%</td>
<td style="color: red;">11.8%</td>
<td style="color: red;">3.7%</td>
<td style="color: red;">3.4%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>-0.1%</td>
<td>0.0%</td>
<td>-0.5%</td>
<td>-2.4%</td>
<td style="color: black;">1.2%</td>
<td style="color: red;">2.5%</td>
<td>2.1%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">HICP</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.9%</td>
<td>0.2%</td>
<td>0.7%</td>
<td style="color: red;">7.1%</td>
<td style="color: red;">4.1%</td>
<td style="color: red;">3.3%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.8%</td>
<td>0.2%</td>
<td>0.1%</td>
<td style="color: red;">4.6%</td>
<td style="color: red;">3.4%</td>
<td style="color: red;">2.6%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.3%</td>
<td>0.7%</td>
<td>0.3%</td>
<td style="color: red;">5.1%</td>
<td style="color: red;">3.3%</td>
<td style="color: red;">2.5%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.8%</td>
<td>0.7%</td>
<td>0.4%</td>
<td style="color: red;">7.4%</td>
<td style="color: red;">4.7%</td>
<td style="color: red;">4.1%</td>
<td>2.7%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">Core
Excl Food Energy
&amp; Alcohol</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.4%</td>
<td>0.2%</td>
<td>0.3%</td>
<td style="color: red;">3.5%</td>
<td style="color: red;">2.5%</td>
<td style="color: red;">2.4%</td>
<td>1.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.3%</td>
<td>0.2%</td>
<td>0.1%</td>
<td style="color: red;">2.6%</td>
<td style="color: red;">2.3%</td>
<td style="color: red;">1.9%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.2%</td>
<td>0.5%</td>
<td>0.4%</td>
<td style="color: red;">4.3%</td>
<td style="color: red;">2.7%</td>
<td style="color: red;">2.2%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.3%</td>
<td>0.7%</td>
<td>0.2%</td>
<td style="color: red;">4.9%</td>
<td style="color: red;">3.9%</td>
<td style="color: red;">3.3%</td>
<td>2.7%</td>
</tr>
</tbody>
</table>
</body></html>

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071213b.jpg" align="left" border="0" height="265" width="353">
The RICs survey presents as its metric a net balance reading
as surveys respond by saying house prices are higher or lower. Both
series show a larger progressive trend lower that is represented by
sequentially lower peaks in the various cycles and, for the most part,
sequentially lower troughs as well. Beyond this longer term trend
decline in this metric is the sharp plunge in both prices over the past
three months and expected prices in the next three months. The price
expectations series gives off useful signals at the peaks since it
peaks at a lower level than the past three month series but it is
usually too pessimistic at the troughs. The look-ahead series is
looking for even deeper declines in the next three months than in the
last three months at this time. Look for the actual data to turn more
positive ahead of the expectations series. But, for the moment, both
show bleak readings and both are on their respective lowest readings
since 1999. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">RICS:
House prices and expectations for prices and sales </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Nov-07</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>3-Mo Avg</td>
<td>6-Mo Avg</td>
<td>12-Mo Avg</td>
<td>Range 
Percentile</td>
</tr>
<tr>
<td class="firstcol">Prices</td>
<td>-41</td>
<td>-23</td>
<td>-15</td>
<td>-26</td>
<td>-10</td>
<td>9</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Price Expectations</td>
<td>-47</td>
<td>-35</td>
<td>-21</td>
<td>-34</td>
<td>-21</td>
<td>-2</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Sales expectations</td>
<td>-8</td>
<td>-6</td>
<td>-9</td>
<td>-8</td>
<td>-5</td>
<td>6</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">New Sales</td>
<td>-36</td>
<td>-33</td>
<td>-28</td>
<td>-32</td>
<td>-24</td>
<td>-11</td>
<td>0.0%</td>
</tr>
<tr class="grey2">
<td colspan="8" class="firstcol">Range
percentile takes range back to
1999</td>
</tr>
</tbody>
</table>
</body></html>

The RICs survey presents as its metric a net balance reading as surveys respond by saying house prices are higher or lower. Both series show a larger progressive trend lower that is represented by sequentially lower peaks in the [...]

RICS House Prices Sag Badly

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<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071213h.jpg" width="353">
Last week, initial claims for jobless insurance fell a modest 7,000 to 333,000 but the prior week&#39;s level was revised up slightly.
The four week moving average of initial claims, a measure which smoothes out most of the series&#39; w/w volatility, dipped to 338,750 (4.0% y/y), near the highest level since 2005.
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last six years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
Continuing claims for unemployment insurance rose 38,000 after an unrevised 59,000 decline during the prior week.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment held at 2.0% for the third consecutive week.
Fixing the New Keynesian Phillips Curve also from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2007/el2007-35.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"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">12/08/07 </th>
<th scope="col">12/01/07 </th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;333</td>
<td>340</td>
<td>6.7%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,639</td>
<td>7.0%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
</body>
</html>

Last week, initial claims for jobless insurance fell a modest 7,000 to 333,000 but the prior week's level was revised up slightly. The four week moving average of initial claims, a measure which smoothes out most of the series' w/w [...]

U.S. Initial Unemployment Insurance Claims Remained High

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071213f.jpg" width="353">
November U.S. retail sales doubled expectations for a 0.6% increase and rose 1.2%. That followed an unrevised 0.2% gain during October. The gains occurred despite the recent sharp drop in consumer sentiment.
Excluding autos sales also beat expectations for a 0.7% gain and rose 1.8% after a 0.4% increase during the prior month.
The strength was not all attributable to higher gasoline prices. Less gasoline, nonauto sales rose 1.1% following the meager 0.1% October uptick
Sales of discretionary items were notably firm last month. Apparel store sales surged 2.6% (6.6% y/y) but the prior month was revised down to a 0.5% decline. Furniture, home furnishings &amp; appliance stores sales also surged 1.7% after the 0.3% rise during October. Prior months&#39; slight declines were revised positive. Sales of electronics &amp; appliances jumped 2.5% (5.0% y/y). Sales at general merchandise stores increased 0.9% (5.0% y/y) after a little revised 0.1% October uptick.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071213g.jpg" width="353">
Even sales of building materials were strong during November and posted a 1.2% (0.8% y/y) increase, though the prior month was revised down to a 0.8% decline.
Sales of nonstore retailers (internet &amp; catalogue) ballooned 1.9% (10.7% y/y) and the prior month&#39;s decline was revised to a 0.4% increase.
Motor vehicle &amp; parts purchases fell 1.0% (+1.9% y/y). The decline was somewhat at odds with the 0.9% m/m rise in unit sales of light vehicles during November.
Gasoline service station sales jumped 6.8%, lifted by the 9.9% m/m rise in gasoline prices. The 3.1% rise during October was very much upwardly revised. So far this month gas prices are down 1.6% from the November average of $3.08 per gallon.
Corporate Access to External Financing from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2007/el2007-31.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">&nbsp;</th>
<th scope="col">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>1.2%</td>
<td>0.2%</td>
<td>6.3%</td>
<td>6.2%</td>
<td>6.6%</td>
<td>6.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>1.8%</td>
<td>0.4%</td>
<td>7.4%</td>
<td>7.3%</td>
<td>7.6%</td>
<td>7.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Less Gasoline</td>
<td>1.1%</td>
<td>0.1%</td>
<td>5.3%</td>
<td>7.2%</td>
<td>6.6%</td>
<td>6.1%</td>
</tr>
</tbody>
</table>


</html>

November U.S. retail sales doubled expectations for a 0.6% increase and rose 1.2%. That followed an unrevised 0.2% gain during October. The gains occurred despite the recent sharp drop in consumer sentiment. Excluding autos sales also [...]

U.S. Retail Sales Beat Expectations, Sales of Discretionary Items Firm

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071213c.jpg" align="left" border="0" height="265" width="353">
Finished producer prices surged 3.2% last month after little
change during October. A 1.5% rise had been expected. Core
finished goods producer prices rose a firm 0.4%, the
strongest gain since this past February.
Energy prices increased 14.1% (25.7% y/y) led by a 34.8%
(50.9% y/y) pop in the price of gasoline. Home heating oil prices also
surged by 31.5% (36.0% y/y) but natural gas prices fell 5.2% (+1.0%
y/y).
The firm gain in the core PPI almost wholly reflected a 0.6%
rise in passenger car prices and a 2.3% surge in
light truck prices.
Capital equipment prices rose 0.3% (1.3% y/y on the strength
of light truck prices.
Food prices were unchanged (7.2% y/y) after 1.0%+ gains during
the prior two months.
Intermediate goods prices surged 3.7% on the strength of
higher energy prices and a 1.2% (16.3% y/y) surge in food prices.
Excluding food &amp; energy prices were also firm and rose 1.0%
(3.3% y/y).
The crude materials PPI surged 8.7% led higher by a 17.0%
(23.5% y/y) jump in energy prices. The core crude materials PPI fell
0.5%.
A Comparison of Measures of Core Inflation
from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/epr/07v13n3/0712rich.pdf">
here</a>.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071213d.jpg" height="265" width="312">
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071213e.jpg" height="265" width="312">

<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">November</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>3.2%</td>
<td>0.1%&nbsp;</td>
<td>&nbsp; 7.7%&nbsp;</td>
<td>2.9%</td>
<td>&nbsp;4.9%&nbsp;</td>
<td>3.6%&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.4%</td>
<td>0.0%</td>
<td>&nbsp;1.9%</td>
<td>1.4%</td>
<td>2.4%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>3.7%</td>
<td>0.1%</td>
<td>8.6%</td>
<td>6.4%</td>
<td>&nbsp;8.0%</td>
<td>6.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>1.0%</td>
<td>0.1%</td>
<td>3.3%</td>
<td>6.0%</td>
<td>&nbsp;5.5%</td>
<td>5.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>8.7%</td>
<td>&nbsp;2.4%&nbsp;</td>
<td>&nbsp;22.2%</td>
<td>1.4%</td>
<td>14.6%</td>
<td>&nbsp;17.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.5%</td>
<td>1.4%</td>
<td>&nbsp;18.9%</td>
<td>20.9%</td>
<td>4.9%</td>
<td>&nbsp;26.5%</td>
</tr>
</tbody>
</table>
</body></html>

Finished producer prices surged 3.2% last month after little change during October. A 1.5% rise had been expected. Core finished goods producer prices rose a firm 0.4%, the strongest gain since this past February. Energy prices [...]

U.S. PPI Total Surged, Core Firm

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

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

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

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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Andrew Cates

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

250501Z1.jpg

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

250501Z2.jpg

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

250501Z3.jpg

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

250501Z4.jpg

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

250501Z5.jpg

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

250501Z6.jpg

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

<iframe style="border-radius:12px" src="https://open.spotify.com/embed/episode/3PzXXKrkHcwtOLipohEdnB?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Tariff Truce, Tenuous Trust

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The ISM Purchasing Managers Index of activity in the manufacturing sector slipped to 48.7 in April from 49.0 during March and 50.3 in February. It remained up from a low of 46.9 in October of last year. A level of 50 is the break-even point between a rising and falling level of activity. The Action Economics Forecast Survey expected a reading of 47.8 for April. The series reached a monthly high of 63.8 in March 2021.

Two of the five component indexes weakened last month. The April production index fell to 44.0 after declining to 48.3 in March. It was the lowest level since May 2020. A lessened 19.8% (NSA) of respondents reported higher production while an increased 24.2% reported lower output. The inventories index declined to 50.8 last month from 53.4 in March. The index remained up from a low of 43.2 in October of last year.

Moving higher, the new orders index rose to 47.2 last month from 45.2 in March. The index remained below a January high of 55.1. Twenty-eight percent (NSA) of respondents reported higher new orders while 26.7% reported a decline. The employment index rose to 46.5 from 44.7 in March. It was below a high of 50.3 in January. A greater 13.1% (NSA) of respondents reported more hiring while a fewer 16.2% indicated less. The supplier delivery index rose to 55.2 from 53.5 in March. A higher 16.6% (NSA) of respondents reported slower delivery speeds while a fairly steady 6.2% reported a quickening.

The prices index, which is not part of the composite series, edged up to 69.8 (NSA) in April after increasing to 69.4 in March. It was the highest level since June 2022, up from a December 2022 low of 39.4. An increased 49.2% of respondents reported higher prices last month, up from 12.2% in November, while a higher 9.7% reported lower prices.

In other series, the export orders index plummeted to 43.1 in April from 49.6 during March. It was down from the high of 52.4 in January. The imports index fell sharply to 47.1 from 50.1 in March. It was the lowest reading since December 2023. The order backlog index dropped to 43.7 (NSA) last month from 44.5 in March. It was the lowest level in five months.

The ISM figures are based on responses from over 400 purchasing executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These indexes are diffusion indexes where a reading above 50 indicates expansion and a reading below 50 points to contraction. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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250501M5.jpg

- Declines in last three months follow earlier improvement.
- Production & inventories account for m/m shortfall.
- Prices index edges up to another three-year high.

U.S. ISM Manufacturing Index Indicates Contraction in April

Winnie Tapasanun

250501N.jpg

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The value of construction put in place unexpectedly fell 0.5% m/m in March after rises of 0.6% in February (+0.7% initially) and 0.1% in January (-0.5% previously), data from the U.S. Census Bureau showed. The March reading was the first m/m fall following five straight m/m gains. A 0.3% m/m March rise had been expected in the Action Economics Forecast Survey. The year-on-year rate of increase decelerated to 2.8% in March, the lowest since May 2019, after registering at 3.4% in February and January. The latest y/y figure was lower than 8.7% in March 2024; thus, having remained below its recent high of 9.8% in January 2024 and a peak of 18.6% in April 2022.

Private construction slid 0.6% (+2.3% y/y) in March, down for the first time since September, following increases of 0.7% in February (+0.9% initially) and 0.1% in January (-0.7% previously). Residential private construction fell 0.4% (+2.8% y/y) in March, the first m/m fall in six months, after an unrevised 1.3% gain in February. Home improvement building dropped 1.2% (+13.4% y/y), the first m/m decline since December, following a 2.3% February gain; it was 41.1% of the residential private construction. Single-family building edged up 0.1% (-0.8% y/y), the smallest of seven consecutive m/m increases, after a 0.8% February rise; it was 46.6% of the residential private construction. Meanwhile, multi-family building was essentially unchanged m/m (-12.1% y/y) in March following 15 straight m/m decreases; it was 12.3% of the residential private construction.

Nonresidential private construction fell 0.8% (+1.6% y/y) in March after a 0.1% increase in February (+0.4% initially) and a 0.1% easing in January (-0.2% previously). The March fall reflected m/m drops in the following nonresidential private constructions. These included religious (-2.9%; +16.4% y/y), health care (-2.2%; -5.2% y/y), office (-1.8%; +2.7% y/y), educational (-1.7%; -4.2% y/y), lodging (-1.6%; -1.0% y/y), commercial (-1.0%; -5.8% y/y), manufacturing (-0.4%; +3.6% y/y), communication (-0.3%; +2.2% y/y), and utilities (-0.1%; +7.0% y/y). In contrast, private constructions for amusement & recreation (1.5%; 7.0% y/y) and transportation (0.7%; 10.2% y/y) rose m/m in March.

The value of public construction declined 0.2% (+4.7% y/y) in March after holding steady in February (+0.2% initially), reflecting a 0.2% increase (-1.9% y/y) in residential public construction and a 0.2% easing (+4.8% y/y) in nonresidential public construction. The March decline reflected m/m drops in the following nonresidential public constructions. These included utilities (-4.8%; -12.8% y/y), commercial (-1.6%; +40.3% y/y), amusement & recreation (-1.0%; +19.1% y/y), educational (-0.6%; +7.6% y/y), sewage & waste disposal (-0.6%; +10.6% y/y), and health care (-0.4%; +13.0% y/y). Notably, spending on highways & streets, which made up 28.7% of public construction spending, fell 0.5% (-2.4% y/y) in March, the first m/m fall since October, following a 0.9% increase in February. To the upside, the following public constructions rose m/m in March: office (1.6%; 6.0% y/y), transportation (1.4%; 7.3% y/y), public safety (0.7%; 4.1% y/y), conservation & development (0.6%; 4.7% y/y), and water supply (0.6%; 12.2% y/y).

The construction figures can be found in Haver's **USECON** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.

250501P.jpg

250501Q.jpg

- March construction spending -0.5% m/m; +2.8% y/y, the lowest y/y rate since May ’19.
- Residential private construction -0.4% m/m, led by a 1.2% drop in home improvement building.
- Nonresidential private construction -0.8% m/m, down for the second month in three.
- Public sector construction -0.2% m/m, reflecting a 0.2% decline in nonresidential public building.

U.S. Construction Spending Unexpectedly Drops in March, the First M/M Fall Since September

Carol Stone, CBE

250501A8.jpg

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Initial claims for unemployment insurance rose 18,000 in the week ended April 26 to 241,000, seasonally adjusted.  This is higher by 16,000 than the Action Economics Forecast Survey amount of 225,000 and is the largest amount since the week of February 22. The previous week’s actual count was revised up by 1,000 to 223,000, from 222,000 reported initially.

The total number of unemployment insurance beneficiaries – also known as “continuing claims” – in the week ended April 19 was 1.916 million, up 83,000 from the prior week’s 1.833 million; that earlier amount was revised down by 8,000.

The insured unemployment rate, that is, the number of beneficiaries as a percentage of covered employment, was 1.3% in the April 19 week, following 1.2% continuously since the week of January 6, 2024.

Economic conditions vary widely across states and territories.  In the week ended April 12, the highest unemployment rates were in New Jersey (2.39%), California (2.24%), Washington (2.19%), Rhode Island (2.17%) and Massachusetts (1.93%).  The lowest rates were in Florida (0.35%), South Dakota (0.40%), Alabama (0.41%), Virginia (0.45%) and Tennessee (0.48%).  Rates in other notable states include the Illinois (1.85%), New York (1.71%), Pennsylvania (1.54%) and Texas (1.09%). 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 U**SECON**. 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.

250501C8.jpg

250501D8.jpg

- Actual initial claims amount is 16,000 more than forecast.
- Total beneficiaries rose by 83,000.
- Insured unemployment rate ticked up to 1.3% after 15 months at 1.2%.

U.S. Initial Jobless Claims Rise Notably in April 28 Week

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

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

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

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

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

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

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

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

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

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

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

Economy in Brief: December 2007

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EMU Inflation Surges as Core Dallies Over Top-Allowed Pace

CBI Survey Shows Industrial Slowing and Lingering Inflation

U.S. CPI Total & Core Slightly Above Expectations

U.S. CPI Total & Core Slightly Above Expectations

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U.S. Initial Unemployment Insurance Claims Remained High

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U.S. PPI Total Surged, Core Firm