Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220d.jpg" width="353">
Chain store sales rose 2.4% last week. The jump followed a 0.9% gain the prior period and thus recovered all of December&#39;s opening week skid of 3.1%, according to the International Council of Shopping Centers (ICSC)-UBS survey. Nevertheless, sales so far in December remained 2.0% below the November average which rose 1.2% from October.
During the last ten years there has been a 51% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC slipped 0.4% (-1.6% y/y) following two weeks of gain.
The gains in store sales may be limited by the drain on consumers&#39; budgets from higher gasoline prices, which rose to $2.21 per gallon (21.8% y/y) last week. Some relief may, however, be forthcoming if the last two days&#39; decline in the spot market price for unleaded gasoline hold.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">12/17/05</th>
<th scope="col">12/10/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>455.0</td>
<td>444.5</td>
<td>3.9%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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Chain store sales rose 2.4% last week. The jump followed a 0.9% gain the prior period and thus recovered all of December's opening week skid of 3.1%, according to the International Council of Shopping Centers (ICSC)-UBS survey. [...]

Chain Store Sales: The Holiday Spirit Found?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220c.jpg" width="353">
Housing starts surged 5.3% m/m in November. The gain to 2.123M units reversed most of the prior month&#39;s decline and beat Consensus expectations for a decline to 2.015M starts.
A 4.8% gain in single-family starts returned the level to its record height of 1.808M achieved this past February. The gain was most pronounced in the West where starts rose 14.4% (25.8% y/y) and in the Midwest where starts rose 7.5% (22.5% y/y). In the South single family starts rose just 0.8% (22.1% y/y) but in the Northeast single family starts fell for the fourth month in the last five (+5.8% y/y).
Multi family starts recovered about one third of the prior month&#39;s skid with a 7.9% m/m gain and building permits recovered about half of the prior month&#39;s 5.2% drop as single family permits inched up just 0.2% (7.7% y/y).

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</table>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>2,123</td>
<td>2,017</td>
<td>17.5%</td>
<td>1,950</td>
<td>1,854</td>
<td>1,7 10</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,808</td>
<td>1,725</td>
<td>21.8%</td>
<td>1,604</td>
<td>1,505</td>
<td>1,363</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>315</td>
<td>292</td>
<td>-2.5%</td>
<td>345</td>
<td>349</td>
<td>347</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,155</td>
<td>2,103</td>
<td>3.0%</td>
<td>2,058</td>
<td>1,8 88</td>
<td>1,749</td>
</tr>
</tbody>
</table>
</body>
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Housing starts surged 5.3% m/m in November. The gain to 2.123M units reversed most of the prior month's decline and beat Consensus expectations for a decline to 2.015M starts. A 4.8% gain in single-family starts returned the level to [...]

Housing Starts Post Surprising Gain; Single Family At Record

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220e.jpg" width="353">
The November Producer Price Index reversed the prior month&#39;s gain and fell 0.7%. The decline was the largest for any month since April 2003 andslightly exceeded Consensus expectations for a 0.5% drop.
In a reverse of the prior month&#39;s strength, home heating oil prices fell 15.5% (+30.5% y/y) and natural gas prices declined 0.5% (+31.0% y/y), both seasonally adjusted. Gasoline prices added to the prior month&#39;s drop with a 10.7% (+19.4% y/y) decline.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220f.jpg" width="353">
&quot;Core&quot; producer prices edged up 0.1% following the prior month&#39;s 0.3% decline and the rise fell short of Consensus expectations for a 0.2% increase.
Prices of finished consumer goods less food &amp; energy rose 0.2% (2.0% y/y) and the gain was driven by a 0.5% (3.7% y/y) surge in core consumer nondurable goods prices. Durable goods prices fell another 0.2% -0.2% y/y) on top of the 0.9% October decline led by passenger car prices which fell 0.8% (-3.2% y/y). Capital equipment prices fell for the third month in the last four led by a 0.8% (-4.1% y/y) decline in truck prices.
Intermediate goods prices reversed only some of the prior month&#39;s strength with a 1.2% decline. Core intermediate goods prices remained firm and rose 0.5% on top of two months of 1.2% gain.
Crude energy prices similarly remained firm. The 1.2% decline in the total only dented the strong gains during four months because core crude prices soared 5.4% led by an 18.8% (-14.4% y/y) surge in iron &amp; steel scrap prices. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.
Inflation Targeting under Commitment and Discretion from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/review/2005/dennis.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<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">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>-0.7%</td>
<td>0.7%</td>
<td>4.5%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>-0.3%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-1.2%</td>
<td>3.0%</td>
<td>8.4%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.5%</td>
<td>1.2%</td>
<td>4.5%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-1.2%</td>
<td>6.7%</td>
<td>20.8%</td>
<td>17.5%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>5.4%</td>
<td>-1.2%</td>
<td>3.1%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
</body>
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The November Producer Price Index reversed the prior month's gain and fell 0.7%. The decline was the largest for any month since April 2003 andslightly exceeded Consensus expectations for a 0.5% drop. In a reverse of the prior month's [...]

PPI Down 0.7%, Core Tame

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220a.jpg" width="353">
The National Association of Home Builders&#39; (NAHB) Composite Housing Market Index fell again in December; by four points on top of a seven point November decline. The decline to 57 dropped the index to the lowest level since April 2003 and the index ended the year roughly 20% below the year end 2004 level.
During the last twenty years the y/y change in the annual composite index has had an 85% correlation with the change in single family housing starts and there has been a 75% correlation between the current sales index and new single family home sales.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220b.jpg" width="353">
The m/m drop reflected sharp declines throughout the country, notably in the West.
The index for current sales of single family homes in December fell sharply to the lowest level since May 2003 while the index for sales in six months also fell hard the lowest in over two years.
Traffic of prospective home buyers plunged to its lowest level since the Spring of 2003.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec &#39;04</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>57</td>
<td>61</td>
<td>71</td>
<td>67</td>
<td>68</td>
<td>64</td>
</tr>
</tbody>
</table>
</body>
</html>

The National Association of Home Builders' (NAHB) Composite Housing Market Index fell again in December; by four points on top of a seven point November decline. The decline to 57 dropped the index to the lowest level since April 2003 [...]

NAHB Housing Market Index: Down Hard Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220e.jpg" width="353">
The November Producer Price Index reversed the prior month&#39;s gain and fell 0.7%. The decline was the largest for any month since April 2003 andslightly exceeded Consensus expectations for a 0.5% drop.
In a reverse of the prior month&#39;s strength, home heating oil prices fell 15.5% (+30.5% y/y) and natural gas prices declined 0.5% (+31.0% y/y), both seasonally adjusted. Gasoline prices added to the prior month&#39;s drop with a 10.7% (+19.4% y/y) decline.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220f.jpg" width="353">
&quot;Core&quot; producer prices edged up 0.1% following the prior month&#39;s 0.3% decline and the rise fell short of Consensus expectations for a 0.2% increase.
Prices of finished consumer goods less food &amp; energy rose 0.2% (2.0% y/y) and the gain was driven by a 0.5% (3.7% y/y) surge in core consumer nondurable goods prices. Durable goods prices fell another 0.2% -0.2% y/y) on top of the 0.9% October decline led by passenger car prices which fell 0.8% (-3.2% y/y). Capital equipment prices fell for the third month in the last four led by a 0.8% (-4.1% y/y) decline in truck prices.
Intermediate goods prices reversed only some of the prior month&#39;s strength with a 1.2% decline. Core intermediate goods prices remained firm and rose 0.5% on top of two months of 1.2% gain.
Crude energy prices similarly remained firm. The 1.2% decline in the total only dented the strong gains during four months because core crude prices soared 5.4% led by an 18.8% (-14.4% y/y) surge in iron &amp; steel scrap prices. During the last thirty years &quot;core&quot; crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.
Inflation Targeting under Commitment and Discretion from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/review/2005/dennis.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/USECON/@E8/@E802/@E80201/@E80201.HTM">Producer Price Index</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>-0.7%</td>
<td>0.7%</td>
<td>4.5%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>-0.3%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>0.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-1.2%</td>
<td>3.0%</td>
<td>8.4%</td>
<td>6.6%</td>
<td>4.6%</td>
<td>-1.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.5%</td>
<td>1.2%</td>
<td>4.5%</td>
<td>5.7%</td>
<td>2.0%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>-1.2%</td>
<td>6.7%</td>
<td>20.8%</td>
<td>17.5%</td>
<td>25.1%</td>
<td>-10.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>5.4%</td>
<td>-1.2%</td>
<td>3.1%</td>
<td>26.6%</td>
<td>12.4%</td>
<td>3.8%</td>
</tr>
</tbody>
</table>
Housing Starts Post Surprising Gain; Single Family At Record 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220c.jpg" width="353">
Housing starts surged 5.3% m/m in November. The gain to 2.123M units reversed most of the prior month&#39;s decline and beat Consensus expectations for a decline to 2.015M starts.
A 4.8% gain in single-family starts returned the level to its record height of 1.808M achieved this past February. The gain was most pronounced in the West where starts rose 14.4% (25.8% y/y) and in the Midwest where starts rose 7.5% (22.5% y/y). In the South single family starts rose just 0.8% (22.1% y/y) but in the Northeast single family starts fell for the fourth month in the last five (+5.8% y/y).
Multi family starts recovered about one third of the prior month&#39;s skid with a 7.9% m/m gain and building permits recovered about half of the prior month&#39;s 5.2% drop as single family permits inched up just 0.2% (7.7% y/y).

<table border="0" cellspacing="0" width="100%">

</table>
<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/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>2,123</td>
<td>2,017</td>
<td>17.5%</td>
<td>1,950</td>
<td>1,854</td>
<td>1,7 10</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,808</td>
<td>1,725</td>
<td>21.8%</td>
<td>1,604</td>
<td>1,505</td>
<td>1,363</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>315</td>
<td>292</td>
<td>-2.5%</td>
<td>345</td>
<td>349</td>
<td>347</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,155</td>
<td>2,103</td>
<td>3.0%</td>
<td>2,058</td>
<td>1,8 88</td>
<td>1,749</td>
</tr>
</tbody>
</table>
NAHB Housing Market Index: Down Hard Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220a.jpg" width="353">
The National Association of Home Builders&#39; (NAHB) Composite Housing Market Index fell again in December; by four points on top of a seven point November decline. The decline to 57 dropped the index to the lowest level since April 2003 and the index ended the year roughly 20% below the year end 2004 level.
During the last twenty years the y/y change in the annual composite index has had an 85% correlation with the change in single family housing starts and there has been a 75% correlation between the current sales index and new single family home sales.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220b.jpg" width="353">
The m/m drop reflected sharp declines throughout the country, notably in the West.
The index for current sales of single family homes in December fell sharply to the lowest level since May 2003 while the index for sales in six months also fell hard the lowest in over two years.
Traffic of prospective home buyers plunged to its lowest level since the Spring of 2003.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the <a href="http://www.nahb.org">National Association of Home Builders</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat&#39;l Association of Home Builders</a> </th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec &#39;04</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>57</td>
<td>61</td>
<td>71</td>
<td>67</td>
<td>68</td>
<td>64</td>
</tr>
</tbody>
</table>
Chain Store Sales: The Holiday Spirit Found? 
by <a href="/comment/Moeller.html">Tom Moeller</a> December 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220d.jpg" width="353">
Chain store sales rose 2.4% last week. The jump followed a 0.9% gain the prior period and thus recovered all of December&#39;s opening week skid of 3.1%, according to the International Council of Shopping Centers (ICSC)-UBS survey. Nevertheless, sales so far in December remained 2.0% below the November average which rose 1.2% from October.
During the last ten years there has been a 51% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales from ICSC slipped 0.4% (-1.6% y/y) following two weeks of gain.
The gains in store sales may be limited by the drain on consumers&#39; budgets from higher gasoline prices, which rose to $2.21 per gallon (21.8% y/y) last week. Some relief may, however, be forthcoming if the last two days&#39; decline in the spot market price for unleaded gasoline hold.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">12/17/05</th>
<th scope="col">12/10/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>455.0</td>
<td>444.5</td>
<td>3.9%</td>
<td>4.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Production and New Orders in the Euro Zone's Big Three: Germany, France and Italy 
by <a href="/comment/Curley.html">Louise Curley</a> December 20, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220i.jpg" width="353">
Industrial production in France, Germany and Italy, the three largest countries in the Euro Zone, shows distinctly different trends. While German industrial production has recently shown strength, Italian production has trended downward and French production has shown little trend. In Germany, industrial production increased 1.1% in October from September and was 4.2% above October, 2004. The comparable figures for France were -2.5% and 1.4%; and, for Italy, -0.9% and -1.6%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220h.jpg" width="353"> The sharp drop in French production in October may have been affected by the racial unrest that took place during that time, nevertheless, the trend of production in France has been relatively flat since early 2004. Industrial production in Italy, on the other hand, has been in a declining trend over most of the last five years. Industrial production in France and Italy are shown in the first chart. (The data on industrial production are from Eurostat which insures comparability of data among countries by harmonizing the concepts used by individual countries of the Euro Zone.)<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220g.jpg" width="353">
 Eurostat data on new orders will not be published until Thursday of this week, but Germany, France and Italy have released their national data on new orders today. In contrast to the trends in industrial production, the trends in new orders in all three countries have generally been rising since mid 2003. German new orders increased by 2.4% in October from September and were almost 10% above October 2004. While the October figures for France and Italy showed declines from September of respectively -2.1% and -1.1%, they were 2.6% and 2.2% respectively above October 2004.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051220j.jpg" width="353">
It is not possible to generalize on the relationship between new orders and industrial production on the basis of the experience of these three countries. In the three charts showing new orders and industrial production for each country, the correlations between the two series vary from -0.17 for Italy, 0.47 for France and 0.92 for Germany.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Oct 05</th>
<th scope="col">Sep 05</th>
<th scope="col">Oct 04</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Production ex Construction ( 2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; France</td>
<td>99.8</td>
<td>102.4</td>
<td>101.2</td>
<td>-2.54</td>
<td>-1.38</td>
<td>101.3</td>
<td>99.5</td>
<td>99.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Italy</td>
<td>95.0</td>
<td>95.9</td>
<td>96.5</td>
<td>-0.94</td>
<td>-1.55</td>
<td>96.7</td>
<td>97.3</td>
<td>97.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany</td>
<td>108.3</td>
<td>107.1</td>
<td>103.9</td>
<td>1.12</td>
<td>4.23</td>
<td>102.5</td>
<td>99.5</td>
<td>99.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Total Euro Zone</td>
<td>102.8</td>
<td>103.6</td>
<td>102.6</td>
<td>-0.81</td>
<td>0.20</td>
<td>102.1</td>
<td>100.2</td>
<td>99.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">New Orders (2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; France</td>
<td>107.4</td>
<td>109.7</td>
<td>104.7</td>
<td>-2.10</td>
<td>2.58</td>
<td>111.6</td>
<td>100.7</td>
<td>99.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Italy</td>
<td>102.0</td>
<td>103.1</td>
<td>99.8</td>
<td>-1.07</td>
<td>2.20</td>
<td>99.0</td>
<td>95.5</td>
<td>99.1&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany</td>
<td>&nbsp;116.6</td>
<td>113.9&nbsp;</td>
<td>106.1&nbsp;</td>
<td>&nbsp;2.37</td>
<td>9.90&nbsp;</td>
<td>104.8&nbsp;.</td>
<td>99.0&nbsp;</td>
<td>&nbsp;98.3</td>
</tr>
</tbody>
</table>


</html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219c.jpg" width="353">
China&#39;s total balance of merchandise trade declined $328 million in November from $7,188 million in October to $6,860. China&#39;s trade balance with the United States, however, increased $267 million to $10,583 million from $10,315 million in October. Through November of this year, the cumulative over-all balance of trade was $92,049 million and that with the United States $103,348 million.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219d.jpg" width="353">
China typically runs an even larger favorable balance of trade with Hong Kong. In 2004, the balance with Hong Kong was $89,326 million compared with $80,321 million for the United States. In both countries, a large part of the Chinese exports are the products of Hong Kong and U.S. factories built in China. Because of its special relationship with China, Hong Kong is much less concerned with the imbalance in its trade with China than is the United States. The other area where China has a significant positive balance of trade is Europe. Over the past five years, the balance of trade with the United States has almost always been larger than the total balance as shown in the first chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219e.jpg" width="353">
China does have substantial trade deficits on merchandise in many Asian countries. The largest of these are Taiwan, Korea and Japan. In the second and third charts, China&#39;s exports to and imports from Korea and Japan are shown. The deficit with Korea, as shown by the difference between the two series, has been growing steadily over the past several years. The deficit with Japan had been narrowing, but more recently has widened. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">China:&nbsp; Merchandise Trade Balances (Millions US$)&nbsp;</th>
<th scope="col">Nov 05&nbsp;&nbsp;</th>
<th scope="col">Oct 05&nbsp;</th>
<th scope="col">Nov 04&nbsp;</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2004&nbsp; </th>
<th scope="col">2003&nbsp;</th>
<th scope="col">2002&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>6,860</td>
<td>7,188</td>
<td>7,531</td>
<td>-328</td>
<td>-671</td>
<td>32,569</td>
<td>25,389</td>
<td>30,426</td>
</tr>
<tr>
<td class="firstcol">With:&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">United States</td>
<td>10,583</td>
<td>10,316</td>
<td>8,344</td>
<td>267</td>
<td>2,240</td>
<td>80,321</td>
<td>58,627</td>
<td>42,731</td>
</tr>
<tr>
<td class="firstcol">Europe</td>
<td>n.a.</td>
<td>5,976</td>
<td>4,817</td>
<td>n.a.</td>
<td>n.a.</td>
<td>33,648</td>
<td>18,401</td>
<td>5,770</td>
</tr>
<tr class="odd">
<td class="firstcol">Hong Kong</td>
<td>n.a.</td>
<td>10,292</td>
<td>8,738</td>
<td>n.a.</td>
<td>n.a.</td>
<td>89,326</td>
<td>65,185</td>
<td>47,695</td>
</tr>
<tr>
<td class="firstcol">Taiwan</td>
<td>-5,378</td>
<td>-5,315</td>
<td>-4,140</td>
<td>-63</td>
<td>-1,238</td>
<td>-51,212</td>
<td>-40,350</td>
<td>-31,493</td>
</tr>
<tr class="odd">
<td class="firstcol">Japan</td>
<td>-2,631</td>
<td>-2,123</td>
<td>-1,458</td>
<td>-508</td>
<td>-1,173</td>
<td>-20,655</td>
<td>-14,750</td>
<td>-5,001&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Korea</td>
<td>-3,806</td>
<td>-4,047</td>
<td>-2,687</td>
<td>241</td>
<td>-1,119</td>
<td>-34,356</td>
<td>-23,056</td>
<td>-13,073</td>
</tr>
</tbody>
</table>
</body>
</html>

China's total balance of merchandise trade declined $328 million in November from $7,188 million in October to $6,860. China's trade balance with the United States, however, increased $267 million to $10,583 million from $10,315 [...]

China's Trade Balance with the U. S. Heading for More Than $100 billion This Year

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219a.jpg" width="353">
The weekly leading index of the US economy published by the Economic Cycle Research Institute (ECRI) fell 0.1% last week following a 0.1% gain the prior week. These muted changes underscore a pattern of sideways movement in the ECRI series since this past August. Growth in the index has since decelerated by more than half to 1.4%.
During the last ten years there has been a 53% correlation between the change in the weekly leading index and US real GDP growth during the following quarter. The correlation has risen to 76% during the last five years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219b.jpg" width="353">
The recent deceleration in the leaders&#39; growth is part of a longer lived deceleration since early last year when growth was near its peak of 12%. That slowdown mirrors the pattern toward slower growth in the leading series from the Conference Board and the OECD.
Visit the <a href="http://www.businesscycle.com/">Economic Cycle Research Institute</a> for analysis of US and international business cycles.
The Bretton Woods System: Are We Experiencing a Revival? Symposium Summary from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-32.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">Economic Cycle Research Institute&nbsp;</th>
<th scope="col">12/09/05</th>
<th scope="col">12/31/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Weekly Leading Index</td>
<td>135.4</td>
<td>132.5</td>
<td>2.9%</td>
<td>132.6</td>
<td>124.9</td>
<td>119.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; 6 Month Growth Rate</td>
<td>1.4%</td>
<td>1.6%</td>
<td>&nbsp;</td>
<td>4.2%</td>
<td>6.7%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
</body>
</html>

The weekly leading index of the US economy published by the Economic Cycle Research Institute (ECRI) fell 0.1% last week following a 0.1% gain the prior week. These muted changes underscore a pattern of sideways movement in the ECRI [...]

ECRI Leading Index: Meandering Movement

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219a.jpg" width="353">
The weekly leading index of the US economy published by the Economic Cycle Research Institute (ECRI) fell 0.1% last week following a 0.1% gain the prior week. These muted changes underscore a pattern of sideways movement in the ECRI series since this past August. Growth in the index has since decelerated by more than half to 1.4%.
During the last ten years there has been a 53% correlation between the change in the weekly leading index and US real GDP growth during the following quarter. The correlation has risen to 76% during the last five years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219b.jpg" width="353">
The recent deceleration in the leaders&#39; growth is part of a longer lived deceleration since early last year when growth was near its peak of 12%. That slowdown mirrors the pattern toward slower growth in the leading series from the Conference Board and the OECD.
Visit the <a href="http://www.businesscycle.com/">Economic Cycle Research Institute</a> for analysis of US and international business cycles.
The Bretton Woods System: Are We Experiencing a Revival? Symposium Summary from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-32.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">Economic Cycle Research Institute&nbsp;</th>
<th scope="col">12/09/05</th>
<th scope="col">12/31/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Weekly Leading Index</td>
<td>135.4</td>
<td>132.5</td>
<td>2.9%</td>
<td>132.6</td>
<td>124.9</td>
<td>119.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; 6 Month Growth Rate</td>
<td>1.4%</td>
<td>1.6%</td>
<td>&nbsp;</td>
<td>4.2%</td>
<td>6.7%</td>
<td>1.1%</td>
</tr>
</tbody>
</table>
China's Trade Balance with the U. S. Heading for More Than $100 billion This Year 
by <a href="/comment/Curley.html">Louise Curley</a> December 19, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219c.jpg" width="353">
China&#39;s total balance of merchandise trade declined $328 million in November from $7,188 million in October to $6,860. China&#39;s trade balance with the United States, however, increased $267 million to $10,583 million from $10,315 million in October. Through November of this year, the cumulative over-all balance of trade was $92,049 million and that with the United States $103,348 million.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219d.jpg" width="353">
China typically runs an even larger favorable balance of trade with Hong Kong. In 2004, the balance with Hong Kong was $89,326 million compared with $80,321 million for the United States. In both countries, a large part of the Chinese exports are the products of Hong Kong and U.S. factories built in China. Because of its special relationship with China, Hong Kong is much less concerned with the imbalance in its trade with China than is the United States. The other area where China has a significant positive balance of trade is Europe. Over the past five years, the balance of trade with the United States has almost always been larger than the total balance as shown in the first chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051219e.jpg" width="353">
China does have substantial trade deficits on merchandise in many Asian countries. The largest of these are Taiwan, Korea and Japan. In the second and third charts, China&#39;s exports to and imports from Korea and Japan are shown. The deficit with Korea, as shown by the difference between the two series, has been growing steadily over the past several years. The deficit with Japan had been narrowing, but more recently has widened. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">China:&nbsp; Merchandise Trade Balances (Millions US$)&nbsp;</th>
<th scope="col">Nov 05&nbsp;&nbsp;</th>
<th scope="col">Oct 05&nbsp;</th>
<th scope="col">Nov 04&nbsp;</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2004&nbsp; </th>
<th scope="col">2003&nbsp;</th>
<th scope="col">2002&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>6,860</td>
<td>7,188</td>
<td>7,531</td>
<td>-328</td>
<td>-671</td>
<td>32,569</td>
<td>25,389</td>
<td>30,426</td>
</tr>
<tr>
<td class="firstcol">With:&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">United States</td>
<td>10,583</td>
<td>10,316</td>
<td>8,344</td>
<td>267</td>
<td>2,240</td>
<td>80,321</td>
<td>58,627</td>
<td>42,731</td>
</tr>
<tr>
<td class="firstcol">Europe</td>
<td>n.a.</td>
<td>5,976</td>
<td>4,817</td>
<td>n.a.</td>
<td>n.a.</td>
<td>33,648</td>
<td>18,401</td>
<td>5,770</td>
</tr>
<tr class="odd">
<td class="firstcol">Hong Kong</td>
<td>n.a.</td>
<td>10,292</td>
<td>8,738</td>
<td>n.a.</td>
<td>n.a.</td>
<td>89,326</td>
<td>65,185</td>
<td>47,695</td>
</tr>
<tr>
<td class="firstcol">Taiwan</td>
<td>-5,378</td>
<td>-5,315</td>
<td>-4,140</td>
<td>-63</td>
<td>-1,238</td>
<td>-51,212</td>
<td>-40,350</td>
<td>-31,493</td>
</tr>
<tr class="odd">
<td class="firstcol">Japan</td>
<td>-2,631</td>
<td>-2,123</td>
<td>-1,458</td>
<td>-508</td>
<td>-1,173</td>
<td>-20,655</td>
<td>-14,750</td>
<td>-5,001&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Korea</td>
<td>-3,806</td>
<td>-4,047</td>
<td>-2,687</td>
<td>241</td>
<td>-1,119</td>
<td>-34,356</td>
<td>-23,056</td>
<td>-13,073</td>
</tr>
</tbody>
</table>
</body>
</html>

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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

Resilient US economy is pushing up longer-term inflation expectations and interest rates

Positive US economic data surprises leading to upward adjustment of interest rate expectations

Recent aggressive policy easing in China has given a massive boost to equity prices

FOMC expects much more easing now than in June

US is clear world leader in business capital spending on artificial intelligence

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Total housing starts increased 11.2% (-2.9% y/y) during February to 1.501 million units (SAAR) after falling 11.5% (revised from -9.8%) in January to 1.350 million, according to the U.S. Census Bureau. The Action Economics Forecast Survey expected 1.378 million starts. Single-family starts rose 11.4% (-2.3% y/y) in February after declining 8.6% in January. Multi-family starts rebounded 10.7% (-4.6% y/y) to 393,000, following an 18.8% January drop. Total starts in February remained 17.9% below their peak of 1.828 million units reached in April 2022.

Starts increased in three of the four major regions in February. They rose 47.4% (20.2% y/y) to 143,000 in the Northeast, following a 34.0% January decline. In the South, starts rose 18.3% (-5.6% y/y) to 815,000 after falling 23.0% in January. In the West, starts increased 5.9% (26.2% y/y) to 410,000 after rising 38.2% in January. In the Midwest, starts fell 24.9% (-44.4% y/y) TO 133,000 following a 13.2% January decline.

Building permits fell 1.2% (-6.8% y/y) to 1.456 million in February, the third straight month of modest decline. Single-family permits eased 0.2% (-3.4% y/y) in February to 992,000, the same decline as in January. Multi-family permits weakened 3.1% (-13.4% y/y). Permits fell 15.3% (-45.8% y/y) in the Northeast and were off 7.6% (-8.8% y/y) in the West. Building permits in the Midwest rose 8.9% (3.0% y/y) and in the South they increased 1.0% (1.5% y/y).

The housing starts and building permits figures can be found in Haver’s **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Both single-family and multi-family starts recover.
- Starts’ performance is regionally uneven.
- Building permits decline to four-month low.

U.S. Housing Starts Rebound Sharply in February After January’s Pullback

Winnie Tapasanun

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Industrial production (IP) rose a larger-than-expected 0.7% m/m (1.4% y/y) in February after a downwardly revised 0.3% increase in January (+0.5% initially) and an upwardly revised 1.1% gain in December (+1.0% previously), data from the Federal Reserve Board showed. The February m/m rise was the third consecutive m/m gain following three successive m/m declines. A 0.2% m/m February increase had been expected in the Action Economics Forecast Survey. The February IP index at 104.2 was the highest on record; it was 5.3% above a low of 99.0 in September 2021 and 9.1% above a low of 95.5 in February 2021.

By **industry groups**, manufacturing production rose 0.9% (0.7% y/y) in February, the fourth straight m/m rise, following an upwardly revised 0.1% increase in January (-0.1% initially) and a 0.5% rise in December (unrevised). Durable goods production grew 1.6% (0.1% y/y) in February, the third m/m gain in four months, after holding steady in January. This reflected m/m output rises of 8.5% (-4.8% y/y) in motor vehicles & parts, 2.7% (4.3% y/y) in wood products, 2.1% (3.5% y/y) in aerospace & miscellaneous transportation equipment, 2.0% (6.4% y/y) in electrical equipment, appliances & components, 0.4% (-2.1% y/y) in fabricated metal products, 0.3% (-5.5% y/y) in miscellaneous durables goods, 0.3% (1.5% y/y) in nonmetallic mineral products, 0.2% (7.0% y/y) in computer & electronic products, and 0.1% (-0.8% y/y) in machinery. In contrast, the following durable goods categories fell m/m in February, including output drops of 1.0% (-3.7% y/y) in furniture & related products and 0.3% (-0.3% y/y) in primary metals. Notably, aircraft & parts production rose 2.3% (4.4% y/y) in February, the fourth consecutive m/m rise, on top of a 10.3% gain in January.

Nondurable goods production was up 0.2% (1.6% y/y) in February, the fifth m/m increase in six months, after a 0.1% uptick in January. The February increase reflected m/m output rises of 1.3% (-3.4% y/y) in apparel & leather goods, 1.0% (5.8% y/y) in chemicals, 0.9% (2.7% y/y) in printing & related support activities, 0.9% (0.7% y/y) in textiles & product mills, 0.4% (-4.7% y/y) in plastics & rubber products, and 0.1% (0.0% y/y) in paper. To the downside, the following nondurable goods categories fell m/m in February, including output drops of 0.7% (-0.7% y/y) in food, beverages & tobacco and 0.4% (+2.7% y/y) in petroleum & coal products.

Mining activity rose 2.8% (0.0% y/y) in February, up from the second month in three, following a downwardly revised 3.2% decline in January (-1.2% initially). Utilities output, however, slid 2.5% (+8.7% y/y), the first m/m slide since November, after a downwardly revised 6.1% January gain (+7.2% initially).

By **market groups**, business equipment output rose 1.6% (-0.6% y/y) in February, the fourth successive m/m rise, after a 1.5% increase in January. Construction supplies production recovered 1.0% (0.7% y/y) after a 0.6% January drop and materials production rose 1.0% (2.3% y/y) following a 0.3% January decline; both registered the second m/m gain in three months. Consumer goods output increased 0.2% (0.7% y/y) in February after rising 0.8% in January and December, reflecting a 4.3% rebound (-5.2% y/y) in durable consumer goods and a 0.8% drop (+2.4% y/y) in nondurable consumer goods.

In **special classifications**, factory output of selected high-tech industries rose 1.4% (12.6% y/y) in February, the seventh m/m rise in eight months, after an upwardly revised 3.5% advance in January (+0.2% initially). Manufacturing production excluding selected high-tech industries was up 0.9% (0.4% y/y) in February, the third m/m gain in four months, after virtually unchanged in January; manufacturing production excluding selected high-tech and motor vehicles & parts grew 0.3% (0.8% y/y), the third straight m/m increase, after a 0.4% January rise.

Capacity utilization rose to 78.2% in February, the highest since June, from a downwardly revised 77.7% in January (77.8% initially). The Action Economics Forecast Survey forecasted 77.8%. The February reading was 1.4 percentage points below its long-run (1972–2024) average. Manufacturing capacity utilization rose to 77.0% in February, the highest since August, from an upwardly revised 76.4% in January (76.3% initially); the February rate was 1.2 percentage points below its long-run average.

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

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- Feb. IP +0.7% (+1.4% y/y) after +0.3% (+2.0% y/y) in Jan.; IP Index highest on record.
- Mfg. IP +0.9% m/m, led by an 8.5% jump in auto production (w/ durable goods up 1.6% and nondurable goods up 0.2%).
- Mining activity rebounds 2.8%, the second m/m rise in three months, while utilities output drops 2.5%, the first m/m fall since Nov.
- Key categories in market groups all increase.
- Capacity utilization rises to an eight-month-high 78.2%.

U.S. Industrial Production Rises for the Third Straight Month in February

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Import prices rose 0.4% (2.0% y/y) during February after increasing by the same amount in January, revised from 0.3%. A 0.1% easing had been expected in the Action Economics Forecast Survey. Export prices rose 0.1% (2.1% y/y) after increasing an unrevised 1.3% in January. A 0.2% decline had been expected.

Foods, feeds & beverage import prices held steady (+8.2% y/y) last month after rising 0.2% in January. Fuels & lubricants prices rose 1.7% (2.8% y/y), the fourth consecutive monthly gain. Capital goods import prices eased 0.2% (-0.4% y/y) after rising 0.1% in January. Motor vehicle & parts import costs held steady (+1.4% y/y), while nonauto consumer goods prices rose 0.4% (-0.1% y/y). Import prices excluding fuels rose 0.3% (2.0% y/y).

In February, export prices of foods feeds & beverages increased 0.9% (2.3% y/y) after holding steady in January. Industrial supplies & materials prices were unchanged last month (+2.9% y/y) following a 3.2% strengthening. Capital goods export prices improved 0.1% (1.5% y/y) after surging 1.8% in January. Motor vehicle & parts prices rose 0.2% (2.3% y/y) after dipping 0.1% in January. Consumer goods export prices less autos gained 0.6% (1.3% y/y) after a 0.3% increase. Agricultural commodity prices rose 0.8% (0.6% y/y) while nonagricultural product costs edged 0.1% higher (2.2% y/y) after strengthening 1.5% in January.

Each of these monthly trade price numbers are not seasonally adjusted. The import and export price series can be found in Haver’s **USECON** database. Detailed figures are available in the **USINT** database. The expectations figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Import price rise led by fuels & lubricants.
- Export price increase reflects stronger food prices.

U.S. Import and Export Prices Increase During February

Robert Brusca

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**WOW! What a chart!!**
**Enter the Post-War age of the rediscovery of geopolitics**
Press reports this morning are all over the new ZEW release that shows that macroeconomic expectations for Germany have jumped sharply to a level of 51.6 in March from 26.0 in February. This, of course, is being heralded as a result of the great German turnaround and Germany discovering that it really needs to provide for its own security rather than to spend its money paying down its debt and letting the U.S. provide its protective defense umbrella. A real epiphany… After years of turning down U.S. entreaties to be more careful with its security that started with Barack Obama and went on to Donald Trump, Germany refused to spend more money in NATO and brushed off Trump's concerns about being linked to Russia through a pipeline. It basically did just about whatever it could to cause Russia to think that the Germans no longer had any interest in NATO which played a part and fueling Russian boldness and its attack of Ukraine. Russia thought Germany would leave NATO to preserve its economic ties to Russia! Wrong. But a war’s start often is based on poor assumptions or hidden factors. Had Germany wanted to spend the least it could on the military, it should have listened to Barack and to Trump. However, it didn't, and so now we have this huge military buildup that is really pushing macroeconomic expectations ahead in Germany. While we can argue about military spending and whether it's good or bad, right now, it's providing the stimulus that Germany and Europe need to jumpstart their economy out of this long period of weakness that stemmed from COVID, its aftermath, and from of the Ukraine invasion by Russia.

**Dramatic shifts**
However, the part of this new survey that is not getting as much attention is that U.S. macroeconomic expectations that were +1.3 in February have dropped to -48.7 in March, a massive drop in one month; the ranking or queue standing of the U.S. macro-expectations in March is at a 4.4 percentile mark which means that since the early 1990s that has been weaker than this only 4% of the time. In contrast, the jump in German expectations have boosted German expectations up to the 75th percentile of their ranking over the same period. The economic situation in March, which is less malleable because it's tethered to what's happening ‘on the ground’ says the euro area is roughly unchanged at a ratio of -45.2. Germany’s situation is also roughly unchanged, slightly improved, at a level of -87.6; but the U.S. current index drops sharply to +6.7 in March from +42.6 in February, down to a 37-percentile standing. I frankly wonder if it's possible for current conditions - actual current conditions - apart from expectations, to deteriorate that sharply in one month but that's the result we have here to report.

**Stunning developments**
On dating back to early 1992, U.S. current conditions have fallen (experienced a deterioration) month-to-month more than they have in March 2025 on only four other occasions and those were generally in the middle of either COVID or a sharp stock market sell off or some clear precipitating event. In this case, I suppose we would say it's the fear of Donald Trump, his geopolitical stance, his government overhaul, and tariffs are driving these changes. Macroeconomic expectations in the United States have deteriorated month-to-month more than this only once, and in Germany macroeconomic expectations have improved more sharply than they have in March only five other occasions in the past. This report from ZEW is a watershed report; it's fair to say we've never seen anything like it in the past because not only are these statistically highly unusual moves, but it is unprecedented to see the U.S. and the German macroeconomic expectations move so sharply in one month in completely different directions. This result is simply stunning.

**The nail in coffin of deflation**
In the wake of these findings, it's not surprising to see that inflation expectations have jumped in the euro area from -18.6 in February to +6 in March. In Germany, they've jumped from -17.9 in February to +7.9 in March while in the U.S. they have jumped from 35.3 to 52.3. The queue standings now for inflation expectations are in the 38.3 percentile for the euro area (since the early 1990s), in the 39.5 percentile for Germany, and in the 71.5 percentile for the U.S. Quite apparently the period where we will worry about deflation and the zero bound, and all of those things is over, and we are back to worrying about inflation..._hello darkness my old friend_...

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"Reports of my death have been exaggerated" – Inflation

**No more low rates, well… except for central banks?**
Short-term interest rate expectations continue to bear negative signs for some strange reason in the wake of all of these concerns that have inflation flaring but concerns about growth rising. And the euro area’s February's -83.2 reading becomes -56.1 in March; the U.S. February reading of -27.2 becomes -22.6 in March. Short-term rates are still seen as dropping but not with as much certainty as previously. The euro area figure has a 10.4 percentile queue standing; the U.S. figure has a 17.5 percentile standing. These are still low enough results that tell us that rate expectations are tilted toward rate cuts not toward rate increases. This tells us that there is still a lot more concern about macroeconomic growth than about the rise of inflation. We’ll see. Central banks have been locked into that view for a long time as they are still cutting rates with inflation above their targets.

**Long-rate expectation are higher-** Long-term rate expectations in Germany have moved from -2 in February to +35.7 in March; the U.S. February reading of +18.7 has moved up to +34.7 in March. The German figure has a ranking at its 44th percentile; in the U.S. the ranking is essentially at its 39th percentile. Those are relatively similar standings and even though they show a significant change compared to a month ago, long-term rate expectations are still below a ranking of ‘50’ which leaves them below their historic median.

**Taking stock...**
The euro area stock market reading moved up to 9.7 in March from -0.8 in February. For Germany, the March reading moved up to 6.2 from -4.7 in February. The U.S. is the lone voice of deterioration where the February reading of 12.1 has turned into a March reading of -13.8. However, all of the stock market rankings remain relatively weak. The euro area ranking is at its 7.6 percentile, the German ranking at its 4.9 percentile, the same as in the U.S. While the ZEW experts are not willing to look for substantial decrements in stock market values from current levels, they're still keeping their assessments near the low end of what they have been historically.

**The Dollar**
As for the dollar, the expectation for the dollar -which had been at 27.5 in February- has fallen to -17.2 in March. We'll see if that kind of decrement in dollar value is played out in the future.

**Summing up**
It appears that we are living in interesting times. If Time magazine is true to its moniker in naming the person of the year the person who affects events the most, based on how this year is developing Donald Trump will be the man of the year in 2025…because I can't imagine anybody affecting economic or global events any more than Trump has in the early months of 2025. It’s only mid-March! Long ago the Time magazine dropped the requirement that ‘the person of the year’ had to do something good. They just had to do something that influenced events the most. That appears to be where Donald Trump is right now; global events have been turned upside down. Will things calm, will the world make peace with Trump (and vice-versa), or will this continue to be a year of tumult?

ZEW Experts See German Outlook JUMP and U.S. Outlook TANK!

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Total retail sales increased 0.2% (3.1% y/y) during February after falling 1.2% in January, revised from down 0.9%, and rising an unrevised 0.7% in December, according to the U.S Census Bureau. Expectations had been for a 0.6% February gain in the Action Economics Forecast Survey. Excluding motor vehicles & parts, retail sales rose 0.3% last month (3.1% y/y) following a 0.6% decline, revised from down 0.4%. A 0.4% gain had been expected for February.

Sales in the retail control group, which excludes autos, building materials, gasoline & food services, rose 1.0% last month (4.4% y/y) and reversed a 1.0% January decline, revised from down 0.8%. These sales are used in the construction of personal consumption expenditures in NIPA accounts.

Sales of motor vehicles & parts eased 0.4% (+3.1% y/y) last month and followed a 3.7% January decline. The decline compared to a 2.5% rise (2.0% y/y) in unit light vehicle sales which followed a 7.7% January decline. Spending at gasoline stations weakened 1.0% (-0.3% y/y) after increasing 1.3% in January. The rise came as gasoline prices increased 1.0% (NSA) on average during February.

By category, nonstore retail sales rebounded 2.4% (6.5% y/y) in February following a 2.4% January drop. Furniture & home furnishings store sales held steady (+5.5% y/y) after falling 1.2%. Electronics & appliance store sales weakened 0.3% (-5.3% y/y) a 1.1% January improvement. Building materials & garden equipment store sales rose 0.2% (-0.7% y/y), after four straight monthly declines. Clothing & accessory store sales were off 0.6% (+1.0% y/y) after falling 0.7% in January. Sporting goods, hobby & book shop sales fell 0.4% (-3.0% y/y) after weakening 3.1%. General merchandise store sales improved 0.2% (3.4% y/y) after two months of 0.5% increase. Within that category, department store sales declined 1.7% (-3.9% y/y) last month following a 0.8% rise.

In the nondiscretionary sales categories, health & personal care store sales rose 1.7% (6.7% y/y) in February after falling 1.1% in January. Food & beverage store sales rose 0.4% (3.9% y/y) after easing 0.1% during January.

Restaurant & drinking place sales fell 1.5% (+1.5% y/y) last month after holding steady in January.

Retail sales data can be found in Haver’s **USECON** database. The expectations figures are from the Action Economic Forecast Survey in **AS1REPNA**.

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- Core retail spending firms.
- Lower gasoline prices hold back last month’s increase.
- Online spending recovers; spending change elsewhere is modest.

Economy in Brief: December 2005

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