Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040616e.jpg" width="353">
Fuel costs are pushing up consumer prices in Europe now as well as in the US. May data for the new grouping, the Euro-Zone-25, show a significant acceleration of year-on-year CPI gains over the last two months. The 2.5% reading for May is up 0.9% over the rate for March and is the highest since March 2002. We noted last week a similar move in Germany alone.
While energy is a main source of the current pick-up, other segments are pushing on the year-over-year pace, health care and tobacco prices most notably. These costs have a heavy weight of government regulation. But other more market-sensitive prices remain soft for all of Europe, as we described last week for Germany. We illustrate with a selection of various categories in the table below. Home furnishings and supplies are rising very slowly, and clothing prices have fallen every month so far this year, a most impressive performance for a 12-month rate of change. Even the hotel and restaurant business has generally sustained its recent inflation pace; these prices tend to run higher than overall prices anyway, but they accelerated only very modestly in May.
We include as well in the table and graph the rate for the &quot;old&quot; Euro-15 group. This CPI pace has not picked up quite as much in April and May as the new 25-member total, indicating that the new member nations have added somewhat to the recent inflation experience. However, this is not always the case. During 2002, for instance, inflation in those countries ran lower than in the more established European economies. This latter development underscores the remarkable progress these nations have made in controlling inflation compared with just a few years ago. In the mid-1990s, when they started compiling these harmonized CPI figures, their inflation ran significantly faster. It has worked lower very rapidly, so it is now, on the whole, comparable to that in the rest of Europe.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Harmonized Consumer Price Indexes: Year/Year % Change</th>
<th scope="col">May 2004</th>
<th scope="col">Apr 2004</th>
<th scope="col">Mar 2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EU-15</td>
<td>2.2</td>
<td>1.8</td>
<td>1.6</td>
<td>1.8</td>
<td>2.2</td>
<td>1.9</td>
</tr>
<tr>
<td class="firstcol">EU-25</td>
<td>2.5</td>
<td>2.0</td>
<td>1.6</td>
<td>1.9</td>
<td>2.1</td>
<td>2.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Transportation fuels &amp; lubricants</td>
<td>11.2</td>
<td>2.6</td>
<td>-2.7</td>
<td>1.1</td>
<td>7.0</td>
<td>-9.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Electricity, gas, other</td>
<td>3.7</td>
<td>2.4</td>
<td>0.6</td>
<td>3.3</td>
<td>1.8</td>
<td>1.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; House furnishings,&nbsp; etc.</td>
<td>0.5</td>
<td>0.6</td>
<td>0.6</td>
<td>0.7</td>
<td>1.1</td>
<td>1.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Clothing</td>
<td>-0.5</td>
<td>-0.6</td>
<td>-0.7</td>
<td>-0.5</td>
<td>0.8</td>
<td>1.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Hotels, restaurants, etc.</td>
<td>3.1</td>
<td>2.9</td>
<td>2.9</td>
<td>2.9</td>
<td>4.2</td>
<td>3.8</td>
</tr>
</tbody>
</table>
</body>
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Fuel costs are pushing up consumer prices in Europe now as well as in the US. May data for the new grouping, the Euro-Zone-25, show a significant acceleration of year-on-year CPI gains over the last two months. The 2.5% reading for [...]

Inflation in All of Europe Higher with Energy Price Boost

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040616b.jpg" width="353">
Housing starts slipped 0.7%% last month from an upwardly revised level in April. May starts totaled 1.967Mversus the Consensus expectation for 1.95M.
Single family starts rose 1.4% following the slight 0.4% April dip that was revised shallower. Single-family starts were down just 1.8% versus the record of November 2003.
Multi-family starts fell 9.9% following the revised 3.5% April drop.
The decline in housing starts last month was across the country&#39;s regions except the West where starts rose 28.9% to a record high following the 15.6% April slide.
Building permits rose 3.5% m/m to a record high.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<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"> May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1,967</td>
<td>1,981</td>
<td>12.5%</td>
<td>1,848</td>
<td>1,711</td>
<td>1,601</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,640</td>
<td>1,618</td>
<td>17.7%</td>
<td>1,501</td>
<td>1,364</td>
<td>1,272</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>327</td>
<td>363</td>
<td>-7.9%</td>
<td>347</td>
<td>347</td>
<td>330</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>2,077</td>
<td>2,006</td>
<td>12.5%</td>
<td>1,831</td>
<td>1,750</td>
<td>1,637</td>
</tr>
</tbody>
</table>
Housing Market Index Dipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 16, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040616c.jpg" width="353">
The Composite Housing Market Index reported by the National Association of Home Builders (NAHB) fell to 67 in June. The index nevertheless remained 8.1% higher than last year.
During the last fifteen years there has been an 80% correlation between the y/y change in the NAHB index and the change in single family housing starts.
The index of expected single family home sales in six months and the index of current sales both fell moderately.
Traffic of prospective buyers fell slightly (+10.6% y/y) from the much improved May level.
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 National Association of Home Builders using this <a href="http://www.nahb.org">link</a>.

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<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">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>67</td>
<td>69</td>
<td>62</td>
<td>64</td>
<td>61</td>
<td>56</td>
</tr>
</tbody>
</table>
U.S. Industrial Production Surged Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 16, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040616a.jpg" width="353">
Industrial production surged 1.1% last month following the 0.8% jump in April. Consensus expectations had been for a 0.6% rise.
Production in the factory sector rose 0.9% (6.4% y/y) on the heels of the 0.7% gain in April, again paced by strength in the tech sector.
Output in selected high-technology industries rose 3.5% m/m (30.0% y/y). Output of semiconductors jumped 4.0% (49.1% y/y) and output of computers &amp; peripheral equipment rose 2.5% (27.2% y/y). Output of communications equipment added 3.4% (0.2% y/y), the first monthly increase January.
Excluding high-tech factory output surged 0.8% (+5.1% y/y). Output of motor vehicles &amp; parts fell for the third straight month (+6.9% y/y) but machinery output surged 1.5% (11.9% y/y). Output of electrical equipment output ticked 0.3% higher (7.1% y/y) and furniture output advanced 0.6% (2.0% y/y). Non-durables output less energy rose 0.8% (+2.8% y/y).
Total capacity utilization rose to 77.8%, the highest level since May &#39;01. The rise since the low of 74.0% in June &#39;03 reflects 6.3% growth in output and 1.1% growth in capacity.

<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/@EA/@EA.HTM"> Production &amp; Capacity</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Industrial Production</td>
<td>1.1%</td>
<td>0.8%</td>
<td>6.2%</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>-3.4%</td>
</tr>
<tr>
<td class="firstcol">Capacity Utilization</td>
<td>77.8%</td>
<td>77.1%</td>
<td>74.1%(5/03)</td>
<td>74.8%</td>
<td>75.6%</td>
<td>77.4%</td>
</tr>
</tbody>
</table>
OECD Leaders Rose 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 16, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040616d.jpg" width="353">
The Index of Leading Indicators for the Major Seven OECD Countries rose 0.3% in April but the prior month&#39;s gain was lowered to just 0.1%. Nevertheless, April marked the thirteenth consecutive monthly gain and y/y growth in the leaders of 7.5% is the highest since 1987 (6.1% 6-month growth, AR).
Leaders in Japan rose 0.3% but the advance read of a 0.6% rise in March was revised to no change, the second in a row. The six-month growth rate fell to 2.6%, slightly below the high.
The leading index for the European Union rose 0.2% following an unrevised 0.4% gain in March. The six month growth rate eased to 5.6%.
Leaders in Germany posted a 0.5% gain following an upwardly revised 0.4% March rise. The six-month growth rate was 7.2% versus the high of 9.0% in December. In France the leading index rose just 0.1% following an upwardly revised 0.2% March gain. The six-month growth rate eased to 6.7%. Leaders in the UK fell slightly for the second consecutive month. The six month growth rate fell to 3.1% from the high of 5.1% in February.
In Canada the leading index rose 0.2% but upward revisions to prior months lifted the six-month growth rate to 8.0%. Leading indicators in the United States rose 0.3% but March was revised to a slight decline. The six-month growth rate fell to 8.6% from its high of 12.2% in December.
Visit the OECD&#39;s website at this <a href="http://www.oecd.org/home/">website</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/OECDMEI/OECDMEI.HTM"> OECD Main Economic Indicators</a></th>
<th scope="col"> April</th>
<th scope="col"> Mar</th>
<th scope="col"> Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">OECD Major Seven - Leading Index (Trend Restored)</td>
<td>121.5</td>
<td>121.2</td>
<td>7.5%</td>
<td>1.4%</td>
<td>2.1%</td>
<td>-3.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; European Union</td>
<td>121.7</td>
<td>121.4</td>
<td>6.5%</td>
<td>1.9%</td>
<td>3.0%</td>
<td>-1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Japan</td>
<td>102.5</td>
<td>102.2</td>
<td>3.2%</td>
<td>1.2%</td>
<td>-0.5%</td>
<td>-4.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; United States</td>
<td>134.0</td>
<td>133.5</td>
<td>10.6%</td>
<td>1.7%</td>
<td>2.5%</td>
<td>-3.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

Housing starts slipped 0.7%% last month from an upwardly revised level in April. May starts totaled 1.967Mversus the Consensus expectation for 1.95M. Single family starts rose 1.4% following the slight 0.4% April dip that was revised [...]

Housing Starts Slipped

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040615g.jpg" width="353">
Consumer prices in the UK in May were 1.55% above a year ago. the largest year-to-year increase since March, 2003. The largest impact came from transportation costs for fuels and lubricants, which were 8.23% higher than in May,2003.
While inflation as measured by the consumer price index continues to be below its 2% inflation target, the Bank of England has raised the bank rate four times since November, 2003 from 3.50% to 4.50% currently. (The first chart shows the year over year change in the consumer price index and the bank rate.)
A major factor in the Bank&#39;s interest rate policy has been the rise in house prices. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040615h.jpg" width="353"> The rise in house prices moderated toward the end of last year in response to interest rate increases, but began to accelerate this year. In May the Halifax index of housing prices was almost 22% above a year ago.
It is not so much the impact of rising house prices on the consumer price index, which may be small, that is of concern to the monetary authorities as it is the consequences of ignoring a speculative bubble. That the rise in house prices has the characteristics of a bubble is evident when one compares the rise in house prices to the rise in workers&#39; earnings. (The second chart shows the ratio of the Halifax Index of housing prices to the index of average earnings. This chart ends in March 2004 as data on earnings are available only through March)

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">UK</th>
<th scope="col">May 04</th>
<th scope="col">Apr 04</th>
<th scope="col">May&nbsp; 03</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y&nbsp; %</th>
<th scope="col">2003 % </th>
<th scope="col">2002 % </th>
<th scope="col">2001 % </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">CPI (1996=100)</td>
<td>111.4</td>
<td>111.0</td>
<td>109.7</td>
<td>0.36</td>
<td>1.55</td>
<td>1.36</td>
<td>1.27</td>
<td>1.22</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Fuels &amp; lubricants</td>
<td>144.7</td>
<td>138.01</td>
<td>133.7</td>
<td>4.78</td>
<td>8.23</td>
<td>3.60</td>
<td>-3.16</td>
<td>-5.11</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Rents</td>
<td>124.2</td>
<td>124.1</td>
<td>121.7</td>
<td>0.08</td>
<td>2.05</td>
<td>1.47</td>
<td>2.67</td>
<td>3.33</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">Halifax Housing Prices (1983=100)</td>
<td>514.9</td>
<td>499.8</td>
<td>422.8</td>
<td>3.02</td>
<td>21.78</td>
<td>&nbsp;18.96</td>
<td>20.93</td>
<td>8.10</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">&nbsp;</td>
<td>Jun04</td>
<td>May04</td>
<td>Apr04</td>
<td>Mar04</td>
<td>Feb04</td>
<td>Jan 04</td>
<td>Dec 03</td>
<td>Nov 03</td>
</tr>
<tr>
<td class="firstcol">Bank Rate</td>
<td>4.50</td>
<td>4.25</td>
<td>4.25</td>
<td>4.00</td>
<td>4.00</td>
<td>3.75</td>
<td>3.75</td>
<td>3.75</td>
</tr>
</tbody>
</table>
</body>
</html>

Consumer prices in the UK in May were 1.55% above a year ago. the largest year-to-year increase since March, 2003. The largest impact came from transportation costs for fuels and lubricants, which were 8.23% higher than in May,2003. [...]

Another Hike in the Offering for the UK Bank Rate?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040615a.jpg" width="353">
The Consumer Price Index (CPI-U) rose 0.6% in May versus Consensus expectations for a 0.4% gain. The gain was fueled by an 8.1% jump in gasoline prices which were up nearly a third from last year and were nearly double the low level of early 1999.
So far in June retail gasoline prices have fallen 3.8% from the May peak to $1.99 per gallon.
Core consumer prices logged a tame 0.2% increase that matched Consensus expectations.
Prices of core consumer goods rose a modest 0.1% despite a 0.3% (0.7% y/y) increase in apparel prices. Motor vehicle prices were unchanged (-3.6% y/y) for the second consecutive month but prices for home furnishings &amp; operation rose 0.2% (-0.7% y/y). Medical care commodities prices rose 0.2% (2.8% y/y).
Core service prices rose a moderate 0.2%, the gain held back by a 1.3% (-0.4% y/y) decline in public transportation prices. Shelter costs rose a moderate 0.2% (2.7% y/y). Medical care services prices rose the same 0.3% (5.2% y/y) as in April.
The chained CPI which adjusts for shifts in consumer buying behavior rose 0.4%. It is similar to the PCE price deflator. The core chain price measure fell 0.1%, the first monthly decline since December.

<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/@E801/@E80101/@E80101.HTM"> Consumer Price Index</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.6%</td>
<td>0.2%</td>
<td>3.0%</td>
<td>2.3%</td>
<td>1.6%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.3%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>2.3%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.1%</td>
<td>0.0%</td>
<td>-1.1%</td>
<td>-2.0%</td>
<td>-1.1%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.2%</td>
<td>0.4%</td>
<td>2.9%</td>
<td>2.9%</td>
<td>3.8%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>4.6%</td>
<td>0.1%</td>
<td>14.7%</td>
<td>12.2%</td>
<td>-5.8%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.9%</td>
<td>0.2%</td>
<td>4.1%</td>
<td>2.1%</td>
<td>1.8%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&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></td>
<td>0.4%</td>
<td>0.3%</td>
<td>2.4%</td>
<td>1.9%</td>
<td>1.3%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>1.2%</td>
<td>1.1%</td>
<td>1.9%</td>
<td>&nbsp;2.0%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Improved in Mid-June 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 15, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040615e.jpg" width="353">
The University of Michigan&#146;s consumer sentiment index for mid-June improved to95.2, the highest level in three months. Consensus expectations had been for a much smaller rise to 91.0.
During the last ten years there has been a 75% correlation between the level of consumer sentiment and the y/y change in real PCE. That correlation has risen to 82% during the last five years.
Perceptions of current economic conditions rose 4.3% to the highest level since January. The expectations index rose 6.5% m/m and reversed most of the drop in May.
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM"> University of Michigan</a></th>
<th scope="col"> Mid-June</th>
<th scope="col"> May</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>95.2</td>
<td>90.2</td>
<td>6.1%</td>
<td>87.6</td>
<td>89.6</td>
<td>89.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>108.1</td>
<td>103.6</td>
<td>14.1%</td>
<td>97.2</td>
<td>97.5</td>
<td>100.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>86.9</td>
<td>81.6</td>
<td>0.6%</td>
<td>81.4</td>
<td>84.6</td>
<td>82.3</td>
</tr>
</tbody>
</table>
Manpower Index of US Hiring Intentions Held The High Ground 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 15, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040615b.jpg" width="353">
The Manpower survey of hiring intentions in the US for 3Q04 held the strong improvement of 2Q. A seasonally adjusted net 20% of 16,000 employers expect to increase hiring activity.
The latest reading was unchanged from 20% in 2Q but that reflected sharp improvement from just 11% of firms expecting to increase hiring in 2002 and 2003.
Since 1980 there has been a 75% correlation between the Manpower index and the y/y change in non-farm payrolls.
The latest press release from Manpower Inc. covering employment prospects in the United States can be viewed <a href="http://www.manpower.com/mpcom/viewMeos?name=US_3Q04Release_FINAL.doc"> here</a>.

<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/SURVEYS/@SC/@SC.HTM"> Manpower Employment Survey</a></th>
<th scope="col">3Q04</th>
<th scope="col">2Q04</th>
<th scope="col">3Q03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">All Industries - Net Higher (SA)</td>
<td>20</td>
<td>20</td>
<td>7</td>
<td>11</td>
<td>11</td>
<td>17</td>
</tr>
</tbody>
</table>
Empire State Index Firmer Than Expected 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 15, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040615f.jpg" width="353">
The Empire State Index of General Business Conditions for June was about unchanged from May at 30.17. The readings in both months were early double the average reading in 2003. Consensus expectations had been for a decline to 28.5.
Most subgroups of the survey weakened versus May. The new orders index reversed more than all of the sharp improvement in May as did the shipments index. The employment index similarly fell to a three month low.
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question, not the components.
The prices paid index fell 4.1 points to 52.59 but remained up from the 10.82 averaged last year.
The June index of expectations for business conditions six months ahead improved to the highest level since February. Expectations for capital expenditures fell slightly.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM"> Empire State Manufacturing Survey</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">6/03</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col"> 2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>30.17</td>
<td>30.21</td>
<td>27.82</td>
<td>16.30</td>
<td>7.02</td>
<td>-13.57</td>
</tr>
</tbody>
</table>
U.S. Business Inventories Up Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 15, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040615c.jpg" width="353">
Total business inventories rose 0.5% in April. It was the eighth consecutive monthly increase. Consensus expectations were for a 0.4% increase.
Retail inventories rose an upwardly revised 1.1% in April. Auto inventories jumped 2.0% (8.9% y/y) and non-auto inventories rose 0.6% for the seventh increase in the last eight months. Gains were across the board.
Inventory additions lead production gains. During the last ten years there has been a 46% correlation between the three month change in business inventories and the three month change in US factory production. That correlation rises to 65% when the production gain is lagged three months.
Overall business sales fell 0.1% (+11.3% y/y). Factory shipments fell 0.5% following the 4.2% jump in March. Retail sales also fell by 0.6% (+7.5% y/y) but then surged 1.3% in May.
The ratio of inventories-to-sales held at the record low of 1.30.

<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/@ED/@ED06/@ED0601/@ED0601.HTM"> Business Inventories</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.5%</td>
<td>0.7%</td>
<td>3.0%</td>
<td>1.9%</td>
<td>1.5%</td>
<td>-4.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>1.1%</td>
<td>1.2%</td>
<td>5.5%</td>
<td>4.9%</td>
<td>6.0%</td>
<td>-2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>0.6%</td>
<td>0.7%</td>
<td>3.8%</td>
<td>3.0%</td>
<td>2.6%</td>
<td>-1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>3.7%</td>
<td>2.2%</td>
<td>0.4%</td>
<td>-4.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.4%</td>
<td>0.4%</td>
<td>0.2%</td>
<td>-1.3%</td>
<td>-1.8%</td>
<td>-6.1%</td>
</tr>
</tbody>
</table>
Chain Store Sales Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 15, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040615d.jpg" width="353">
Chain store sales rose another 0.2% last week following a like gain the week earlier, according to the International Council of Shopping Centers (ICSC)-UBS.
Despite the increases sales in early June started 0.6% below the May average.
During the last ten years there has been a 59% correlation between y/y change in chain store sales and the change in non-auto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales 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><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">06/12/04</th>
<th scope="col">06/05/04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>439.2</td>
<td>438.5</td>
<td>5.3%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
</body>
</html>

The Consumer Price Index (CPI-U) rose 0.6% in May versus Consensus expectations for a 0.4% gain. The gain was fueled by an 8.1% jump in gasoline prices which were up nearly a third from last year and were nearly double the low level [...]

Gasoline Fueled Strong CPI Gain

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Indonesia reported that, seasonally unadjusted, April Industrial Production in manufacturing was 17.07% above April, 2003. For the first four months of this year, manufacturing production was up 14.94% over the corresponding months of last year.
Indonesia is the seventh Pacific Rim countries to have recently reported data on manufacturing activity for April 2004. The tempo of recovery from the downturn in 2001 has varied among the countries, with Indonesia being the slowest and one of the most uneven. By contrast, manufacturing in India did not suffer a decline in 2001 and has since followed a steadier, if less dramatic, upward trend than that other countries of the region--Malaysia, Thailand, Taiwan, Korea and Singapore.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Industrial Production in Manufacturing (NSA)</th>
<th scope="col">Apr 04</th>
<th scope="col">Mar 04</th>
<th scope="col">Apr 03</th>
<th scope="col">Y/Y&nbsp;%</th>
<th scope="col">&nbsp;Jan-Apr Y/Y %</th>
<th scope="col">2003&nbsp; %</th>
<th scope="col">2002 %</th>
<th scope="col">2001 %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">India (1993=100)</td>
<td>196.9</td>
<td>217.4</td>
<td>180.3</td>
<td>9.21</td>
<td>7.91</td>
<td>7.10</td>
<td>5.08</td>
<td>2.91</td>
</tr>
<tr>
<td class="firstcol">Indonesia (1993=100)</td>
<td>115.95</td>
<td>114.98</td>
<td>99.04</td>
<td>17.07</td>
<td>14.94</td>
<td>5.00</td>
<td>-7.06</td>
<td>-1.08</td>
</tr>
<tr class="odd">
<td class="firstcol">Korea (2000=100)</td>
<td>126.8</td>
<td>129.7</td>
<td>113.5</td>
<td>11.72</td>
<td>11.54</td>
<td>5.13</td>
<td>8.16</td>
<td>0.23</td>
</tr>
<tr>
<td class="firstcol">Malaysia&nbsp; (1993=100)</td>
<td>253.0</td>
<td>247.4</td>
<td>217.9</td>
<td>16.11</td>
<td>16.43&nbsp;</td>
<td>10.44</td>
<td>4.52</td>
<td>-6.62</td>
</tr>
<tr class="odd">
<td class="firstcol">Singapore (2003=100)</td>
<td>111.3</td>
<td>108.9</td>
<td>91.1</td>
<td>22.17</td>
<td>13.47&nbsp;</td>
<td>2.80</td>
<td>8.51</td>
<td>-11.59</td>
</tr>
<tr>
<td class="firstcol">Taiwan (2001=100)</td>
<td>130.57</td>
<td>134.82</td>
<td>114.7</td>
<td>13.97</td>
<td>15.58&nbsp;</td>
<td>9.09</td>
<td>7.44</td>
<td>-7.99</td>
</tr>
<tr class="odd">
<td class="firstcol">Thailand (1995=100)</td>
<td>147.0</td>
<td>163.2</td>
<td>136.5</td>
<td>7.69</td>
<td>10.39&nbsp;</td>
<td>12.33</td>
<td>7.48</td>
<td>1.33</td>
</tr>
</tbody>
</table>
</body>
</html>

Indonesia reported that, seasonally unadjusted, April Industrial Production in manufacturing was 17.07% above April, 2003. For the first four months of this year, manufacturing production was up 14.94% over the corresponding months of [...]

Recovery in Manufacturing Activity in the Pacific Rim Widens with Indonesian Report of Sharp Rise

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040614b.jpg" width="353">
Retail sales jumped 1.2% last month following the little revised 0.6% decline in April. Consensus expectations had been for a 1.1% rise.
Motor vehicle dealers&#39; sales surged 5.9% as unit sales of light vehicles rose 8.7% to 17.84M.
Sales at gasoline service stations jumped 4.0% (22.5% y/y). Average gasoline prices rose 10.3% m/m in May to $1.98/gal.
Excluding motor vehicles &amp; parts dealers, the 0.7% m/m gain in retail sales about equaled Consensus expectations. Less gasoline, however, nonauto sales rose just 0.3% (8.6% y/y) following a 0.1% dip in April.
The slowdown in sales was dominated by lower sales at food services &amp; drinking places (-0.3%) and a 1.4% decline in building materials. Sales at general merchandise stores recovered 1.3% (+8.4% y/y) versus a 0.7% April decline. Clothing and accessory store sales rose 0.9% (+6.7% y/y) following a 2.3% April slump.Sales of furniture/home furnishings &amp; electronics/appliances dipped 0.3% (+8.1% y/y) after a 0.7% April rise.

<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">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<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>-0.6%</td>
<td>8.9%</td>
<td>5.4%</td>
<td>2.5%</td>
<td>3.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>9.8%</td>
<td>5.2%</td>
<td>3.2%</td>
<td>3.1%</td>
</tr>
</tbody>
</table>
U.S. Trade Deficit Deeper Still 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 14, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040614a.jpg" width="353">
The U.S. foreign trade deficit deepened to another record in April of $48.33B versus the revised deficit of $46.57B a month earlier. Consensus expectations had been for a deficit of $45.0B.
Total imports rose a modest 0.2% in April following the downwardly revised 3.1% jump in March. The moderation was due to a m/m decline in the quantity of oil imports. The value of petroleum products imports fell 10.2% (+18.0% y/y).
Imports of non-petroleum goods rose 1.7% (14.6% y/y), the third strong monthly gain. Imports of capital goods rose 1.9% (14.0% y/y) following a 3.6% March increase. A 1.6% (15.1% y/y) rise in imports of non-auto consumer goods followed the 8.1% March jump.
Exports fell 1.5% following two months of strong gain and reflected dips across the board.
By country, the US trade deficit with China deepened sharply m/m to $12.0B ($124.1B in 2003). Exports fell 19.4% m/m (+28.1% y/y). The US trade deficit with Japan eased to $6.4B ($66.0B in 2003) and the deficit with the European Union eased to $9.2B ($93.1B in 2003).
&quot;Globalization: Threat or Opportunity for the U.S. Economy&quot; from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2004/el2004-12.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE03/@EE03.HTM"> Foreign Trade</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Trade Deficit</td>
<td>$48.3B</td>
<td>$46.6B</td>
<td>$42.5B(4/03)</td>
<td>$496.5B</td>
<td>$421.7B</td>
<td>$362.7B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports - Goods &amp; Services</td>
<td>-1.5%</td>
<td>3.1%</td>
<td>15.5%</td>
<td>4.6%</td>
<td>-3.1%</td>
<td>-6.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports - Goods &amp; Services</td>
<td>0.2%</td>
<td>3.1%</td>
<td>14.9%</td>
<td>8.5%</td>
<td>2.1%</td>
<td>-5.5%</td>
</tr>
</tbody>
</table>
</body>
</html>

Retail sales jumped 1.2% last month following the little revised 0.6% decline in April. Consensus expectations had been for a 1.1% rise. Motor vehicle dealers' sales surged 5.9% as unit sales of light vehicles rose 8.7% to 17.84M. [...]

U.S. Retail Sales Lifted By Autos & Gasoline

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040611b.jpg" width="353">
New data from the BLS show that roughly 10% of companies&#39; extended mass layoffs during the first quarter of 2004 were associated with the movement of work. Of 1,204 so-called layoff &quot;events&quot;, 119 were connected to relocations and one-third of those involved overseas sites. These actions caused a total 239,361 workers to lose their jobs for more than 30 days (the BLS threshold for an &quot;extended&quot; layoff), including 16,021 in the relocation situations. Of these, 4,633 jobs represented the reassignment of the work outside the United States.
These new data on relocation-related layoffs are presently being added to Haver&#39;s USECON and REGIONAL databases. Data for total layoffs by Census region are available now in the REGIONAL database. Watch for detailed breakdowns by industry and &quot;reason&quot; at the national level early next week in USECON. Mass layoffs are defined to include the separations of at least 50 people. The layoff event numbers are taken from unemployment insurance records. They are, then, NOT a sample survey, but an actual count. BLS analysts contact every company that implements a layoff event to ask about the total number of people separated and the reasons for the separation; the BLS reported that 7.2% of the firms refused to answer its questions, and others may have given incomplete responses. There is thus nonsampling error in the data, but no loss of quality due to sampling issues.
The data show that in the first quarter of 2004, 65% of the separations due to the movement of work occurred in the manufacturing industries. This is disproportionate compared with the mere 24% of all mass layoffs that came in manufacturing. In the information industry, only 1,449 workers lost jobs due to movement of the work. This constitutes about 9% of all layoffs associated with relocation and about 18.5% of all layoffs in the information industry. 
Motivations for layoffs related to the shift of work to new sites included financial difficulty, 15%, and internal reorganizations, 55%. Total layoffs during the first quarter were, by contrast, heavily concentrated in seasonal work and the completion of outstanding projects, absorbing 21% and 24%, respectively of the total. Financial difficulty and bankruptcy generated only 10% of total layoffs and reorganizations, 11%. 
These new data on layoffs associated with the movement of work are likely to be quite interesting. For instance, the numbers in the information industry seem low, compared with widely publicized shifts of customer support operations to other countries. It is thus important that the total figures represent hard information from administrative records, and not opinion surveys or anecdotes. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Q1 2004, Number</th>
<th scope="col">Layoff Events</th>
Workers Separated from Their Jobs
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td colspan="2">Selected Industries</td>
<td colspan="2">Selected Reasons</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>Information</td>
<td>Financial Difficulty</td>
<td>Internal Reorganization</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Private Nonfarm</td>
<td>1,204</td>
<td>239,361</td>
<td>57,616</td>
<td>7,837</td>
<td>15,755</td>
<td>26,982</td>
</tr>
<tr>
<td class="firstcol">Associated with Movement of Work</td>
<td>113</td>
<td>16,021</td>
<td>10,438</td>
<td>1,449</td>
<td>2,394</td>
<td>8,736</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Overseas</td>
<td>34</td>
<td>4,633</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Domestic</td>
<td>79</td>
<td>9,985</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
</body>
</html>

New data from the BLS show that roughly 10% of companies' extended mass layoffs during the first quarter of 2004 were associated with the movement of work. Of 1,204 so-called layoff "events", 119 were connected to relocations and one- [...]

Layoffs Associated with "Movement of Work": New BLS Series

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040611a.jpg" width="353">
Home prices as tallied by the Office of Federal Housing Enterprise Oversight (OFHEO) rose a moderate 1.0% in 1Q 2004, the weakest quarterly increase since 2Q &#39;98.
The OFHEO house price index is a geometric weighted average based on more than 26.5 million repeat transactions over 29 years and 12,000 transactions annually.
View the latest OFHEO release <a href="http://www.ofheo.gov/media/pdf/1q04hpi.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/@E9/@E911/@E91101/@E91101.HTM"> OFHEO</a></th>
<th scope="col">1Q04</th>
<th scope="col">4Q03</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">House Price Index</td>
<td>1.0%</td>
<td>3.7%</td>
<td>7.7%</td>
<td>7.0%</td>
<td>7.1%</td>
<td>8.0%</td>
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Home prices as tallied by the Office of Federal Housing Enterprise Oversight (OFHEO) rose a moderate 1.0% in 1Q 2004, the weakest quarterly increase since 2Q '98. The OFHEO house price index is a geometric weighted average based on [...]

Home Price Inflation Cooled

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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Andrew Cates

**The Global Monetary Policy Consensus**
The latest Blue Chip Financial Forecasts survey points to a notably more balanced global monetary policy outlook over the coming year. In contrast to the pronounced easing bias that dominated much of the past two years, expectations are now more symmetric, with a similar number of central banks projected to raise rates as to ease policy. Japan is seen delivering further tightening, while Canada is expected to initiate an interest rate hike in coming months. In Australia’s case, this tightening guidance was reinforced this week, with the Reserve Bank lifting its policy rate by 25 basis points. Elsewhere, and in contrast, the euro area, UK and US are expected to move in the opposite direction.

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**US manufacturing activity**
The second chart underscores the recent improvement in US economic momentum, highlighted by an unexpected surge in the January ISM manufacturing PMI. After spending much of the past year hovering below the 50 threshold consistent with stagnation, the index jumped sharply back into expansionary territory, signalling a renewed pickup in industrial activity. This rebound has coincided with a broader run of stronger-than-anticipated US economic data, as reflected in the upswing in the Citigroup Economic Surprise Index. Together, these developments point to a US economy that continues to display notable resilience, complicating expectations of monetary easing in the near term.

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**US Bank Lending Standards and Financial Stress** 
The next chart turns to US financial conditions, highlighting the latest readings from the Senior Loan Officer Opinion Survey. The net proportion of banks tightening lending standards on corporate loans and mortgages is now more modest by historical standards, and well below the extremes seen during past episodes of financial stress. Some easing in credit headwinds has occurred alongside relatively subdued readings on the OFR Financial Stress Index, which continues to hover below its long-run average. Together, these indicators suggest that the US financial system has continued to avoid the kind of acute stress typically associated with sharp slowdowns in credit availability—helping to underpin the recent resilience in economic activity.

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**Semiconductor Sales**
The fourth chart highlights the renewed surge in global semiconductor sales, with momentum strengthening sharply over recent months across the Americas, China and the broader Asia-Pacific region. After the cyclical downturn in 2022–23, sales have rebounded to fresh highs, reflecting a powerful revival in demand for advanced chips and related technologies. This upswing has taken place amid intense investor preoccupation with artificial intelligence, with expectations that AI adoption will drive a sustained wave of capital spending on data centres, cloud infrastructure and high-performance computing. In contrast, semiconductor sales in Europe remain comparatively subdued, reflecting the region’s smaller footprint in high-end chip manufacturing, weaker industrial demand, and the ongoing impact of slower economic growth. While semiconductors are inherently cyclical, markets have increasingly interpreted the current rebound elsewhere as structural rather than purely cyclical—underpinned by the belief that AI represents a transformative and durable source of demand growth.

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**Large-Scale AI Models**
The next chart illustrates the rapid proliferation of large-scale AI models globally, with newly updated data for 2025 pointing to a further sharp acceleration in development activity. The United States continues to lead by a wide margin, while China has also seen a steep rise in model deployment in recent years, underscoring the intensifying technological competition between the two economies. Growth in the UK and other regions has been more modest by comparison, highlighting the increasingly concentrated nature of AI innovation. Taken together with the surge in semiconductor sales, these trends help explain the market’s strong preoccupation with AI as a potential driver of future productivity and investment cycles—although the geographic concentration of activity also raises questions about the uneven distribution of any resulting economic gains.

260205Z5.jpg

**An AI Bubble?** 
The final chart draws on the latest Blue Chip Financial Forecasts special questions, highlighting market participants’ perceptions of the economic gains likely to be delivered by artificial intelligence. While a sizeable share of respondents still believe that financial markets may be overestimating AI’s potential benefits, an increasing proportion now judge current expectations to be broadly accurate, with only a small minority viewing the gains as underestimated. Notably, this represents a softening in scepticism compared with the survey results from last month, when concerns about excessive market optimism were more pronounced. The shift suggests a growing acceptance that AI-related investment and innovation could translate into meaningful economic impacts—though uncertainty remains high around the scale, timing and distribution of these gains.

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Financial markets have experienced renewed gyrations in recent weeks, as shifting geopolitical risks, questions around Federal Reserve independence, renewed talk of US dollar “debasement,” and ongoing enthusiasm surrounding artificial intelligence have combined to drive volatility across asset classes. These cross-currents have also contributed to a degree of rotation away from high-flying technology stocks, as investors reassess valuations and the timing of anticipated AI-driven gains. Against this backdrop, the charts in this week’s COTW highlight several important themes. Policy rate expectations now appear more balanced globally, marking a clear shift away from the one-sided easing bias of the past two years (chart 1), even as resilient US data—underscored by the unexpected jump in the January ISM index and a run of positive economic surprises—continues to complicate the outlook for monetary easing (chart 2). At the same time, US financial conditions remain relatively benign, with limited evidence of widespread credit stress or aggressive tightening in lending standards (chart 3). Meanwhile, the sharp rebound in semiconductor sales and the accelerating rollout of large-scale AI models underscore why investors remain so focused on the AI narrative, even as Europe lags behind due to weaker industrial momentum and a smaller footprint in advanced chip production (charts 4 and 5). Finally, while some scepticism about AI’s ultimate economic impact persists, the latest survey results suggest a moderation in concerns that markets are materially overestimating its gains (chart 6). Taken together, these developments paint a picture of a US economy that remains more resilient than many had anticipated, set against a financial landscape increasingly shaped by powerful—if sometimes competing—narratives around geopolitics, policy, and technological transformation.

Charts of the Week: Balanced Policy, Resilient Data and AI Narratives

Robert Brusca

260206E.jpg

With the December report, Germany’s production and some of the early European industrial production data reveal a good deal of chaos in terms of the embedded trends. On the month, German industrial production fell by 1.9%, with consumer goods output up by 0.5%, capital goods output falling by 5.3%, and intermediate goods output falling by 1.2%. Among the early reporters in the monetary union—France, Spain, and Portugal—only Spain showed an increase in manufacturing IP in December; however, Spanish industrial production is notoriously volatile.

**Broader IP trends in Germany and elsewhere in Europe**
As for other early industrial production reporters, both Sweden and Norway showed strong-to-solid gains in December and each of them showed two-months of gains in a row. Beyond that, sequential growth rates from 12-months to six-months to three-months show accelerating growth in German consumer goods output against decelerating growth for intermediate goods. Real manufacturing output and real sales show mixed results- no clear trends; however, real manufacturing orders in Germany are off the map strong. 

**German manufacturing/industrial Surveys**
German industrial surveys from the IFO for manufacturing shows persistent weakening as well as for IFO manufacturing expectations, and in the EU Commission industrial index in the last three months. More broadly, Germany shows some modest but ongoing step up all of these based on average levels from 12-months to six-months to three-months for IFO expectations and the EU Commission industrial readings with mixed results for other survey readings.

**IP trends in Europe**
For the early reporting EMU members France, Spain, and Portugal, who report industrial production trends, each show mixed monthly trends against ongoing decelerations for manufacturing output over the broader sequential periods (12-month, to 6-month, to 3-month). However, for other Europe, Sweden and Norway, manufacturing trends are steadily accelerating on this broader timeline.

**A feeling of ‘Deja- What?’**
These combinations of opposed trends mixed with a lack of trends leave us with this sense of confusion about what's going on in manufacturing. For Germany, the extreme strength in orders is reassuring since orders should be forward-looking rather than backward-looking or even contemporaneous. But orders can also be a fickle series and so we'll have to watch it to see if the trends for German orders hold up.

**Current quarter-What’s been happening now**
In addition, current quarter growth for Germany actually looks quite good with industrial production up 3.7% at an annual rate in the current quarter, led by output increases in manufacturing against a decline in the intermediate goods output. Real orders in the quarter are surging at a 44% growth rate, while real sales in manufacturing only had a 0.1% uptick at an annual rate. The industrial indicators for Germany in the quarter show weakness or flatness with the only exception being IFO manufacturing expectations that advanced by a small amount. The three EMU members who report industrial production data show positive growth in the just-completed quarter except for Portugal where industrial production is falling at a 2.9% rate in the fourth quarter. Sweden and Norway, European countries but not monetary union members, show a strong 22% annual rate gain in Sweden against the 3% annual rate decline in Norway.

260206.jpg

**Rankings**
**How growth rates stack up…**
Moving away from short-term trends, the rankings of growth rates of these various metrics using 12-month growth rates on data back to 2006, show below-median growth rates for German industrial production and all three of its major sectors. All of them have rankings below the 50% mark where the median resides. Germany’s manufacturing output growth rate is below its median as is the growth of real sales; and once again real manufacturing orders break out and show a stunning 90th percentile standing, extremely strong compared to other growth rates on this period.

**Indicator rankings are poor**
However, the survey based industrial indicators for Germany, ranked based on their index levels, are all extremely weak and much weaker than German sector or other German metrics. The strongest indicator reading is the 29th percentile standing for IFO manufacturing expectations while the current ZEW index, IFO manufacturing index, and the EU Commission industrial readings, all reside below their 15th percentile. The survey rankings suggest that industrial sentiment is in much worse shape than activity and growth.

**IP elsewhere in Europe**
However, the growth ranking of manufacturing industrial production for the reporting EMU members and other European members are all quite solid, with percentile standings ranging from the 66th up to the 93rd percentile.

**Summing up**
From these data, Germany emerges as the weak economy compared with historic norms based on industrial production growth and indicator readings. However, there's a glimpse of positivity from the growth of real orders, and at the same time, some concern about ongoing sentiment for manufacturing in Germany as distinct from actual performance.

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

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**Total job openings** fell 5.6% m/m (-12.9% y/y) to 6.542 million in December after a downwardly revised 7.0% decline to 6.928 million in November (previously -4.1% m/m; 7.146 million), according to the Job Openings and Labor Turnover Survey. December marked the third consecutive m/m fall and the lowest level since September 2020. The job openings rate declined to 3.9% in December, the lowest since April 2020, from 4.2% in November, remaining below a record-high 7.4% in March 2022. This rate is calculated as the ratio of job openings to total nonfarm employment plus openings. Significantly, the drop in job openings also lowered the **ratio of job openings to unemployed individuals** to 0.872 in December—the lowest since March 2021—from 0.890 in November, down from 1.085 in December 2024 and a pre-pandemic 1.211 in February 2020. A reading of 0.872 implies there were about 0.87 open jobs per unemployed person—indicating fewer openings than unemployed workers. December was the fifth time in six months that this ratio remained below 1.0.

**Private sector job openings** fell 6.8% (-12.5% y/y) to 5.804 million in December after a 6.6% fall to 6.227 million in November, registering the third successive m/m decline and the lowest level since September 2020. The private sector job openings rate fell to 4.1% in December, the lowest since April 2020, from 4.4% in November. The December m/m decline in private sector openings reflected drops of 27.7% (-36.9% y/y) in financial activities, 20.2% (-25.5% y/y) in professional & business services, 14.4% (-5.1% y/y) in trade, transportation & utilities, and 5.2% (-12.4% y/y) in private educational & health services. To the upside, private sector openings in the following categories rose m/m in December: other services (21.1%; 11.0% y/y), mining & lodging (17.6%; 0.0% y/y), information (13.5%; -4.7% y/y), manufacturing (8.5%; 0.5% y/y), leisure & hospitality (7.5%; -17.2% y/y), and construction (2.8%; 42.4% y/y). Meanwhile, government job openings rose 5.3% (-15.6% y/y) in December, the first m/m rise in three months, after a 10.6% drop in November.

**Total hiring** rebounded 3.4% (-1.5% y/y) to 5.293 million in December, the first m/m increase since September, following a 4.6% decrease to 5.121 million in November. The hiring rate edged up to 3.3% in December from 3.2% in November, though it remained below pre-pandemic levels. **Private sector hiring** rose 3.1% (-0.4% y/y) to 4.978 million in December, the third m/m rise in four months, after a 4.0% decline to 4.826 million in November. The private sector hiring rate rose to 3.7% in December from 3.5% in November, the same as in October and September. The December m/m increase in private sector hiring was led by a 32.1% jump (42.3% y/y) in information, followed by gains of 24.0% (-4.6% y/y) in financial activities, 23.5% (0.0% y/y) in mining & lodging, 6.5% (-4.8% y/y) in private educational & health services, 4.2% (-4.9% y/y) in trade, transportation & utilities, 3.6% (6.1% y/y) in construction, 3.4% (7.9% y/y) in leisure & hospitality, and 1.8% (-4.3% y/y) in manufacturing. To the downside, private sector hiring in professional & business services (-5.2%; +0.5% y/y) and other services (-4.3%; -16.5% y/y) declined m/m in December. Meanwhile, government hiring rebounded 6.4% (-16.3% y/y) in December, the first m/m rise since September, following a 13.5% drop in November.

**Total separations** rose 2.1% (3.3% y/y) to 5.251 million in December after a 1.5% rise to 5.144 million in November, marking the third m/m increase in four months and the highest level since September. The total separations rate edged up to 3.3% after holding at 3.2% in November and October. Private sector separations rose 1.6% (4.2% y/y) to 4.932 million in December, the highest level since June, while government sector separations jumped 10.4% (-9.1% y/y) to 319,000 following two consecutive m/m declines. **Total quits** (voluntary separations initiated by the employee) increased 0.3% (3.5% y/y) to 3.204 million in December, the third m/m rise in four months and the highest level since June, after a 7.4% rebound in November. The quits rate (a measure of workers’ willingness or ability to leave jobs) held at 2.0% in December and November, slightly below 2.3% in February 2020. Private sector quits eased 0.2% (+4.5% y/y) following an 8.4% November rebound. **Layoffs and discharges** (involuntary separations initiated by the employer) increased 3.6% (5.6% y/y) to 1.762 million in December, up for the third time in four months, after an 8.1% drop in November. The layoffs & discharges rate remained at 1.1% in December and November, marginally below 1.3% in February 2020. Private sector layoffs grew 4.3% (7.8% y/y) following a 7.3% November decrease.

The Job Openings and Labor Turnover Survey (JOLTS) data are available in Haver’s **USECON** database.

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- Job openings down 5.6% (-12.9% y/y) to 6.542 mil., third straight m/m decline.
- Hiring up 3.4% (-1.5% y/y) to 5.293 mil., first m/m increase since September.
- Separations rise to a three-month high; quits reach a six-month high; layoffs rebound.

U.S. JOLTS: Openings Drop to Lowest Level Since Sept. ’20; Hiring Rebounds in December

Sandy Batten

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Initial claims for unemployment insurance jumped 22,000 to 231,000 in the week ended January 31 following an unrevised 209,000 in the prior week. The four-week average rose to 212,250 from 206,250. The Action Economics Forecast Survey looked for 213,000 claims to have been filed. Winter Storm Fern and the accompanying very cold temperatures could have provided a temporary boost. Historically speaking, claims remain at low levels.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—increased by 25,000 to 1.844 million in the week ending January 24, from a downwardly revised 1.819 million in the prior week (previously 1.827 million). The insured unemployment rate remained at 1.2% in the week of January 24, unchanged from the previous eight weeks.

The insured unemployment rate varied greatly across individual states and territories. In the week ending January 17, the highest unemployment rates were in Rhode Island (2.83%), New Jersey (2.77%), Massachusetts (2.67%), Washington (2.54%), and Minnesota (2.45%). The lowest rates were in Florida (0.30%), North Carolina (0.42%), Louisiana (0.43%), Alabama (0.46%), and Arkansas (0.47). Rates in other notable states include Illinois (2.15%), California, (2.08%), New York (2.02%), Pennsylvania (1.91%), 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 **USECON**. Data for individual states are in **REGIONW** back to December 1986.

260205C2.jpg

260205D2.jpg

- New claims jumped 22,000 to 231,000, the highest level since December 6.
- Continuing claims rose to 1.844 million from 1.819 million.

U.S. Initial Unemployment Claims Surged in Latest Week

260205E.jpg

German real orders in December adjusted for inflation rose strongly again, gaining 7.8% month-to-month after rising 5.7% month-to-month in November. Foreign orders were up by 5.6% in December compared to 5.2% in November. Domestic orders surged by 10.7% in December after rising 6.4% in November and 10% in October.

**Real sales**
Real sales were mixed in December with overall sales falling 1.4% month-to-month mostly on weakness in capital goods sales.

**Broad categorical acceleration**
Many flows are accelerating this month. Sequential growth rates show acceleration. Total real orders accelerate from a year ago, to the current year, to six-months, and to three-months. Sales growth rates for consumer goods, consumer nondurables, and intermediate goods all show accelerations in gear. The exceptions are foreign orders that are not as strong over six months compared to their 12-month growth. And on the sales side, consumer durables sales and capital goods sales are weak.

**Quarter-to-quarter**
Quarterly annualized growth is complete for Q4 with this report. Foreign orders are the ‘weak flow’ expanding at a 13.6% annual rate – certainly not a weak growth rate. But domestic real orders are up at an astounding 101.9% annual rate. The net impact on the total real orders growth is to lift it to a pace of 44.1%. 

**Order ranking is very strong**
The table provides two rankings: one based on the level of variables and the other based on its year-on-year growth. The rankings this month for real orders overall, foreign, and domestic orders all reside in their top 80th to 90th percentiles- extremely strong based on level or growth. Sales do not follow suit. This gives us some reason to suspect that there is some lumpiness involved in the manufacturing data as distinct from strength. That will be something to watch. Overall mining and manufacturing sales growth is essentially at its historic median at a rank of 49.8. However, capital goods, intermediate goods and manufacturing sales all have rankings at or above their medians - as high as a 61-percentile standing for capital goods.

**Industrial confidence**
Industrial confidence for Germany, France, Italy and Spain (the EU’s big-four economies) show rankings based on these survey levels that are much lower at the 11th percentile for Germany, the 42nd and 36th percentiles, for France and Italy, respectively. Spain scores better with a 61.8 percentile standing on its industrial confidence measure. 

On balance, there is now an accelerating profile that is broad in sales trends and especially strong order trends. Perhaps Europe, under the pressure to stimulate its miliary capabilities, has a core of demand to help drive output ahead more consistently. This is something to watch in the coming months.

Economy in Brief: 2004

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