Tom Moeller

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040604a.jpg">
Non-farm payrolls rose 248,000 in May. That about matched Consensus expectations for a 225,000 rise, but upward revisions to prior months added a further note of strength to recent reports. Payroll growth in April was revised to 346,000 from 288,000 and the March gain was revised to 353,000 from 337,000.
An increased breadth of hiring was indicated by the three-month diffusion index for private non-farm payrolls which jumped to 75.4% from 40.3% last year and from 37.0% in 2002. It was the strongest diffusion of employment growth since early 1998.
Manufacturing sector payrolls rose 32,000 following upwardly revised figures for the prior two months. Gains were widespread. The three-month diffusion index for manufacturing payrolls improved to 70.2% from just 18.6% last year and 15.5% in 2002.
Service producing payrolls rose 176,000 (1.2% y/y) despite a 27,000 worker decline in government employment (0.0% y/y). Private service payrolls rose 203,000 (1.5% y/y) and gains were broad based.
Construction jobs were strong again, up 37,000 (2.9% y/y).
The index of aggregate hours worked (employment times hours worked) rose 0.3% following an upwardly revised 0.4% April gain, up 3.1% (AR) versus 1Q.
Growth in average hourly earnings was steady at 0.3% (2.2% y/y). A 0.1% decline in factory sector earnings was offset by a 0.4% (2.1% y/y) gain in private services.
From the separate household survey the unemployment rate held steady at an expected 5.6%. Employment surged another 196,000 (0.9% y/y) and the labor force grew 233,000 (+0.3% y/y). The labor force participation rate was unchanged for the fourth month at 65.9% versus 67.1% averaged from 1997-2000.

<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/@EB/@EB01/@EB01.HTM">Employment</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">Payroll Employment</td>
<td>248,000</td>
<td>346,000</td>
<td>1.0%</td>
<td>-0.3%</td>
<td>-1.1%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>32,000</td>
<td>29,000</td>
<td>-1.2%</td>
<td>-4.8%</td>
<td>-7.2%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.8</td>
<td>33.8</td>
<td>33.7</td>
<td>33.7</td>
<td>33.8</td>
<td>34.0</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.2%</td>
<td>2.7%</td>
<td>2.9%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>5.6%</td>
<td>5.6%</td>
<td>6.1%</td>
<td>6.0%</td>
<td>5.8%</td>
<td>4.8%</td>
</tr>
</tbody>
</table>
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Non-farm payrolls rose 248,000 in May. That about matched Consensus expectations for a 225,000 rise, but upward revisions to prior months added a further note of strength to recent reports. Payroll growth in April was revised to [...]

U.S. Non-farm Payroll Growth Strong & Broad Based

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/040603g.jpg" width="353">
The Euro-Zone Purchasing Managers Index for the service industries gained 1.22 points last month. Employment, new business and expectations all contributed, while outstanding business slowed. These international PMI surveys are conducted by NTC-Research for Reuters, Inc.
Among the individual countries, France jumped 3.5 points, regaining the more buoyant amounts that prevailed around the turn of this year. Every component of the French index advanced. Italy&#39;s index also increased, that in Germany was basically flat and in Spain, down about a point.
Separate measures in the UK and Russia were mixed. The UK&#39;s index slowed, but maintained a favorable pace. Employment rose while new and outstanding business eased. Services activity in Russia, in its index compiled by Moscow Narodny Bank, gained somewhat with increases in new and outstanding business. The overall pace, however, remains well below levels during the second half of 2003.
A widespread characteristic of this month&#39;s service sector activity was faster rising prices. Input prices were up sharply in Germany, France, Spain and the UK; they rose modestly in Italy and were steady in Russia. Prices charged accelerated in France and the UK. They picked up in Italy and Germany, although at just under 49%, these prices are still falling, though more slowly than before. Price increases decelerated in Spain and Russia.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Purchasing Managers Index Percent (&gt;50 = expansion;&nbsp; &lt;50 = contraction)</th>
<th scope="col">May 2004</th>
<th scope="col">Apr 2004</th>
<th scope="col">Mar 2004</th>
<th scope="col">May 2003</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">Euro Zone Total</td>
<td>55.76</td>
<td>54.54</td>
<td>54.40</td>
<td>47.89</td>
<td>51.36</td>
<td>51.58</td>
<td>51.63</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Employment</td>
<td>49.98</td>
<td>49.53</td>
<td>49.26</td>
<td>45.64</td>
<td>46.91</td>
<td>49.35</td>
<td>52.48</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Business</td>
<td>54.63</td>
<td>53.60</td>
<td>53.58</td>
<td>45.62</td>
<td>50.85</td>
<td>51.24</td>
<td>50.11</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Expectations</td>
<td>66.05</td>
<td>64.24</td>
<td>66.07</td>
<td>61.86</td>
<td>65.09</td>
<td>65.74</td>
<td>62.08</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>53.60</td>
<td>53.30</td>
<td>53.16</td>
<td>44.38</td>
<td>48.49</td>
<td>48.62</td>
<td>48.87</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>58.52</td>
<td>55.04</td>
<td>55.86</td>
<td>50.99</td>
<td>53.99</td>
<td>54.71</td>
<td>54.26</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>56.85</td>
<td>55.83</td>
<td>55.18</td>
<td>50.10</td>
<td>53.34</td>
<td>52.97</td>
<td>53.91</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>54.63</td>
<td>55.67</td>
<td>53.90</td>
<td>50.39</td>
<td>52.51</td>
<td>52.57</td>
<td>51.64</td>
</tr>
<tr class="odd">
<td class="firstcol">United Kingdom</td>
<td>57.40</td>
<td>58.99</td>
<td>58.74</td>
<td>51.86</td>
<td>54.84</td>
<td>54.37</td>
<td>51.41</td>
</tr>
<tr>
<td class="firstcol">Russia</td>
<td>60.00</td>
<td>59.43</td>
<td>55.84</td>
<td>61.82</td>
<td>61.84</td>
<td>58.08</td>
<td>61.20</td>
</tr>
</tbody>
</table>
</body>
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The Euro-Zone Purchasing Managers Index for the service industries gained 1.22 points last month. Employment, new business and expectations all contributed, while outstanding business slowed. These international PMI surveys are [...]

Euro-Zone Services Activity Picks Up in May

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040603d.jpg" width="353">
The Institute for Supply Management reported that its Business Activity Index for the Nonmanufacturing Sector dipped last month to 65.2 from the record high of 68.4 in April. Consensus expectations had been for a lesser decline to 66.0.
Since the series&#39; inception in 1997 there has been a 59% correlation between the Business Activity Index and the q/q change in GDP services plus construction.
The employment index rose further to 56.3 as 23% of firms reported higher employment; up from 21% in April, 12% in 2002 and 17% last year. May was the tenth month in eleven the employment reading was above 50.
Since the series&#39; inception in 1997 there has been a 62% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing and construction industries.
The new orders index fell to 61.3 from 65.6 in April.
Business activity for the non-manufacturing sector is a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index weights the components.
The seasonally adjusted prices index rose to a series&#39; high of 74.4.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively. 

<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/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">May &#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">Business Activity Index</td>
<td>65.2</td>
<td>68.4</td>
<td>56.1</td>
<td>58.1</td>
<td>55.1</td>
<td>48.9</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>74.4</td>
<td>68.6</td>
<td>50.7</td>
<td>56.7</td>
<td>53.9</td>
<td>51.5</td>
</tr>
</tbody>
</table>
U.S. Light Vehicle Sales Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 3, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040603a.jpg" width="353">
Aggressive price discounting raised unit sales of light vehicles 8.7% last month to 17.84M (9.3% y/y). May was the highest monthly selling rate since last July. Consensus expectations were for sales of 16.6M.
Car sales jumped 8.9% to 8.01M. Sales of light trucks rose 8.5% to 9.82M.
Domestic light vehicle sales gained 8.9% m/m to 14.27M (+9.2% y/y). Imported vehicle sales rose 7.7% to 3.56M (9.6% y/y).
Imports&#39; share of the US market for new vehicles in May was 20.0%.

<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/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil.Units)</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>17.84</td>
<td>16.41</td>
<td>9.3%</td>
<td>16.69</td>
<td>16.81</td>
<td>17.26</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>8.01</td>
<td>7.36</td>
<td>7.5%</td>
<td>7.63</td>
<td>8.07</td>
<td>8.48</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>9.82</td>
<td>9.06</td>
<td>10.7%</td>
<td>9.06</td>
<td>8.74</td>
<td>8.78</td>
</tr>
</tbody>
</table>
Initial Claims for Jobless Insurance Edge Lower 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 3, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040603c.jpg" width="353">
Initial claims for jobless insurance fell 6,000 last week to 339,000. The prior week was revised up slightly. Consensus expectations had been for 340,000 initial claims.
The 4-week moving average of initial claims rose for the second week to 341,000 (-19.6% y/y).
Continuing claims for unemployment insurance rose 65,000 but the prior week&#39;s increase was revised down.
The insured rate of unemployment ticked up to 2.4%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">5/29/04</th>
<th scope="col">5/22/04</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">Initial Claims</td>
<td>&nbsp;&nbsp; 339</td>
<td>345</td>
<td>-22.2%</td>
<td>403</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>&nbsp;&nbsp; --</td>
<td>3,003</td>
<td>-17.8%</td>
<td>3,533</td>
<td>3,573</td>
<td>3,023</td>
</tr>
</tbody>
</table>
1Q04 U.S. Productivity Revised Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 3, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040603b.jpg" width="353">
Non-farm labor productivity growth for 1Q04 was revised up to 3.8% from 3.5%, about as expected.
The revision reflected an upward revision to output growth to 5.4% (5.9% y/y) from 4.9%. Hours worked by all persons (employment times hours) were little revised, up 1.5% (0.4% y/y).
Growth in unit labor costs was revised up to 0.8% from 0.5% as compensation growth was revised to 4.6% from 4.0%.
Productivity growth in the nonfinancial corporate sector fell to 2.3% (6.4% y/y) from 4.3% in 4Q and 9.5% in 3Q. The slowdown lifted unit labor costs by 2.7% versus declines of 0.4% and 4.2% in the prior two quarters. Compensation growth was relatively stable at 5.1% (4.9% y/y).
During the last ten years there has been a 84% (negative) correlation between quarterly growth in unit labor costs and growth in unit profits in the nonfinancial corporate sector.
Productivity in the manufacturing sector was revised down to 2.9% (5.2% y/y) from 3.1%. Unit labor costs in the factory sector rose 3.1% (0.9% y/y) versus the initial report of 2.0% growth.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">1Q &#39;04 (Revised)</th>
<th scope="col">1Q &#39;04 (Prelim)</th>
<th scope="col">4Q &#39;03 (Final)</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">Output per Hour</td>
<td>3.8%</td>
<td>3.5%</td>
<td>2.5%</td>
<td>5.5%</td>
<td>4.4%</td>
<td>5.0%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>4.6%</td>
<td>4.0%</td>
<td>4.2%</td>
<td>4.6%</td>
<td>3.5%</td>
<td>2.3%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>0.8%</td>
<td>0.5%</td>
<td>1.7%</td>
<td>-0.8%</td>
<td>-0.9%</td>
<td>-2.5%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
Factory Inventory Accumulation Continued 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 3, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040603f.jpg" width="353">
Factory inventories rose for the fifth straight month in April. The 0.4% gain followed an upwardly revised March increase and pulled the y/y comparison positive for the first time since June 2003. Nondurable goods industries (mostly chemicals) have dominated the swing to inventory accumulation. The swing amongst durable industries has been scattered.
Factory orders fell 1.7% in April following an upwardly revised March gain. The decline was about as expected. It reflected a 3.2% decline in durable goods orders which was revised from the advance report of a 2.9% drop.
Non-durable goods orders (which equal shipments) were unchanged (11.2% y/y) following a 4.0% March jump.
Factory shipments fell 0.5%. Excluding the transportation sector shipments rose 0.2% (12.4% y/y).

<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/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</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">Inventories</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>
<tr>
<td class="firstcol">New Orders</td>
<td>-1.7%</td>
<td>5.0%</td>
<td>12.5%</td>
<td>3.7%</td>
<td>-1.9%</td>
<td>-6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-0.5%</td>
<td>4.2%</td>
<td>12.0%</td>
<td>2.6%</td>
<td>-2.0%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.5%</td>
<td>1.4%</td>
<td>7.2%</td>
<td>4.2%</td>
<td>-6.1%</td>
<td>-5.9%</td>
</tr>
</tbody>
</table>


</html>

The Institute for Supply Management reported that its Business Activity Index for the Nonmanufacturing Sector dipped last month to 65.2 from the record high of 68.4 in April. Consensus expectations had been for a lesser decline to [...]

ISM Non-Manufacturing Index Fell, Hiring Rose

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040602c.jpg" width="353">
Retail sales in Germany surged 2.8% in April, seasonally adjusted in current prices, according to data published today by the Deutsche Bundesbank. This increase halted a five-month string of declines that totaled 5.3%. These sales have never really recovered from the last recession and have been in generally declining trend since the beginning of 2002, so a rebound from the recent weakness is encouraging.
As seen in the table below, clothing stores were a strong source of the total sales gain in April. Motor vehicle sales are not yet available for the month, but the subtotal excluding autos rose only 1.2%, implying a large increase in the auto component. That would mark a notable turn from their recent sharp declines, which had pulled German vehicle sales to their lowest levels since early 1998.
While these latest data are encouraging, they are also given to fairly wide monthly swings. So it remains to be seen if the April gains will endure, particularly in the face of higher energy costs.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Seasonally Adjusted</th>
<th scope="col">Apr 2004</th>
<th scope="col">Mar 2004</th>
<th scope="col">Feb 2004</th>
<th scope="col">Year Ago</th>
Annual Average
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Retail Sales incl Autos(2000=100)</td>
<td>99.8</td>
<td>97.1</td>
<td>98.2</td>
<td>101.6</td>
<td>101.3</td>
<td>101.3</td>
<td>102.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;% Change&nbsp;&nbsp;&nbsp;&nbsp;</td>
<td>+2.8</td>
<td>-1.1</td>
<td>-0.9</td>
<td>-1.8</td>
<td colspan="3">December/December</td>
</tr>
<tr>
<td class="firstcol">-0.7</td>
<td>-1.4</td>
<td>+1.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales ex Autos &nbsp; %&nbsp; Change</td>
<td>+1.2</td>
<td>+0.4</td>
<td>-0.7</td>
<td>-1.6</td>
<td>-0.1</td>
<td>-2.0</td>
<td>+0.1</td>
</tr>
<tr>
<td class="firstcol">Clothing, Footwear, Leather Goods&nbsp; &nbsp;% Change</td>
<td>+6.5</td>
<td>-0.5</td>
<td>+1.0</td>
<td>+1.9</td>
<td>-8.6</td>
<td>-4.7</td>
<td>-3.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Motor Vehicles &nbsp;% Change</td>
<td>N.A.</td>
<td>-6.2</td>
<td>-1.7</td>
<td>-8.8</td>
<td>-2.8</td>
<td>+1.0</td>
<td>+7.5</td>
</tr>
</tbody>
</table>
</body>
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Retail sales in Germany surged 2.8% in April, seasonally adjusted in current prices, according to data published today by the Deutsche Bundesbank. This increase halted a five-month string of declines that totaled 5.3%. These sales [...]

Rebound in German Retail Sales

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040602a.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association fell 1.2% (-66.4% y/y) last week. For the month of May applications fell 18.6% from April and were down 57.0% from May &#39;03.
Applications to refinance mortgages dropped 6.6% last week and the decline pulled the average level in May down 37.1% versus April, off 77.5% from May &#39;03.
Purchase applications rose 2.2% w/w and for the month rose 1.4% versus the April average, up 1.5% versus last May.
During the last ten years there has been a 61% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
The effective interest rate on a conventional 30-Year mortgage was little changed at 6.51%. The average for May was 6.53% versus 6.16% averaged in April. The effective rate on a 15-year mortgage also was little changed at 5.94. The May average was 5.97% versus 5.54% in April.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org"> here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<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/@S5/@S5.HTM"> MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">05/28/04</th>
<th scope="col">05/21/04</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 Market Index</td>
<td>624.6</td>
<td>632.4</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>459.8</td>
<td>449.8</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,583.6</td>
<td>1,694.9</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
</tr>
</tbody>
</table>
Chain Store Sales Slip for Third Week in a Row 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 2, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040602b.jpg" width="353">
Chain store sales fell 0.5% last week following a like decline the week prior and a 0.8% decline the week before that, according to the International Council of Shopping Centers (ICSC)-UBS.
In May chain store sales rose 0.7% from the April average following a 0.4% rise during that month.
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.
Retail gasoline prices slipped to an average $2.05 per gallon last week (+39.2% y/y) but averaged $1.98 in May, up 10.3% from the April average of $1.80.

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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">05/29/04</th>
<th scope="col">05/22/04</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>437.7</td>
<td>439.8</td>
<td>5.0%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
</body>
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The index of mortgage applications compiled by the Mortgage Bankers Association fell 1.2% (-66.4% y/y) last week. For the month of May applications fell 18.6% from April and were down 57.0% from May '03. Applications to refinance [...]

Mortgage Applications Down Further

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040601d.jpg" width="353">
Except for a minor decline in February, 2004, the manufacturing sector of the Euro-12 area has been rising since June, 2003 according to the survey of some 3000 purchasing managers surveyed by NTC Research Ltd. for Reuters Group Plc. The data are presented in the form of diffusion indexes with a value above 50 representing expansion, while one below 50 indicates contraction. For the area as a whole, the index rose 1.45% from 53.95 in April to 54.73 in May and is now above the level reached in October 2000.
Data are available for six of the component countries: Germany, France, Italy, the Netherlands, Spain and Ireland. All except Spain improved in the month and all are well above levels of a year ago.
While the manufacturing data in April and May suggest continued growth or even some acceleration in Gross Domestic Product for the Euro-12, there is cloud on the horizon in the form of higher oil prices. According to the purchasing managers, prices of inputs in the manufacturing process rose 4.14% in May and were just over 50% above prices a year ago. The rise in oil prices accounts for much of rise in input prices.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Diffusion Indexes for Manufacturing</th>
<th scope="col">May 04</th>
<th scope="col">Apr 04</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp; Euro -12</td>
<td>54.73</td>
<td>53.95</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Germany</td>
<td>56.15</td>
<td>55.34</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; France</td>
<td>55.45</td>
<td>53.53</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Italy</td>
<td>52.78</td>
<td>52.48</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Netherlands</td>
<td>54.01</td>
<td>53.35</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Spain&nbsp;</td>
<td>53.18</td>
<td>53.59</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Ireland</td>
<td>54.47</td>
<td>53.88</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Euro-12</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Input prices</td>
<td>&nbsp; 72.26</td>
<td>69.39</td>
</tr>
</tbody>
</table>
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Except for a minor decline in February, 2004, the manufacturing sector of the Euro-12 area has been rising since June, 2003 according to the survey of some 3000 purchasing managers surveyed by NTC Research Ltd. for Reuters Group Plc. [...]

Purchasing Managers Say Manufacturing in the Euro-12 Area Rose in May to the Highest Level Since October 2000

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040601c.jpg" width="353">
The May Purchasing Managers&#146; Composite Index (PMI) released by the Institute of Supply Management rose slightly to 62.8 from 62.4 in April. Consensus expectations were for a decline to 61.5.
During the last twenty years there has been a 70% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
Patterns amongst the component series again were mixed. Production fell to 64.8, reversing all of the April jump, and new orders fell for the fifth straight month. The separate index of export orders fell for the second month from a March high.
These declines were offset by a rise in the employment index to the highest level since 1973, a higher level of vendor performance and higher inventories.
The prices paid index fell slightly to a still high 86.0.
&quot;What Investment Patterns across Equipment and Industries Tell Us about the Recent Investment Boom &amp; Bust&quot; from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci10-6.pdf"> here</a>.

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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM"> ISM Manufacturing Survey</a></th>
<th scope="col"> May</th>
<th scope="col">April</th>
<th scope="col">May &#39;03</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">Composite Index</td>
<td>62.8</td>
<td>62.4</td>
<td>50.0</td>
<td>53.3</td>
<td>52.4</td>
<td>43.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>62.8</td>
<td>65.0</td>
<td>52.6</td>
<td>58.1</td>
<td>56.6</td>
<td>46.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>86.0</td>
<td>88.0</td>
<td>51.5</td>
<td>59.6</td>
<td>57.6</td>
<td>42.9</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Strong 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 1, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040601b.jpg" width="353">
The total value of construction put in place surged another 1.3% in April following an upwardly revised 2.4% March gain. A 0.5% rise had been the Consensus expectation.
Private residential building activity rose 1.2% following a 1.1% March gain, revised from 0.7%. Residential building rose 1.2% as single family building rose 1.6% (23.7% y/y).
Nonresidential building rose for the third straight month (0.1% y/y) led by gains in the health care, education and commercial building categories.
Public construction added 1.7% led by another gain in spending on highways &amp; streets (nearly one third of the value of public construction spending), up 22.0% y/y.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<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/@E907/@E90701/@E90701.HTM"> Construction Put-in-place</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>1.3%</td>
<td>2.4%</td>
<td>11.3%</td>
<td>4.0%</td>
<td>1.1%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>1.2%</td>
<td>1.1%</td>
<td>11.6%</td>
<td>4.6%</td>
<td>-0.2%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>1.2%</td>
<td>1.3%</td>
<td>17.3%</td>
<td>10.1%</td>
<td>8.6%</td>
<td>3.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>1.3%</td>
<td>0.7%</td>
<td>0.1%</td>
<td>-5.5%</td>
<td>-13.0%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>1.7%</td>
<td>7.0%</td>
<td>10.2%</td>
<td>2.1%</td>
<td>5.3%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
Challenger Layoffs Ticked Up Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 1, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040601a.jpg" width="353">
Challenger, Gray &amp; Christmas reported that announced job cuts ticked 1.6% higher to 73,368 in May following a 6.1% m/m increase in April.
The three month moving average of job cut announcements fell to 71,195 (-28.9% y/y) due to sharp decline in layoffs in February and March.
During the last ten years there has been an 87% (inverse) correlation between the three month moving average of announced job cuts and the three month change payroll employment.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM"> Challenger, Gray &amp; Christmas</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">Announced Job Cuts</td>
<td>73,368</td>
<td>72,184</td>
<td>6.9%</td>
<td>1,236,426</td>
<td>1,431,052</td>
<td>1,956,876</td>
</tr>
</tbody>
</table>
</body>
</html>

The May Purchasing Managers Composite Index (PMI) released by the Institute of Supply Management rose slightly to 62.8 from 62.4 in April. Consensus expectations were for a decline to 61.5. During the last twenty years there has been [...]

ISM Factory Index Up Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040528d.jpg" width="353">
Japan&#39;s economy gave more signs of building momentum in April. This has reached the consumer sector in a significant way. First, the labor force survey showed a sizable 240,000 increase in the number of people reporting they are employed. This followed March&#39;s 190,000 rise and cumulates to 770,000 from an apparent trough last November. The total number of employed persons was 63.64 million, the highest since 63.66 million in January 2002. The peak in employment was 65.84 million in July 1997, just as the Asian currency crisis hit full force.
Consumer spending data look better too in April. The index of living expenditure per household jumped to 105.6 from March&#39;s 96.7 (2000=100). Press reports highlighted this leap as a record monthly increase. However, March&#39;s index had fallen 4.0%, so the two-month gain averages &quot;just&quot; 2.5%. Even so, this itself is the fifth largest such two-month change in the 29-year history of the survey.
A month ago, the Cabinet Office&#39;s consumer sentiment survey had reported a sizable rise in confidence in the first quarter, as people felt better about their job situation, income prospects and standard of living (see Louise Curley&#39;s comment here on April 27). They also indicated that this seemed to be a good time to buy durable goods. Today&#39;s report on their spending for April shows they did that, with a huge increase in furniture and household utensils for April that put the two-month advance at the highest in over five years. Transportation, education, culture and miscellaneous were also strong in April, while categories that might described as &quot;necessities&quot;, food, clothing and housing, all declined. The more confident consumers are spending more vigorously on discretionary items than they have in quite some time.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Apr 2004</th>
<th scope="col">Mar 2004</th>
<th scope="col">Feb 2004</th>
<th scope="col">Year Ago</th>
Annual Average
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Employment (millions)</td>
<td>63.64</td>
<td>63.40</td>
<td>63.21</td>
<td>63.15</td>
<td>63.17</td>
<td>63.30</td>
<td>64.10</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Change&nbsp;&nbsp;&nbsp; (thousands or %)</td>
<td>+240</td>
<td>+190</td>
<td>-10</td>
<td>+490 (+0.8%)</td>
<td colspan="3">December/December</td>
</tr>
<tr>
<td class="firstcol">+0.3%</td>
<td>-1.1%</td>
<td>-1.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>4.7%</td>
<td>4.7%</td>
<td>5.0%</td>
<td>5.4%</td>
<td colspan="3">Annual Average</td>
</tr>
<tr>
<td class="firstcol">5.3%</td>
<td>5.4%</td>
<td>5.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Household Spending (2000=100)</td>
<td>105.9</td>
<td>96.7</td>
<td>100.7</td>
<td>98.6</td>
<td>98.0</td>
<td>99.3</td>
<td>99.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>9.5%</td>
<td>-4.0%</td>
<td>-0.5%</td>
<td>7.5%</td>
<td colspan="3">December/December</td>
</tr>
<tr class="odd">
<td class="firstcol">0.9%</td>
<td>-3.1%</td>
<td>-4.8%</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&middot; We&#39;ve seen a collection of Q1 GDP reports the last two days.&nbsp; The highlight, we&#39;ve judged, is the role of investment spending as a leading factor in better growth trends apparent in reports so far.&nbsp; Today we briefly summarize three more, Switzerland, Denmark and Hong Kong.&nbsp; The first two of these look somewhat different, with less buoyant investment sectors.&middot; Switzerland is climbing gradually out of a period of stagnation, with its year-on-year GDP growth running at 1.5%, the best since Q2 2001.&nbsp; Consumer spending is the main support.&nbsp; Investment, though, is erratic at best and has been unable to sustain a strong 2003 performance into this year.&middot; Denmark shows a similar current performance, although its behavior earlier differs from most economies.&nbsp; It seems not to have suffered much in the 2001 recession, and investment spending there was actually strong then.&nbsp; Thus, its investment cycle appears to have different timing from most, with a slowdown now after respectable gains in periods when capital spending elsewhere was weak.&nbsp;&middot; Hong Kong did experience the 2001 recession in sync with others, but has come back with some vigor.&nbsp; Investment there is moving ahead in a recovery phase, while exports and inventory building provided the largest part of the 2.4% growth in Q1.&nbsp;&nbsp;</th>
</tr>
</thead>

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">GDP &amp; Select Components, % Changes</th>
Qtr/Qtr (Seas Adj)
<th scope="col">Year/ Year</th>
4th Qtr/4th Qtr
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">1st Qtr 2004</td>
<td>4th Qtr 2003</td>
<td>3rd Qtr 2003 &nbsp;</td>
<td>2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Denmark (1995 Krone)</td>
<td>0.6</td>
<td>0.6</td>
<td>0.3</td>
<td>1.3</td>
<td>1.0</td>
<td>0.4</td>
<td>0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;-&nbsp; Investment</td>
<td>-3.0</td>
<td>0.7</td>
<td>4.4</td>
<td>0.2</td>
<td>3.1</td>
<td>0.5</td>
<td>11.6</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Switzerland (2000 Swiss Francs)</td>
<td>0.4</td>
<td>0.5</td>
<td>0.5</td>
<td>1.5</td>
<td>0.0</td>
<td>0.9</td>
<td>0.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;-&nbsp; Fixed Capital Formation</td>
<td>-0.1</td>
<td>0.8</td>
<td>0.8</td>
<td>0.6</td>
<td>4.9</td>
<td>-2.1</td>
<td>-9.2</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Hong Kong (2000 HK$)</td>
<td>2.4</td>
<td>2.5</td>
<td>4.9</td>
<td>6.8</td>
<td>4.9</td>
<td>4.8</td>
<td>-1.1&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;-&nbsp; Fixed Capital Formation</td>
<td>1.3</td>
<td>2.3</td>
<td>4.0</td>
<td>5.8</td>
<td>1.9</td>
<td>-0.3</td>
<td>-4.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Japan's economy gave more signs of building momentum in April. This has reached the consumer sector in a significant way. First, the labor force survey showed a sizable 240,000 increase in the number of people reporting they are [...]

Japan Employment and Consumer Spending Have Big Gains in April

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.

260205Z1.jpg

**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.

260205Z2.jpg

**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.

260205Z3.jpg

**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.

260205Z4.jpg

**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.

260205Z6.jpg

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

260205X15.jpg

260205Y15.jpg

**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.

260205C15.jpg

260205D15.jpg

- 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

260205A2.jpg

260205B2.jpg

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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