Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040524a.jpg" width="353">
The Chicago Fed National Activity Index (CFNAI) improved in April to 0.64 from 0.23 in March. The latest was the highest reading since last November.
The three-month moving average of the CFNAI also improved to 0.45, the highest level since January.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth.
During the last twenty years there has been a 75% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The latest release of the Chicago Fed&#39;s National Activity Index is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_may2004.pdf"> here</a>.
Last week&#39;s speech by Federal Reserve Board Governor Ben S. Bernanke on Gradualism is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2004/200405202/default.htm">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM"> Chicago Fed</a></th>
<th scope="col">April</th>
<th scope="col">Mar</th>
<th scope="col">April &#39;03</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
<tbody>
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<td class="firstcol">CFNAI</td>
<td>0.64</td>
<td>0.23</td>
<td>-1.18</td>
<td>-0.10</td>
<td>-0.40</td>
<td>-1.18</td>
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The Chicago Fed National Activity Index (CFNAI) improved in April to 0.64 from 0.23 in March. The latest was the highest reading since last November. The three-month moving average of the CFNAI also improved to 0.45, the highest level [...]

Chicago Fed Nat'l Activity Index Up

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/040521a.jpg" width="353">
We noted here this past Tuesday the push in retail gasoline prices above $2.00/gallon for the first time ever. The price of the US benchmark crude oil has closed above $40/barrel every day since May 11. The oil market is a world-wide one and highly sensitive to geo-political forces as well as more quantifiable production and demand factors. We don&#39;t presume here to interpret the impact of the Iraq War, for instance. But we can illustrate some of the more traditional economic aspects of this price situation.
Most prominently, demand for gasoline in the US is growing rapidly. According to Department of Energy data, gasoline consumption was up 4.5% year-on-year in the four weeks ended May 14 (volume, measured in thousands of barrels/day). The prior couple of months have seen similar magnitudes. These are higher growth rates than prevailed over the preceding three years and among the highest in the 16-year history of these data. In contrast, the demand for other petroleum products is soft. This spring, consumption of all petroleum products, including gasoline, is virtually flat with year-ago volumes, a striking development in view of the rapid growth in the overall economy.
Supply factors are responding to the upward price pressure. Oil production in the US has been drifting downward for years. But in recent months the number of operating drilling rigs has climbed noticeably. While still well below the level of 20 years ago, expansion of production operations is quite distinct. From a low annual average of 830 in 2002, the May 14 week showed 1,162 active rigs, according to the Baker Hughes tally.
World oil production has been increasing as well. Data through February (only published on May 10) shows total crude production up 3.7% from a year ago following two months averaging more than 7% gains. Production actually fell in 2001 and 2002. OPEC has participated in the production upturn.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol">Selected Oil Market Indicators</th>
<th scope="col">May 14</th>
<th scope="col">Apr</th>
<th scope="col">Mar</th>
<th scope="col">Year Ago</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">US Demand for Gasoline &nbsp; (000 b/d)</td>
<td>9168</td>
<td>8913</td>
<td>8644</td>
<td>8810</td>
<td>8887</td>
<td>8767</td>
<td>8544</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Year/year % Change</td>
<td>4.5</td>
<td>6.5</td>
<td>3.0</td>
<td>--</td>
<td>1.4</td>
<td>2.6</td>
<td>1.1</td>
</tr>
<tr class="odd">
<td class="firstcol">US Demand for All Refined Product &nbsp; (000 b/d)</td>
<td>19949</td>
<td>20010</td>
<td>19833</td>
<td>19962</td>
<td>20004</td>
<td>19565</td>
<td>19628</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Year/year % Change</td>
<td>-0.1</td>
<td>-0.1</td>
<td>-1.2</td>
<td>--</td>
<td>2.2</td>
<td>-0.3</td>
<td>0.1</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td>Feb</td>
<td>Jan</td>
<td>Dec</td>
<td>Year Ago</td>
<td>2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">World Crude Oil Production &nbsp; (000 b/d)</td>
<td>71936</td>
<td>72266</td>
<td>72126</td>
<td>69343</td>
<td>69458</td>
<td>66841</td>
<td>68056</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Year/year % Change</td>
<td>3.7</td>
<td>6.7</td>
<td>7.8</td>
<td>--</td>
<td>3.9</td>
<td>-1.8</td>
<td>-0.2</td>
</tr>
<tr>
<td class="firstcol">OPEC Production&nbsp; &nbsp; (000 b/d)</td>
<td>29413</td>
<td>29483</td>
<td>29283</td>
<td>28810</td>
<td>28005</td>
<td>26369</td>
<td>28318</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Year/year % Change</td>
<td>4.6</td>
<td>10.2</td>
<td>12.3</td>
<td>--</td>
<td>6.2</td>
<td>-6.9</td>
<td>-2.7</td>
</tr>
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We noted here this past Tuesday the push in retail gasoline prices above $2.00/gallon for the first time ever. The price of the US benchmark crude oil has closed above $40/barrel every day since May 11. The oil market is a world-wide [...]

Some Demand and Supply Factors in the US Oil Market

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040520b.jpg" width="353">
The CPI in Canada picked up modestly in April, rising 0.3% after three successive weak months. A sharp rise in energy seems to be the main culprit. Food prices have been flat to down all year long and the core rate, as seen in the table, has little upward force.
While the surge in energy prices certainly pushed up Canadian inflation in April, the main aspect this move seems to highlight is the volatility in the energy sector. Wide swings, both up and down, have characterized these prices over the last several years. When these prices rise sharply, they often experience outright declines soon after. The current episode is characterized by especially large up and down moves in electricity and natural gas. Gasoline prices are volatile too, but not much more than they have been historically.
Other prices are moving in a narrow range. So far this year, food prices are down, and shelter costs are up slightly. Household operation had its first monthly increase in April since December. Clothing prices are falling sharply. Recreation, reading and cultural activities have flat prices of late. Thus, one possible implication of the volatility in the energy sector is that there is less time for higher energy costs to work their way into the pricing structure of other industries. To the extent this immunity holds, it can limit the reach of those very basic prices, reducing the probability that higher energy costs produce permanently higher core inflation.

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<colgroup><col><col><col><col></colgroup>
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<th scope="col" class="firstcol">Canada CPI, % Changes</th>
<th scope="col">Apr 2004</th>
<th scope="col">Mar 2004</th>
<th scope="col">Feb 2004</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">All Items</td>
<td></td>
<td></td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; SA % Chg</td>
<td>0.3</td>
<td>0.1</td>
<td>-0.1</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; NSA Yr/Yr % Chg</td>
<td><center></center></td>
<td>1.6</td>
<td>0.7</td>
<td>0.7</td>
<td>2.0</td>
<td>3.9</td>
<td>0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">All Items ex Food &amp; Energy</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; SA % Chg</td>
<td>0.1</td>
<td>0.2</td>
<td>-0.2</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; NSA, Yr/Yr % Chg</td>
<td><center></center></td>
<td>1.2</td>
<td>1.2</td>
<td>1.1</td>
<td>1.6</td>
<td>3.9</td>
<td>1.6</td>
</tr>
<tr>
<td class="firstcol">Energy</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; NSA, Yr/Yr % Chg</td>
<td>6.4</td>
<td>-4.1</td>
<td>-3.1</td>
<td>6.7</td>
<td>7.1</td>
<td>-11.4</td>
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The CPI in Canada picked up modestly in April, rising 0.3% after three successive weak months. A sharp rise in energy seems to be the main culprit. Food prices have been flat to down all year long and the core rate, as seen in the [...]

Canadian CPI Picks Up with Energy; Core Inflation Remains Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040520a.jpg" width="353">
Initial claims for jobless insurance rose 12,000 last week to 345,000 and the prior week&#39;s increase was revised up slightly. Consensus expectations had been for a decline in claims to 325,000.
The latest figure covers the survey period for May nonfarm payrolls and initial claims were down 11,000 (3.1%) from the April period.
The 4-week moving average of initial claims fell to 333,500 (-21.7% y/y).
Continuing claims for unemployment insurance fell 23,000 following a downwardly revised gain of 51,000 the week prior.
The insured rate of unemployment dropped back to 2.3%, the three year low.

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<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"> 5/15/04</th>
<th scope="col">5/08/04</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; 345</td>
<td>333</td>
<td>-18.6%</td>
<td>403</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>&nbsp;&nbsp; --</td>
<td>2,943</td>
<td>-19.4%</td>
<td>3,533</td>
<td>3,573</td>
<td>3,023</td>
</tr>
</tbody>
</table>
Leading Indicators Uptrend Firm 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 20, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040520c.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board rose a slightly less-than-expected 0.1% in April, but the prior month&#39;s gain was revised to 0.8% from 0.3% reported initially.
The slackening in April reflected m/m gains in only 40% of the component series versus gains in 70% of the components over a six-month span. During the last ten years there has been a 63% correlation between the six-month diffusion index of the leaders and quarterly growth in real GDP.
Shorter manufacturing weekly hours had the largest negative influence on the leaders in April. Other negative contributions were slight. A higher money supply and a steeper yield curve made meaningful positive contributions.
The Leading index is based on eight previously reported economic data series and two that are estimated.
The coincident indicators rose 0.3% and all of the component series were higher over one and six month spans.
The ratio of coincident-to-lagging indicators rose 0.2% to another record level despite a 0.2% gain in the lagging indicators. The ratio is an indicator of excess relative to actual economic performance.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM"> Business Cycle 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">Leading</td>
<td>0.1%</td>
<td>0.8%</td>
<td>4.9%</td>
<td>1.3%</td>
<td>2.2%</td>
<td>-0.8%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3%</td>
<td>0.2%</td>
<td>2.4%</td>
<td>0.4%</td>
<td>-0.5%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>-2.7%</td>
<td>-2.2%</td>
<td>-2.8%</td>
<td>-1.4%</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Down, Hiring Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 20, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040520d.jpg" width="353">
The Philadelphia Fed&#146;s April index of general business conditions in the manufacturing sector fell unexpectedly to 23.8. The 8.7 point decline versus April reversed all of that month&#39;s gain and dropped the index to its lowest since October. Consensus expectations had been for a slight decline to 31.0.
During the last twenty years there has been a 60% correlation between the level of the Philadelphia Fed Business Conditions Index and quarterly growth in real GDP. The correlation with quarterly growth in factory sector industrial production has been 74%.
The separate index of expected business conditions in six months recovered to the highest level since February after several months of decline
Amongst the sub indexes new orders fell sharply to the lowest level since last August, however, the employment index jumped to the highest level since 1973.
The business conditions index reflects a separate survey question, not the sub indexes.
The prices paid index surged to its highest level since 1988.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0504.html">here</a>.
From the Federal Reserve Bank of New York is this new article titled &quot;What Investment Patterns across Equipment and Industries Tell Us about the Recent Investment Boom and Bust&quot; and could be read <a href="http://www.newyorkfed.org/research/current_issues/ci10-6.html">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM"> Philadelphia Fed Business Outlook</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">General Activity Index</td>
<td>23.8</td>
<td>32.5</td>
<td>-4.2</td>
<td>10.6</td>
<td>7.7</td>
<td>-17.2</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>59.6</td>
<td>51.9</td>
<td>9.6</td>
<td>16.7</td>
<td>12.2</td>
<td>-0.9</td>
</tr>
</tbody>
</table>
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Initial claims for jobless insurance rose 12,000 last week to 345,000 and the prior week's increase was revised up slightly. Consensus expectations had been for a decline in claims to 325,000. The latest figure covers the survey [...]

Initial Jobless Insurance Claims Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040519c.jpg" width="353">
Labor market conditions have been mixed in several moderately sized economies in Europe and western Asia, which reported current figures today. In several of these nations, however, signs suggest that a stabilization has perhaps occurred, so that, as in the US, employment might gain more vigor in coming months.
In Kazakhstan, the unemployment rate actual fell during much of the last four years for which data are available. Economic activity there is oil-centered and recently strong consumption of petroleum and rising prices are a benefit to them. At the same time, the unemployment rate has now been basically flat for the past six months at 1.9%, just above its record low of 1.8%. So there has been a pause in the improvement and it will be interesting to see if the recent surge in oil prices gives the Kazakh economy a boost.
In the Netherlands, there has been considerable back-tracking of employment and a commensurate rise in the number unemployed. In fact, while employment has stabilized in the last six months, unemployment has continued rising. As seen in the graph, this is tied to further growth in the labor force, which extended a fairly steady trend throughout the history of these data, albeit only four years. Perhaps as happens in the US, the recently more stable employment picture is encouraging people to keep looking for jobs, rather than back away from the labor force.
Sweden and Denmark are seeing the first signs of a turnaround in employment. In both countries, the number employed was higher in the first quarter (Denmark) or in April (Sweden) than its year-ago value for the first time in many months. Denmark has seen a downtrend in jobs for nearly two years, and Sweden for 11 months. So while the gains are not large and have so far recouped little of the recent contraction in employment, they lend hope of more favorable conditions to come.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
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<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>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Kazakhstan:Unemployment Rate (%)</td>
<td>N.A.*</td>
<td>1.9</td>
<td>1.9</td>
<td>2.6</td>
<td>2.3</td>
<td>3.2</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">Netherlands:Employment (SA, Thous)</td>
<td>N.A.</td>
<td>7093</td>
<td>7090</td>
<td>7132</td>
<td>7114</td>
<td>7125</td>
<td>7062</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployed (SA, Thous)</td>
<td>N.A.</td>
<td>482</td>
<td>483</td>
<td>369</td>
<td>397</td>
<td>302</td>
<td>352</td>
</tr>
<tr>
<td class="firstcol">Denmark:Employment (NSA, Thous)</td>
<td>N.A.</td>
<td>2680</td>
<td>N.A.</td>
<td>2667</td>
<td>2693</td>
<td>2712</td>
<td>2723</td>
</tr>
<tr class="odd">
<td class="firstcol">Sweden:Employment (NSA, Thous)</td>
<td>4209</td>
<td>N.A.</td>
<td>N.A.</td>
<td>4203</td>
<td>4232</td>
<td>4242</td>
<td>4239</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (NSA, %)</td>
<td>5.4</td>
<td>N.A.</td>
<td>N.A.</td>
<td>4.6</td>
<td>4.9</td>
<td>4.0</td>
<td>4.0</td>
</tr>
</tbody>
</table>
</body>
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Labor market conditions have been mixed in several moderately sized economies in Europe and western Asia, which reported current figures today. In several of these nations, however, signs suggest that a stabilization has perhaps [...]

Employment Stabilizes in 3 Countries, but Unemployment Unimproved

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040519b.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association tumbled 11.9% (-58.1% y/y) last week led by a 16.8% collapse in applications to refinance (-78.2% y/y).
Purchase applications posted the first w/w decline in a month and fell 8.1% (+14.8% y/y). Purchase applications so far this month are 3.6% ahead of the April average.
During the last ten years there has been a 56% 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 fell slightly to 6.48% from 6.61% the week prior. The average for April was 6.16% versus 5.65% averaged in March. The effective rate on a 15-year mortgage similarly fell to 5.93% from 6.03% the week prior. The average for April was 5.54% versus 5.00% in March.
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">05/14/04</th>
<th scope="col">05/07/04</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>654.1</td>
<td>742.2</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>454.2</td>
<td>494.3</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,816.9</td>
<td>2,184.6</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
</tr>
</tbody>
</table>
Gasoline Prices Set Another Record At $2.02 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 19, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040519a.jpg" width="353">
The US average retail gasoline price for all formulations jumped above $2.00/gallon for the first time ever last week. At $2.02 per gallon the price was up more than twenty cents from an average of $1.80 in April.
Crude oil prices similarly have surged with the price of West Texas Intermediate crude at $40.53 (+38.4% y/y) yesterday versus an average $36.69 last month.
Wholesale natural gas prices also have moved up and last week averaged $6.28/mmbtu (+4.1% y/y).
&quot;Monetary Policy Actions, Macroeconomic Data Releases, and Inflation Expectations&quot; from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/04/05/Kliesen.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/weekly/@W4/@W403/@W40303/@W40303.HTM"> US Retail Gasoline Prices</a></th>
<th scope="col">05/17/04</th>
<th scope="col">12/29/03</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">All Formulations ($/Gal.)</td>
<td>$2.02</td>
<td>$1.48</td>
<td>34.6%</td>
<td>$1.56</td>
<td>$1.34</td>
<td>$1.42</td>
</tr>
</tbody>
</table>
</body>
</html>

The index of mortgage applications compiled by the Mortgage Bankers Association tumbled 11.9% (-58.1% y/y) last week led by a 16.8% collapse in applications to refinance (-78.2% y/y). Purchase applications posted the first w/w decline [...]

Mortgage Applications Fell 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/040518e.jpg" width="353">
Japan, Singapore and Taiwan have recently released data on their first quarter Gross Domestic Products. On a seasonally unadjusted basis, year-over-year growth in Japan was 5.36%, Singapore, 7.48% and Taiwan, 6.28%.
The increases in the rates of growth in each country over the past year are beginning to bring about a lessening of the deflationary climate that has characterized the area for the past several years. Japan has experienced the longest and most severe deflation; and although there was a slight decline in deflation in the first quarter, it is still too early to say that the trend has been reversed. In Taiwan and Singapore, however, the data are more encouraging. The rate of decline in Taiwan&#39;s deflator has moderated over the past year and in Singapore there was a 3% increase in the deflator in the first quarter of this year.
While these countries have been experiencing deflationary trends, China is contending with rapidly rising prices as its economic growth accelerates.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Year over Year Growth&nbsp; Not seasonally adjusted</th>
<th scope="col">Q1 04</th>
<th scope="col">Q4 03</th>
<th scope="col">Q3&nbsp; 03</th>
<th scope="col">Q2 03</th>
<th scope="col"> Q1 03&nbsp; </th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Singapore</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; GDP</td>
<td>7.48</td>
<td>4.90</td>
<td>1.70</td>
<td>-3.87</td>
<td>1.65</td>
<td>1.09</td>
<td>3.29</td>
<td>-2.37</td>
<td>9.41</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Deflator</td>
<td>3.02</td>
<td>-1.08</td>
<td>1.76</td>
<td>-1.82</td>
<td>0.43</td>
<td>-0.41</td>
<td>0.40</td>
<td>-1.14</td>
<td>4.48</td>
</tr>
<tr>
<td class="firstcol">Taiwan</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>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; GDP</td>
<td>6.28</td>
<td>5.17</td>
<td>4.18</td>
<td>-0.08</td>
<td>3.52</td>
<td>3.24&nbsp;</td>
<td>3.59</td>
<td>-2.18</td>
<td>5.86</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Deflator</td>
<td>-1.72</td>
<td>-2.52</td>
<td>-1.72</td>
<td>-1.89</td>
<td>-2.52</td>
<td>-2.17</td>
<td>-0.97</td>
<td>0.55</td>
<td>-1.79</td>
</tr>
<tr class="odd">
<td class="firstcol">Japan</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>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; GDP</td>
<td>5.36</td>
<td>3.17</td>
<td>1.99</td>
<td>2.19</td>
<td>2.73</td>
<td>2.53</td>
<td>-0.21</td>
<td>0.63</td>
<td>2.13</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Deflator</td>
<td>-2.51</td>
<td>-2.66</td>
<td>-2.08</td>
<td>-2.54</td>
<td>-3.21</td>
<td>-2.79</td>
<td>-1.16</td>
<td>-1.54</td>
<td>-1.94</td>
</tr>
</tbody>
</table>
</body>
</html>

Japan, Singapore and Taiwan have recently released data on their first quarter Gross Domestic Products. On a seasonally unadjusted basis, year-over-year growth in Japan was 5.36%, Singapore, 7.48% and Taiwan, 6.28%. The increases in [...]

Strong Growth in Asia excl China Beginning to Lessen Deflationary Tendencies

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040518b.jpg" width="353">
Housing starts fell 2.1% last month from the near-record level in March, that was revised slightly higher. April starts of 1.969M compared to the Consensus expectation for 1.98M.
Single family starts slipped a modest 0.6% from the upwardly revised March level. Nevertheless, April single-family starts were 3.6% below the record of November 2003.
Multi-family starts fell 8.4% and the surge in March was revised to show less of an increase.
The decline in housing starts last month was dominated by a 13.7% (+0.2 y/y) decline in the West. Elsewhere, housing starts rose. In the Northeast starts rose 0.6% (19.0% y/y) and the March decline was lessened. In the South starts added 1.2% (+31.7% y/y) and in the Midwest starts rose 4.5% (+23.1% y/y).
Building permits rose 1.2% m/m (+11.2% 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/@E9/@E901/@E90101/@E90101.HTM"> Housing Starts (000s, AR)</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>1,969</td>
<td>2,011</td>
<td>20.3%</td>
<td>1,848</td>
<td>1,711</td>
<td>1,601</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,610</td>
<td>1,619</td>
<td>18.1%</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>359</td>
<td>392</td>
<td>31.0%</td>
<td>347</td>
<td>347</td>
<td>330</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,999</td>
<td>1,975</td>
<td>11.2%</td>
<td>1,831</td>
<td>1,750</td>
<td>1,637</td>
</tr>
</tbody>
</table>
Housing Market Index Unchanged 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 18, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040518d.jpg" width="353">
The Composite Housing Market Index reported by the National Association of Home Builders (NAHB) remained at the improved level of 69 in May.
During the last fifteen years there has been a 79% correlation between the y/y change in the NAHB index and the change in single family housing starts.
The unchanged total reflected mixed patterns amongst the sub components. The index of expected single family home sales in six months fell slightly and the current sales index fell moderately. However, prospects in six months for sales of townhouses and condominiums improved.
Traffic of prospective buyers improved sharply in May (+37.5% y/y).
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>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM"> Nat&#39;l Association of Home Builders</a></th>
<th scope="col">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">Composite Housing Market Index</td>
<td>69</td>
<td>69</td>
<td>57</td>
<td>64</td>
<td>61</td>
<td>56</td>
</tr>
</tbody>
</table>
Chain Store Sales Slipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 18, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040518c.jpg" width="353">
Chain store sales slipped 0.8% last week following two weeks of moderate gain, according to the International Council of Shopping Centers (ICSC)-UBS.
So far in May sales are 1.3% above the April average due to a 1.5% jump at the end of last 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.
The rise gasoline prices to an average $2.02 per gallon last week (+34.6% y/y) may finally be curtailing the momentum in consumer spending.
For analysis of higher gasoline and energy prices on the consumer from the Federal Reserve Bank of Dallas see the following two articles: <a href="http://www.dallasfed.org/eyi/usecon/0405gasoline.html">U.S. Gasoline Prices on the Rise Once Again</a> and <a href="http://www.dallasfed.org/research/indepth/2004/id0402.html">Energy Prices and the Economy</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/surveyw/@S2/@S2.HTM"> ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">05/15/04</th>
<th scope="col">05/08/04</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>442.2</td>
<td>445.9</td>
<td>6.2%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
Empire State Index Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> May 18, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040518a.jpg" width="353">
The Empire State Index of General Business Conditions fell in May to 30.21 and the sharp rise the month prior was lessened. Nevertheless, the readings in both months remained quite improved versus last year.
The new orders index in fact improved sharply, about to the record high, following the jump in April. The shipments index also added to the April gain and is at another series&#39; high. Finally, the employment index rose for the second month this year.
The prices paid index slipped a bit to 56.67 from the upwardly revised record high in April.
The April index of expectations for business conditions six months ahead improved following the sharp decline in April. Expectations for capital expenditures fell to the lowest level since January.
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.
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.
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">May</th>
<th scope="col">April</th>
<th scope="col">5/03</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>30.21</td>
<td>34.03</td>
<td>9.75</td>
<td>16.30</td>
<td>7.02</td>
<td>-13.57</td>
</tr>
</tbody>
</table>
</body>
</html>

Housing starts fell 2.1% last month from the near-record level in March, that was revised slightly higher. April starts of 1.969M compared to the Consensus expectation for 1.98M. Single family starts slipped a modest 0.6% from the [...]

Housing Starts Down As Expected

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.

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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.

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**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

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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.

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**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.

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- 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

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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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