Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716a.jpg" width="353">
 The July index of manufacturing activity in New York State added slightly to the improvement in June. The Index of General Business Conditions rose 0.71 points on top of its 17.72 jump during June. Consensus expectations for the Empire State index had been for a decline to a reading of 18.0. The figures are reported by the Federal Reserve Bank of New York.
Since the series&#39; inception in 2001 there has been a 75% correlation between the index level and the three month change in U.S. factory sector industrial production.
The index for new orders improved slightly and the index for employment jumped. Conversely, the shipments index fell considerably as did inventories and the index &amp; delivery times, each into negative territory.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716b.jpg" width="353">
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question; it is not a weighted combination of the components.
Pricing pressure also fell considerably with the prices paid index and the prices received index falling into negative territory. Since 2001 there has been an 88% correlation between the index of prices paid and the three month change in the core intermediate materials PPI.
The Empire State index of expected business conditions in six months improved. The index of expected new orders led the gain to the highest level in over a year.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/survey/empire/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">July</th>
<th scope="col">June</th>
<th scope="col">July. &#39;06 </th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>26.46</td>
<td>25.75</td>
<td>20.33</td>
<td>20.33</td>
<td>15.62</td>
<td>28.70</td>
</tr>
</tbody>
</table>
U.S. Inventory Accumulation Showed Some Life 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 16, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716d.jpg" width="353">
After deceleration through April, total business inventories in May rose 0.5% following a 0.4% increase the month prior. The increases were sufficient to raise the three month growth rates. Consensus expectations had been for a 0.3% one month rise.
Three month average growth in business inventories rose to 0.8%, its highest since last October.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716c.jpg" width="353">
Business sales jumped 1.3% (4.0% y/y). Wholesale sales led the gain with a 1.3% (8.7%y/y) jump and retail sales surged 1.6% (4.9% y/y) for May. Factory shipments rose 1.0% for the second month. 
Due to the strong sales gain in May, the inventory to sales ratio fell to its lowest level since last August. 
Retail inventories rose 0.6%, double the rise in April. General merchandise inventories halved their April rise with a 0.4% (6.6% y/y) but clothing store inventories surged 0.7% (8.1% y/y) after a 0.2% April decline. Furniture inventories fell 0.7% (-0.2% y/y) after no change during April. Auto inventories fell for the fourth straight month. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED06/@ED0601/@ED0601.HTM">Business Inventories</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.5%</td>
<td>0.4%</td>
<td>4.0%</td>
<td>5.9%</td>
<td>6.2%</td>
<td>7.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.6%</td>
<td>0.3%</td>
<td>1.6%</td>
<td>3.2%</td>
<td>2.8%</td>
<td>6.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>0.7%</td>
<td>0.4%</td>
<td>4.3%</td>
<td>4.5%</td>
<td>4.5%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>0.5%</td>
<td>0.3%</td>
<td>6.7%</td>
<td>8.6%</td>
<td>7.4%</td>
<td>9.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0.3%</td>
<td>0.4%</td>
<td>4.3%</td>
<td>6.4%</td>
<td>7.9%</td>
<td>7.7%</td>
</tr>
</tbody>
</table>
 Favorable Trends in the Philippine Balance of Payments   
by <a href="/comment/Curley.html">Louise Curley</a> July 16, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716e.jpg" width="353">
The Central Bank of the Philippines announced today that the &quot;overall balance of payments&quot; for June amounted to $834 million, $169 million above May and $602 million above June of last year. The overall balance of payments is defined by the Bank as equal to the change in reserve assets less the change in reserve liabilities.
Because of the identity underlying the balance of payments concept, the change in reserves is shown with its sign reversed in the balance of payments table. Thus in the Balance of Payments Table in the PHILIPPINE@EMERGEPR data base, the Change in Reserves has the opposite sign of the Overall Balance of Payments, as shown in the first chart. The Overall Balance is equal to the sum of the Current Account, the Capital and Financial Account and the Net Unclassified Items (Errors and Omissions). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716f.jpg" width="353">
The Philippines balance on current account has shown a surplus, more often than not, since mid 2001. The improvement in the current account has been due mostly to remittances from citizens working abroad. The balance on trade in goods and services continues to be negative. The second chart shows the quarterly balance on current account together with the balance on trade in goods and services and the balance on transfers (largely workers&#39; remittances). These data are available only through the first quarter of 2007. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">PHILIPPINE BALANCE OF PAYMENTS&nbsp; (Millions U. S. $)</th>
<th scope="col">Q1 07</th>
<th scope="col">Q4 07&nbsp;</th>
<th scope="col">Q1 06&nbsp;</th>
<th scope="col">Q/Q Chg&nbsp;</th>
<th scope="col">Y/Y Chg&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Current Account</td>
<td>1823</td>
<td>1676</td>
<td>1153</td>
<td>147</td>
<td>670</td>
<td>5022</td>
<td>1955</td>
<td>1628</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital and Financial Account</td>
<td>154</td>
<td>-825</td>
<td>1427</td>
<td>974</td>
<td>-1185</td>
<td>-1722</td>
<td>1661</td>
<td>-1630</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Unclassified Items</td>
<td>-559</td>
<td>297</td>
<td>-459</td>
<td>-856</td>
<td>-100</td>
<td>469</td>
<td>-1206</td>
<td>-278</td>
</tr>
<tr class="odd">
<td class="firstcol"> Overall Balance of Payments=Sum of above </td>
<td>1418</td>
<td>1150</td>
<td>2121</td>
<td>268</td>
<td>-703</td>
<td>3769</td>
<td>2410</td>
<td>-280</td>
</tr>
<tr class="odd">
<td class="firstcol">Change in Reserves</td>
<td>-1418</td>
<td>-1150</td>
<td>-2121</td>
<td>-268</td>
<td>703</td>
<td>-3769</td>
<td>-2410</td>
<td>280</td>
</tr>
<tr class="odd">
<td class="firstcol">Current Account</td>
<td>1823</td>
<td>1676</td>
<td>1153</td>
<td>147</td>
<td>670</td>
<td>5022</td>
<td>1955</td>
<td>1628</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods and Services Balance</td>
<td>-1229</td>
<td>-2147</td>
<td>-1532</td>
<td>848</td>
<td>237</td>
<td>-7624</td>
<td>-9192</td>
<td>-7461</td>
</tr>
<tr class="odd">
<td class="firstcol">Net Transfer Balance</td>
<td>3445</td>
<td>3747</td>
<td>2911</td>
<td>-302</td>
<td>534</td>
<td>13189</td>
<td>11391</td>
<td>9160</td>
</tr>
<tr>
<td class="firstcol"></td>
<td>Jun 07</td>
<td>May&nbsp; 07&nbsp;</td>
<td>Jun&nbsp; 06&nbsp;</td>
<td>M/M Chg&nbsp;</td>
<td>Y/Y Chg&nbsp;</td>
<td>2006</td>
<td>2005</td>
<td>2004</td>
</tr>
<tr class="odd">
<td class="firstcol">Overall Balance of Payments</td>
<td>834</td>
<td>665</td>
<td>232</td>
<td>169</td>
<td>602</td>
<td>3769</td>
<td>2410</td>
<td>-280</td>
</tr>
<tr class="odd">
<td class="firstcol">Change in Reserves</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
HICP Trends Show Pressure 
by <a href="/comment/Brusca.html">Robert Brusca</a> July 16, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716g.jpg" width="353">
The chart on select core HICP readings violates the rule on how many lines to plot on a graph (sorry). But the clear message is that few of these are trending lower and most are trending up. Among those that have any trend lower, there is usually abysmally high inflation rate anyway (Greece and Spain, for example).
The table below presents the discernable detail on core inflation trends on data that were not available last week. The table shows that inflation is accelerating in too many countries for comfort. In the same table we slice the data into a number of 12-month periods ended in June since that is the most recent observation.
As of June 2007 inflation was accelerating in half of the select 12 EMU members. Over the past year inflation also was higher on a year/year basis in seven countries than it had been in June of 2004. Any way you look at the inflation comparisons there is a hint of inflation. And these data look at core prices excluding the direct effects of food and energy inflation. These four presentations, the chars and the table below, make it clear why the ECB remains wary about inflation forces.
Inflation is simply trending higher into many categories to be ignored and across too many EMU countries to assume that it will go down all by itself. 

<table border="0" cellspacing="0" width="100%">
<tr>
<td><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716h.jpg" width="353"><img border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070716i.jpg" width="353"> </td>
</tr>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Euro area Select Members: Core Inflation Yr/Yr
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"></td>
<td>Jun-07</td>
<td>Jun-06</td>
<td>Jun-05</td>
<td>Jun-04</td>
</tr>
<tr>
<td class="firstcol">Austria</td>
<td>1.9%</td>
<td>1.3%</td>
<td>1.6%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Belgium</td>
<td>1.7%</td>
<td>1.7%</td>
<td>1.4%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Finland</td>
<td>1.4%</td>
<td>0.8%</td>
<td>0.6%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>1.4%</td>
<td>1.4%</td>
<td>1.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>2.1%</td>
<td>0.8%</td>
<td>0.8%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Greece</td>
<td>2.9%</td>
<td>3.0%</td>
<td>2.9%</td>
<td>3.6%</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>2.4%</td>
<td>2.1%</td>
<td>1.7%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>1.8%</td>
<td>1.8%</td>
<td>1.9%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Luxembourg</td>
<td>2.3%</td>
<td>2.3%</td>
<td>2.5%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">The Netherlands</td>
<td>1.5%</td>
<td>0.8%</td>
<td>0.6%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Portugal</td>
<td>2.4%</td>
<td>2.5%</td>
<td>0.2%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>2.4%</td>
<td>3.1%</td>
<td>2.5%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">EMU Core HICP</td>
<td>1.9%</td>
<td>2.5%</td>
<td>1.9%</td>
<td>2.4%</td>
</tr>
</tbody>
</table>


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The July index of manufacturing activity in New York State added slightly to the improvement in June. The Index of General Business Conditions rose 0.71 points on top of its 17.72 jump during June. Consensus expectations for the [...]

Empire State Index Adds To June Surge

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713n.jpg" width="353">
The accompanying charts show those EMU countries for which we have an early read on June inflation. Finland, Belgium and France show rates of change below the 2% mark. Germany, Italy and The Netherlands are also below the 2% ceiling, but by the skin of their teeth. Luxembourg and Spain are over the top.
It is heartening to see that some of the larger countries have the lower rates of inflation. And for most the pattern is clear. An oil price shock cranked up the inflation rates, but afterward those rates have come back down and are for the most part tolerably closer to the ECB&#146;s ceiling.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713o.jpg" width="353">
Still only France has an extended period in which its year/year pace has been consistently well below the ceiling pace of 2%. Finland&#146;s and Belgium&#146;s rates have just fallen into a more comfortable part of the zone recently. The Netherlands rate has recently risen toward the ceiling. While Germany and Italy are technical successes they have no reassuring history for us. Belgium and Luxembourg show no tendency to do better.
So it is quite understandable that the ECB would be wary in such an environment. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Trends in HICP
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU-13</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.4%</td>
<td>3.0%</td>
<td>2.4%</td>
<td>1.9%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.1%</td>
<td>2.5%</td>
<td>1.9%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.8%</td>
<td>9.0%</td>
<td>3.2%</td>
<td>1.4%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.4%</td>
<td>2.6%</td>
<td>3.9%</td>
<td>2.6%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">HICP</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">Germany</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.4%</td>
<td>3.1%</td>
<td>3.0%</td>
<td>2.0%</td>
<td>2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.4%</td>
<td>3.6%</td>
<td>1.7%</td>
<td>1.3%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.3%</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>1.9%</td>
<td>1.9%</td>
<td>1.9%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.0%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>3.4%</td>
<td>3.3%</td>
<td>2.4%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td colspan="2">Core: xFE&amp;A</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">Germany</td>
<td>#N/A</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>2.2%</td>
<td>2.1%</td>
<td>0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.1%</td>
<td>1.4%</td>
<td>1.4%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.0%</td>
<td>2.0%</td>
<td>1.8%</td>
<td>1.9%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>#N/A</td>
<td>0.3%</td>
<td>0.0%</td>
<td>2.4%</td>
<td>2.2%</td>
<td>2.2%</td>
<td>1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>2.7%</td>
<td>2.5%</td>
<td>3.1%</td>
</tr>
<tr>
<td colspan="4">Blue shaded area data trail by one month</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
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The accompanying charts show those EMU countries for which we have an early read on June inflation. Finland, Belgium and France show rates of change below the 2% mark. Germany, Italy and The Netherlands are also below the 2% ceiling, [...]

EMU Inflation Trends Show Success and Reason to be Wary…

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713m.jpg" width="353">
The BOF Outlook index hit a local peak from Mar 07; It is flat in June.
The Bank of France Business report is a comprehensive survey on businesses and their expectations. The table below is a summary of the more extensive report with industry detail. In that report the sentiment index at 108.2 is above its average since January 1987 that stands at 105. However, the index was flat on the month and it had reached its peak in this cycle at 111.89 in March. The index fell sharply from that peak and has stayed in a very tight range over the next three months.
French elections have taken place and the past few months are in the post election period; French consumer confidence has been on an extended rise in the wake of the elections.
As for business, the production outlook at 8.7 is below its average value of 12, although production in the current month at 10.8 is above its average value of 9.
Overall order books are stuffed compared with historic averages. The average for order books is +3 while the June reading is 26.8, the strongest category relative to its average by far. Foreign orders are also above normal at 12.1 compared to an average of 9. New orders are, however, not as robust at a level of 10.9 in June compared to an historic average of 10.
At 85.9, capacity use is above the historic norm of 84. Hiring in the current month at -1.8 is weaker than the monthly average of -1 while the outlook at -3.9 is better than the historic average of -6. 
On balance, the BOF index is better than average. And while many of its component readings are above normal, most are not far above normal and there is some evidence of a loss in momentum.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Bank of France Monthly INDUSTRY Survey:SUMMARY
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>12 MO</td>
<td>Since Jan-87</td>
<td>2Yr Percentile</td>
</tr>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>AVERAGE</td>
<td>Average</td>
<td>rank/range</td>
</tr>
<tr class="grey3">
<td colspan="7">Production-latest month</td>
</tr>
<tr class="grey4">
<td class="firstcol">Total Industry</td>
<td>10.77</td>
<td>9.52</td>
<td>6.59</td>
<td>8</td>
<td>9</td>
<td>61.3%</td>
</tr>
<tr class="grey3">
<td colspan="7">Production Outlook</td>
</tr>
<tr class="grey4">
<td class="firstcol">Total Industry</td>
<td>8.7</td>
<td>17.66</td>
<td>7.34</td>
<td>9</td>
<td>12</td>
<td>51.1%</td>
</tr>
<tr class="grey3">
<td colspan="7">Demand</td>
</tr>
<tr class="grey4">
<td class="firstcol">Overall order books</td>
<td>26.85</td>
<td>29.77</td>
<td>30.57</td>
<td>25</td>
<td>3</td>
<td>84.5%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Foreign Orders</td>
<td>12.12</td>
<td>13.35</td>
<td>11.56</td>
<td>13</td>
<td>9</td>
<td>61.2%</td>
</tr>
<tr class="grey3">
<td colspan="7">New Orders</td>
</tr>
<tr class="grey4">
<td class="firstcol">Total Industry</td>
<td>10.89</td>
<td>13.11</td>
<td>8.68</td>
<td>11</td>
<td>10</td>
<td>49.4%</td>
</tr>
<tr class="grey3">
<td colspan="7">Stocks: Finished Goods</td>
</tr>
<tr class="grey4">
<td class="firstcol">Total Industry</td>
<td>-1.4</td>
<td>-2.68</td>
<td>-5.36</td>
<td>-2</td>
<td>-2</td>
<td>57.3%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Capacity Utilization</td>
<td>85.96</td>
<td>85.72</td>
<td>86.05</td>
<td>85</td>
<td>84</td>
<td>89.0%</td>
</tr>
<tr class="grey3">
<td colspan="7">Hiring</td>
</tr>
<tr class="grey4">
<td class="firstcol">Latest Month</td>
<td>-1.84</td>
<td>2.25</td>
<td>0.36</td>
<td>0</td>
<td>-1</td>
<td>28.4%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Outlook</td>
<td>-3.92</td>
<td>-4.52</td>
<td>-5.28</td>
<td>-4</td>
<td>-6</td>
<td>82.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Industry Sentiment Index</td>
<td>108.21</td>
<td>108.26</td>
<td>108.36</td>
<td>107</td>
<td>105</td>
<td>75.4%</td>
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The BOF Outlook index hit a local peak from Mar 07; It is flat in June. The Bank of France Business report is a comprehensive survey on businesses and their expectations. The table below is a summary of the more extensive report with [...]

Bank of France Business Index is Flat in June

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/070713i.jpg" width="353">
Gasoline prices turned up slightly in the latest week, ending July 9, but they remain below their May peaks. The latest reading from the Department of Energy (DOE) was $2.981/gallon, up 2.2 cents on the week. At least one reason for the week-to-week increase is the July 4 holiday and the beginning in earnest of the vacation driving season. The same week in 2006 saw $2.973/gallon, so the current level is less than a penny higher. Crude oil prices have also increased from week to week, and they are above their June levels. However, these are below year-ago prices.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713j.jpg" width="353">
These steadier price trends suggest that pressures in the world oil market are diminishing. Indeed, conditions are easing, but relatively so. World product demand appears to have flattened out, with the latest estimate at about 84 million barrel/day through May, according to Oil Market Intelligence. [In Haver&#39;s OMI database; June figures are due out shortly.] This peaked in February at 86.2 mil. b/d. In the last several years, February has been each year&#39;s peak month, with June and August nearly as high. Year-on-year percentage increases are running somewhat slower than they did back in the autumn. So there are hints here that total demand has at least stopped accelerating, but potential increases due to seasonal needs over the summer keep us from a firm conclusion that it has stopped growing altogether.
In the US, total product demand was 20.8 mil b/d in the latest DOE 4-week reading, almost exactly flat with a year ago. Aggregated to monthly averages, these data show an abrupt slowing of demand growth in June after 4 months that ran 2% to as much as 5.6% ahead of a year ago. Gasoline usage, similarly, is still increasing year-to-year, but noticeably less in the last 2 months than earlier this year. [These US product demand data are in OILWKLY; we have used the &quot;Aggregation&quot; feature of DLXVG3 to facilitate the monthly comparisons here.] 

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<th scope="col" class="firstcol">&middot;&nbsp;The tightness in these markets can be gauged by the adequacy of inventories.&nbsp; Here again, year-ago comparisons are still unfavorable, but they have been less bad lately than in prior months.&nbsp; The size of US gasoline stocks is down 3.3% in the July 9 week from the 2006 week, but in mid-May, they had been down 5.7% from the year-ago amount.&nbsp; With the less weak inventories and the less strong demand growth, the sector&#39;s version of an &quot;inventory/sales ratio&quot;, the &quot;days&#39; supply&quot; has stopped eroding.&nbsp; Gasoline stocks stood at 21.4 days&#39; worth of gasoline demand last week, the same as the week before.&nbsp; The year-ago figure was 22.2 days; so this inventory measure is down from a year ago, but actually better than in late April, when it sank as low as 20.8 days.&nbsp; That was the lowest days&#39; supply reading in the 16-1/2 years of this series, apart from those impacted by hurricanes in 2003 and 2005.&nbsp; Again, July and August are the most sensitive seasonal periods, so the performance of this measure too in the immediately coming weeks will tell more definitively about the vulnerability of oil and gasoline markets to higher prices. </th>
</tr>
</thead>

</table>
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<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Select Oil Market Indicators</th>
<th scope="col">July 9</th>
<th scope="col">July 2</th>
<th scope="col">June</th>
<th scope="col">Year- Ago Week</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Gasoline, US Regular Grade (cents/gal)</td>
<td>298.1</td>
<td>295.9</td>
<td>305.6</td>
<td>297.3</td>
<td>257.2</td>
<td>227.0</td>
<td>185.2</td>
</tr>
<tr>
<td class="firstcol">Crude: WTI ($/barrel)</td>
<td>71.79</td>
<td>69.19</td>
<td>66.87</td>
<td>75.30</td>
<td>66.13</td>
<td>56.50</td>
<td>41.33</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude: UK Brent ($/barrel)</td>
<td>72.75</td>
<td>71.69</td>
<td>70.58</td>
<td>73.80</td>
<td>65.19</td>
<td>54.58</td>
<td>38.10</td>
</tr>
<tr>
<td class="firstcol">Gasoline Stocks:&nbsp; Days&#39; Supply</td>
<td>21.4</td>
<td>21.4</td>
<td>21.4</td>
<td>22.2</td>
<td>22.7</td>
<td>22.8</td>
<td>23.2</td>
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Gasoline prices turned up slightly in the latest week, ending July 9, but they remain below their May peaks. The latest reading from the Department of Energy (DOE) was $2.981/gallon, up 2.2 cents on the week. At least one reason for [...]

Gasoline Prices Stay Below Peaks; Will July & August Reverse This Improvement?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713g.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment this month jumped 8.3% to 92.4, the highest level since January.The latest contrasted with Consensus expectations for only a reading of 86.
The consumer expectations contributed the most to the rise with a 12.3% surge m/m.Current conditions also rose 3.7% to the highest level since January.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713h.jpg" width="353">
An improved expectation for business conditions during the next year contributed with a 17.0% m/m rise and a better outlook for the next five years contributed with an 18.2% surge.
The view of current personal finances rose 7.3% (7.3% y/y) but the perspective of current buying conditions rose just 1.3% (-1.3% y/y).
The assessment of government policy improved 6.1% (6.1% y/y) after falling sharply during the prior two months.
The University of Michigan survey is not seasonally adjusted.This mid-month survey was based on telephone interviews with about 340 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month-end. 

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">July (Prelim.)</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>92.4</td>
<td>85.3</td>
<td>9.1%</td>
<td>87.3</td>
<td>88.6</td>
<td>95.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>105.7</td>
<td>101.9</td>
<td>2.1%</td>
<td>105.1</td>
<td>105.9</td>
<td>105.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>83.9</td>
<td>74.7</td>
<td>15.7%</td>
<td>75.9</td>
<td>77.4</td>
<td>88.5</td>
</tr>
</tbody>
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The University of Michigan's preliminary reading of consumer sentiment this month jumped 8.3% to 92.4, the highest level since January.The latest contrasted with Consensus expectations for only a reading of 86. The consumer [...]

Michigan Consumer Sentiment Rebounded

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713e.jpg" width="353">
Surging petroleum prices fueled a 1.0% jump in overall import prices last month. The jump was about equal to the May rise and easily beat Consensus expectations for a 0.6% gain. 
The increase occurred as petroleum import prices surged 4.7% in June after sharp increases during five of the prior six months. Further increases in July in the price of Brent crude oil to $77.12 from an average $71.0 during June promise another price gain this month.
Less petroleum import prices rose a modest 0.2 following the May jump of 0.5%. During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713f.jpg" width="353">
Why a Dollar Depreciation May Not Close the U.S. Trade Deficit from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci13-5/ci13-5.html">here</a>
Prices for industrial supplies &amp; materials surged 2.6% (4.4% y/y) due to surge in oil prices. Less oil these prices rose 0.5% (7.5% y/y). 
Capital goods prices rose 0.2% (-0.1% y/y) after no change in May. Computers, peripheral and semiconductors fell 0.1% (-5.2% y/y) and less high tech, capital goods prices were unchanged (3.1% y/y). Prices for nonauto consumer goods were unchanged (1.5% y/y).
Export prices rose 0.3%. Nonagricultural export prices rose just 0.1% (2.9% y/y). 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
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<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>1.0%</td>
<td>1.1%</td>
<td>2.3%</td>
<td>4.9%</td>
<td>7.5%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>4.7%</td>
<td>3.7%</td>
<td>2.1%</td>
<td>20.6%</td>
<td>37.6%</td>
<td>30.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>0.2%</td>
<td>0.5%</td>
<td>2.6%</td>
<td>1.7%</td>
<td>2.7%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>0.3%</td>
<td>0.2%</td>
<td>4.1%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>3.9%</td>
</tr>
</tbody>
</table>


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Surging petroleum prices fueled a 1.0% jump in overall import prices last month. The jump was about equal to the May rise and easily beat Consensus expectations for a 0.6% gain. The increase occurred as petroleum import prices surged [...]

U.S. Import Prices Jumped Again in June

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713c.jpg" width="353">
The U.S. federal government ran a surplus of $27.5B last month versus a deep deficit during May. Last month&#146;s surplus was up from the June 2006 figure of $20.B.
The monthly figure was near Consensus expectations for a surplus of $30B. Analysts&#39; forecasts of the Federal budget benefit from access to the Government&#39;s Daily Treasury Statement, the data for which is available in Haver&#39;s DAILY database.
The latest Midsession Review of the Budget can be found <a href="http://www.whitehouse.gov/omb/budget/fy2008/">here</a>
The June budget figures pulled the deficit for the first three quarters of FY07 to $121B, down from $206.5B during last fiscal year&#39;s first nine months. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713d.jpg" width="353">
Net revenues grew 7.5% y/y during the first nine months of FY07. Individual income tax receipts (44% of total receipts) grew 11.5%. Corporate income taxes (13% of total receipts) were down sharply as were estate &amp; gift taxes. Higher employment levels raised employment contributions by 4.2%.
U.S. net outlays grew 2.5% during this fiscal year&#39;s first nine months versus last year driven by a 5.6% rise in defense spending (19% of total outlays). Medicare expenditures (12% of outlays) surged by14.7% while social security spending (21% of outlays) rose 5.7%. The government&#39;s interest expense rose by 4.6% y/y as interest rates have risen. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E106/@E10602/@E106021.HTM">US Government Finance</a> &nbsp;</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">FYTD 2007</th>
<th scope="col">FY 2006</th>
<th scope="col">FY 2004</th>
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<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$27.5B</td>
<td>$-67.7B</td>
<td>$20.5B (6/06)</td>
<td>-$247.7</td>
<td>-$318.7B</td>
<td>-$412.7B</td>
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<tr>
<td class="firstcol">Net Revenues</td>
<td>$276.5B</td>
<td>$164.2B</td>
<td>4.6%</td>
<td>7.5%</td>
<td>11.8%</td>
<td>14.6%</td>
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<tr class="odd">
<td class="firstcol">Net Outlays</td>
<td>$206.6B</td>
<td>$231.9B</td>
<td>2.1%</td>
<td>2.5%</td>
<td>7.4%</td>
<td>7.8%</td>
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</tbody>
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The U.S. federal government ran a surplus of $27.5B last month versus a deep deficit during May. Last months surplus was up from the June 2006 figure of $20.B. The monthly figure was near Consensus expectations for a surplus of $30B. [...]

U.S. Budget Reverses May Shortfall

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713a.jpg" width="353">
In June, US retail sales fell 0.9% after a 1.5% gain during May that was revised from 1.4%. The figure for last month fell short of Consensus expectations for a modest 0.1% rise.
Excluding autos, retail sales fell 0.4% but a revised 1.6% rise during May was initially reported as up 1.3%.Expectations were for a 0.2% increase.
Nonauto retail sales less gasoline fell 0.3% (+4.6% y/y) last month after a revised 1.3% spurt during May, initially reported at up 1.0%.
Sales by motor vehicle &amp; parts dealers fell 2.9% (+2.0% y/y), even though new unit vehicle sales fell 3.5% m/m<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070713b.jpg" width="353">
Gasoline service station sales fell 1.1% after a 4.1% surge during May which reflected a 10.6% ruse in gas prices at the pump which then fell 2.9% during June to an average $3.06 per gallon (5.9% y/y).
Sales of discretionary items were generally firm last month. Sales at general merchandise stores added 0.3% (4.8% y/y) after an upwardly revised 1.0% May increase.Apparel store sales fell 1.4% (+4.8% y/y) after a 2.5% spurt during May. Furniture, home furnishings &amp; appliance stores posted one of weakest showings last month with a 2.2% (-0.1% y/y) decline after a modest 0.7% May rise.
Building material sales fell 2.3%% (-0.1% y/y). Sales of nonstore retailers (internet &amp; catalogue) rose 1.2% (9.5% y/y) but restaurant and bar sales rose only 0.1% (5.9% y/y) after a 0.6% May increase 
How Worrisome Is a Negative Saving Rate? From the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci13-4/ci13-4.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">&nbsp;</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>-0.9%</td>
<td>1.5%</td>
<td>3.8%</td>
<td>6.2%</td>
<td>6.6%</td>
<td>6.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>-0.4%</td>
<td>1.6%</td>
<td>4.2%</td>
<td>7.3%</td>
<td>7.6%</td>
<td>7.1%</td>
</tr>
</tbody>
</table>


</html>

In June, US retail sales fell 0.9% after a 1.5% gain during May that was revised from 1.4%. The figure for last month fell short of Consensus expectations for a modest 0.1% rise. Excluding autos, retail sales fell 0.4% but a revised [...]

U.S. June Retail Sales Fell After Huge Gain in May

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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Andrew Cates

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

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

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

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

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

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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

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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.

260206.jpg

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

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

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

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

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

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

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

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

Sandy Batten

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

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

The insured unemployment rate varied greatly across individual states and territories. In the week ending January 17, the highest unemployment rates were in Rhode Island (2.83%), New Jersey (2.77%), Massachusetts (2.67%), Washington (2.54%), and Minnesota (2.45%). The lowest rates were in Florida (0.30%), North Carolina (0.42%), Louisiana (0.43%), Alabama (0.46%), and Arkansas (0.47). Rates in other notable states include Illinois (2.15%), California, (2.08%), New York (2.02%), Pennsylvania (1.91%), and Texas (1.09%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.

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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

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: 2007

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