Tom Moeller

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

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/070712f.jpg" width="353">
Industrial output in India has accelerated markedly over the last couple of years. In the data for May, published today in Mumbai by the Central Statistical Organization, the gain was 11.1% from May 2006 and that actually disappointed some analysts, who had hoped for a repeat of April&#39;s 12.4% year-to-year growth.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070712g.jpg" width="353">
This is a sustained period of good growth, but India has seen prior periods of rapid expansion: the late 1980s and the mid-1990s are seen in the first graph here, which takes a long view. Since India has been known for its rapid growth as a center for the service sector, we compare growth in manufacturing to that in gross value added in trade, hotels and communications. We see in the second graph that sector did surpass manufacturing production growth from 2001 to 2004, but manufacturing has picked up considerably since early 2006 as services simply maintained their pace.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070712h.jpg" width="353">
Big increases in India&#39;s industry have come in the metal products and machinery industries, and in the classification of goods by end use, it is capital goods that have shown by far the most growth. Because monthly activity is subject to wide swings, we judged recent comparative performance by calculating 6-month moving averages and taking the year-to-year growth in those. By that measure in May, capital goods output has risen 19.3%, while intermediate materials are up 12.5% and consumer goods by 11.2%. By industry, other outsized gains have taken place in plastics and petroleum refining, food, textiles and wood products.
Heavy industry has thus become increasingly important in India. We find this somewhat surprising; as we noted here last week for Germany, we often have the impression that China and other East Asian countries have all the growth in these sectors. But in fact there seems to be enough high tech heavy equipment demand to go around and construction projects in many places, especially right there in India, which require heavy metal forms and parts. So unlike the analysts and reporters who noticed a slight downtick in total production growth in May, we&#39;d see instead the continuation of very rapid pace. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">INDIA Industrial Production</th>
<th scope="col">May 2007</th>
<th scope="col">Apr 2007</th>
<th scope="col">Mar 2007</th>
Calendar Year Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2006</td>
<td>2005</td>
<td>2004</td>
<td>2000- 2003</td>
</tr>
<tr>
<td class="firstcol">Total Index, NSA, FY93/94=100</td>
<td>264.2</td>
<td>253.1</td>
<td>288.5</td>
<td>239.6</td>
<td>216.7</td>
<td>200.8</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Mo/Mo % Change, SA</td>
<td>1.9</td>
<td>-1.0</td>
<td>5.8</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Yr/Yr % Change, NSA</td>
<td>11.1</td>
<td>12.4</td>
<td>14.5</td>
<td>10.5</td>
<td>7.9</td>
<td>8.5</td>
<td>5.0</td>
</tr>
</tbody>
</table>
</body>
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Industrial output in India has accelerated markedly over the last couple of years. In the data for May, published today in Mumbai by the Central Statistical Organization, the gain was 11.1% from May 2006 and that actually disappointed [...]

India's Industrial Production Up "Only" 11.1% in May

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070711f.jpg" width="353">
The Czech Republic and Hungary are not far apart in Central Europe, but their respective consumer price behaviors put them seemingly at the other end of the continent from each other. In the Czech Republic in June, the total CPI rose 0.3%, putting the last 12 months up 2.4%. Core inflation there was a mere 0.1% in June, following none at all in May, and a modest 1.2% over the year earlier. In Hungary by contrast, total CPI and the core rate both were 0.4% in June; total CPI was up 8.7% from the year earlier and the core, 5.9%.
&quot;Core&quot; in Hungary is defined as the total less most energy items, unprocessed foods and regulated prices. In the Czech Republic, the &quot;core&quot; excludes only regulated prices and tax and other administrative items. Both countries&#39; data are contained in Haver&#39;s EMERGECW database.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070711g.jpg" width="353">
Examination of the CPI categories in each country reveals that inflation is both higher and more widespread in Hungary. Nearly all segments show faster 12-month rates there. Food is up 10.3% year/year compared with 2.5% in the Czech Republic. Transport costs in June were 3.5% higher in Hungary and a mere 0.1% in the Czech Republic. Also, even a more discretionary component like recreation and culture rose 3.3% in Hungary but just 0.8% in Czech Republic. Communications prices stand out as an exception: they&#39;ve been falling in Hungary, and in June were 4.1% below last year, while in the Czech Republic they&#39;ve inched up 0.2% in the last 12 months and are now also declining, but only slightly.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070711h.jpg" width="353">
All this said, we can&#39;t form broad conclusions about inflation prospects in either country. On a month-to-month basis, housing and transportation expenses are picking up in the Czech Republic: housing by 0.5 - 0.7% a month since April and transportation 0.8 - 1.0%. These calls into question how long the low inflation trend may be sustained there. Both these moves may represent stronger fuel prices. This is the case in Hungary for housing-related fuels, with natural gas up a dramatic 42% from year-ago amounts. The path of gasoline prices there has veered differently, however, and those prices went down sharply last autumn at the time natural gas prices were being raised. Clothing, an item with perhaps more flexible local markets than energy, is widely varying in both countries, and its performance within each country differs markedly from month-to-month. It looked, for example, that in the Czech Republic, those prices were on a rising trend in the early part of this year. But May and June have seen renewed declines, so perhaps the trend isn&#39;t shifting after all. The same swing has occurred in Hungary, but with a lead of about 3 months over the Czechs. So the recent performances of various prices in both countries are so disparate that we find a consistent inflation scenario within each one almost impossible to discern, let alone something common to both. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Consumer Price Indexes, % Changes</th>
<th scope="col">June 2006*</th>
<th scope="col">May 2006*</th>
<th scope="col">Apr 2006*</th>
<th scope="col">Year Ago</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">Czech Republic</td>
<td>0.3</td>
<td>0.2</td>
<td>0.8</td>
<td>2.4</td>
<td>2.5</td>
<td>1.8</td>
<td>2.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; &quot;Core&quot;</td>
<td>0.1</td>
<td>0.0</td>
<td>0.4</td>
<td>1.2</td>
<td>0.7</td>
<td>1.1</td>
<td>1.5</td>
</tr>
<tr>
<td colspan="8">&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Hungary</td>
<td>0.4</td>
<td>0.5</td>
<td>0.4</td>
<td>8.7</td>
<td>4.1</td>
<td>3.7</td>
<td>6.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; &quot;Core&quot;</td>
<td>0.4</td>
<td>0.2</td>
<td>0.2</td>
<td>5.9</td>
<td>2.3</td>
<td>2.1</td>
<td>5.8</td>
</tr>
</tbody>
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The Czech Republic and Hungary are not far apart in Central Europe, but their respective consumer price behaviors put them seemingly at the other end of the continent from each other. In the Czech Republic in June, the total CPI rose [...]

CPI in Hungary and Czech Republic: Up, Down or Sideways?

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070710f.jpg" width="353">
China&#39;s trade surplus was a record $26.9 billion in June, an increase of $9.5 billion from May and $12.4 billion from June, 2006. For the first half of this year the surplus was $112.7 billion almost twice the size of the surplus in the first half of 2006--$61.0 billion.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070710g.jpg" width="353">
The June balance with the United States was $14.1 billion, or 52% of the total. In relative terms, the balance with the United States has declined over the years. In much of 2003-2005, the trade surplus with the U.S. exceeded that of the total trade balance as can be seen in the first chart. Since then China&#39;s increasing surplus on trade with Europe has muted the relative importance of the U.S. surplus. The second chart show the growing trade surpluses with the U.S. and Europe.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070710h.jpg" width="353">
Nevertheless, it is the magnitude of the absolute value of the surplus with the U.S. that is the cause of increasing acrimony over trade policy between the two countries. Recently, added to the calls for more rapid yuan appreciation, there have been complaints regarding tainted or defective products such as fish, tooth paste and tires. These products, however, do not loom large in total exports. While data on tires are not available separately, they would amount to considerably less than the $961.3 million of Auto Parts and Accessories for May. Live and frozen fish exports amounted to $282.2 million in May and preparations for oral hygiene, $10.6 million out of total exports of $94.6 billion.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070710i.jpg" width="353">
Of the $103.2 billion exports in June, the major exports were Textiles, Yarns and Fabrics, which were $4.7 billion; Garments and Clothing Accessories ($11.6 billion); Hi-Tech Products ($28.1 billion) and Mechanical and Electrical Products ($55.8 billion). These are shown in the third chart. Of the $76.0 imports in June, the two largest categories were Hi-Tech Products ($22.2 billion) and Mechanical and Electrical Products ($39.1 billion) as seen in the fourth chart. The fact that these last two categories figure in both imports and exports suggests that assembly plays a large part in China&#39;s manufacturing sector.Note: Haver has two China data bases: CHINA--CEIC Premium China Data Base and China in EMERGEPR. The CHINA data base is the more comprehensive, containing not only much of the data in EMERGEPR, but a wealth of other data. In addition to seasonally adjusted data in the CHINA database, some of the China data in EMERGEPR has been adjusted, by Haver, for the yearly variation in the Chinese New Year as well. Sometimes, there are minor differences in updating the series. For example, the China data on trade by country in EMERGEPR are today available for June while the latest data in CHINA are for May.

<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">CHINA TRADE (BIL $)&nbsp;</th>
<th scope="col">Jun 07</th>
<th scope="col">May 07&nbsp;</th>
<th scope="col">Apr 07&nbsp;</th>
<th scope="col">Mar 07&nbsp;</th>
<th scope="col">Feb 07&nbsp;</th>
<th scope="col">Jan 07&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">Exports</td>
<td>103.2</td>
<td>94.1</td>
<td>97.5</td>
<td>83.4</td>
<td>82.1</td>
<td>86.6</td>
<td>969.3</td>
<td>762.3</td>
<td>593.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>76.4</td>
<td>71.6</td>
<td>80.6</td>
<td>76.6</td>
<td>58.3</td>
<td>70.7</td>
<td>791.8</td>
<td>660.2</td>
<td>590.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance</td>
<td>26.9</td>
<td>22.5</td>
<td>16.8</td>
<td>6.9</td>
<td>23.8</td>
<td>15.9</td>
<td>177.5</td>
<td>102.1</td>
<td>32.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance with US</td>
<td>14.1</td>
<td>12.6</td>
<td>12.5</td>
<td> 9.5</td>
<td>12.2</td>
<td> 13.0</td>
<td>144.3</td>
<td>114.2</td>
<td>80.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance with Europe</td>
<td>10.9</td>
<td>10.6</td>
<td>9.1</td>
<td> 6.3</td>
<td>12.6</td>
<td> 9.7</td>
<td>100.4</td>
<td>69.3</td>
<td>33.6</td>
</tr>
<tr>
<td colspan="10">Major Commodity Exports</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Textiles, Yarn, Fabrics etc</td>
<td>4.6</td>
<td>4.7</td>
<td>4.9</td>
<td>3.3</td>
<td>3.8</td>
<td>4.0</td>
<td>48.8</td>
<td>41.1</td>
<td>33.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Garments &amp; Clothing Accessories</td>
<td>11.6</td>
<td>8.5</td>
<td>8.0</td>
<td>4.7</td>
<td>7.4</td>
<td>8.1</td>
<td>95.2</td>
<td>73.9</td>
<td>61.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Hi Tech Products</td>
<td>28.1</td>
<td>24.3</td>
<td>26.2</td>
<td>28.5</td>
<td>22.9</td>
<td>23.0</td>
<td>281.6</td>
<td>218.4</td>
<td>165.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mechanical &amp; Electrical Products&nbsp;</td>
<td>55.8</td>
<td>52.1</td>
<td>54.7</td>
<td>51.7</td>
<td>46.8</td>
<td>48.8</td>
<td>549.6</td>
<td>427.0</td>
<td>323.7</td>
</tr>
<tr>
<td colspan="10">Major Commodity Imports</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mechanical &amp; Electrical Products</td>
<td>39.1</td>
<td>35.89</td>
<td>10.7</td>
<td>39.7</td>
<td>30.8</td>
<td>37.1</td>
<td>428.1</td>
<td>350.4</td>
<td>301.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Hi Tech Products</td>
<td>22.2</td>
<td>20.5</td>
<td>23.2</td>
<td>23.0</td>
<td>18.4</td>
<td>20.7</td>
<td>247.4</td>
<td>197.7</td>
<td>161.3</td>
</tr>
</tbody>
</table>
</body>
</html>

China's trade surplus was a record $26.9 billion in June, an increase of $9.5 billion from May and $12.4 billion from June, 2006. For the first half of this year the surplus was $112.7 billion almost twice the size of the surplus in [...]

China's Trade Surplus Continues to Climb

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070709d.jpg" width="353">
Germany&#39;s trade balance increased by 1.72 billion euros in May from April. Although exports declined by 0.56 billion euros, imports declined even more--2.28 billion euros. Exports reached a peak of 80.79 billion euros in October 2006. Since then, they have tended to fluctuate narrowly around a slightly lower level. Imports show a similar pattern, as can be seen in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070709c.jpg" width="353">
Much of Germany&#39;s trade is with its European neighbors, and of its neighbors, countries in the Euro Area are Germany&#39;s major trading partners. In 2006, German exports to the Euro Area accounted for 43% of total exports and imports from the Euro Area were 39% of total imports.Trading among these countries is unaffected by changes in the value of the euro.
The rise in the euro has, no doubt, dampened the demand for German exports in countries outside the Euro Area. As can be seen in the second chart, exports to the non Euro Area fell sharply last fall. Since then, exports to the Non Euro Area of Europe have recovered more quickly than those to Asia and the United States. Data on trade by county are only available through April.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">GERMANY:&nbsp; TRADE IN GOODS ( Bil. Euros)</th>
<th scope="col">May 07</th>
<th scope="col">Apr&nbsp; 07&nbsp;</th>
<th scope="col">Mar 06&nbsp;</th>
<th scope="col">Feb 06&nbsp;</th>
<th scope="col">Jan 06&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">Exports</td>
<td>79.27</td>
<td>79.83</td>
<td>79.08</td>
<td>80.27</td>
<td>78.83</td>
<td>893.85</td>
<td>783.73</td>
<td>726.66</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>61.71</td>
<td>63.99</td>
<td>63.48</td>
<td>65.60</td>
<td>63.03</td>
<td>731.61</td>
<td>625.91</td>
<td>572.67</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance</td>
<td>15.56</td>
<td>15.84</td>
<td>15.60</td>
<td>14.67</td>
<td>15.80</td>
<td>162.24</td>
<td>157.82</td>
<td>153.99</td>
</tr>
<tr>
<td class="firstcol"> Export by Area </td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area</td>
<td>--</td>
<td>34.61</td>
<td>34.61</td>
<td>34.83</td>
<td>34.27</td>
<td>660.47</td>
<td>580.01</td>
<td>538.73</td>
</tr>
<tr class="odd">
<td class="firstcol">Non Euro Area Europe</td>
<td>--</td>
<td>26.05</td>
<td>25.17</td>
<td>25.44</td>
<td>25.17</td>
<td>280.36</td>
<td>238.40</td>
<td>220.06</td>
</tr>
<tr class="odd">
<td class="firstcol">Asia</td>
<td>--</td>
<td>9.32</td>
<td>8.94</td>
<td>9.42</td>
<td>9.00</td>
<td>107.07</td>
<td>90.10</td>
<td>84.22</td>
</tr>
<tr class="odd">
<td class="firstcol">United States</td>
<td>--</td>
<td>5.97</td>
<td>5.84</td>
<td>6.37</td>
<td>6.06</td>
<td>78.05</td>
<td>68.85</td>
<td>64.13</td>
</tr>
</tbody>
</table>
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Germany's trade balance increased by 1.72 billion euros in May from April. Although exports declined by 0.56 billion euros, imports declined even more--2.28 billion euros. Exports reached a peak of 80.79 billion euros in October 2006. [...]

Germany's Trade Balance Improves in May: Exports to Asia and the U.S. Still below Peak Levels

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070709b.jpg" width="353">
German industrial output rose a firm-looking 1.9% in May, but since that followed a 2.1% drop in April the results were not as expected and were disappointing. These two months follow a mild 0.2% rise in May. As a result in Q2 German IP is falling at a 4.5% annual rate two months into the new quarter. Who would expect with that with such strong orders growth, German IP could be poised to SUBTRACT from GDP in Q2? Well yes, some of the problem is construction and that is an old theme; but the weakness in IP has a broader base. Construction is off at a sharp 30% annual rate in the quarter. Capital goods and intermediate goods output each are off at about a 4% pace and only consumer goods output at +5.2% is up in the new quarter &#150; so far. 
The chart plots IP growth vs orders as a ratio to IP. The ratio of Orders to IP does signal shifts in the growth rate of IP itself. That ratio has been on a long trend since early 2002. After a lull, it is back up strongly since February. However output, which is intrinsically volatile, has backed off in recent months as its growth has slowed. The order/IP ratio says that the pull back is temporary. 
Meanwhile the facts show that IP growth rates have slowed sequentially, not just in the second quarter. That is true for the headline figure for capital goods output and for intermediate goods and for construction. Only consumer goods output is accelerating. Given orders strength we wonder if bottle necks are setting in. Does the ECB traditional inflation pressures have to worry about in Germany? Or is the IP pull back with growth still at 4.6% Yr/Yr simply normal fluctuation in a still strong and rising trend? Orders vs. output trends in Germany will bear watching to illuminate this issue. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
German IP excluding Construction
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar exept m/m</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">IP total</td>
<td>1.9%</td>
<td>-2.1%</td>
<td>0.2%</td>
<td>-0.3%</td>
<td>2.3%</td>
<td>4.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>1.6%</td>
<td>-1.1%</td>
<td>1.7%</td>
<td>9.0%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Capital Goods</td>
<td>2.5%</td>
<td>-2.1%</td>
<td>-0.5%</td>
<td>-0.3%</td>
<td>5.2%</td>
<td>7.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Intermediate Goods</td>
<td>2.3%</td>
<td>-2.9%</td>
<td>1.0%</td>
<td>1.3%</td>
<td>6.1%</td>
<td>7.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Auto</td>
<td>0.3%</td>
<td>-4.9%</td>
<td>-7.4%</td>
<td>-39.2%</td>
<td>-14.9%</td>
<td>-3.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

German industrial output rose a firm-looking 1.9% in May, but since that followed a 2.1% drop in April the results were not as expected and were disappointing. These two months follow a mild 0.2% rise in May. As a result in Q2 German [...]

German IP is Up but Less than Expected and is Lagging Orders Growth

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070709a.jpg" width="353">
Economy watchers survey results are in the lower quarter or third of their respective five year ranges. The NTC Manufacturing survey is in the bottom one percentile of its range. Teikoku Results for Manufacturing are weakening, but still stronger in relative terms, in the top third of their range 
Japan is still having a hard time getting its economic traction. Its Economy Watchers Index fell in June and is further below 50; the future index fell below 50 for the first time in six months. 
The NTC MFG index for Japan has been weak and sliding, as it has dropped for five months in a row. It was last weaker than its current value in June of 2003. 
The Teikoku indices are weighted diffusion readings and readings for MFG are even weaker than for the NTC barometer in absolute levels; but relative to its own range the reading is higher than for NTC. Still the Teikoku indices show a rapid drop in the sector readings in recent months. In the past three months various sectors have dropped 10 percentile points to 15 percentile to 20 percentile points (retailing) in terms of relative standings. Cleary Japan&#146;s economy is having some difficulties and we see that in the exchange rate. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Key Japanese surveys
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="4">Raw readings of each survey</td>
<td colspan="3">Percent of 5Yr range*</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
</tr>
<tr>
<td class="firstcol">Diffusion</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Economy Watchers</td>
<td>46.0</td>
<td>46.8</td>
<td>49.7</td>
<td>50.8</td>
<td>25.7%</td>
<td>44.4%</td>
<td>59.8%</td>
</tr>
<tr>
<td class="firstcol">Employment</td>
<td>51.2</td>
<td>50.7</td>
<td>57.1</td>
<td>56.3</td>
<td>27.5%</td>
<td>35.6%</td>
<td>63.1%</td>
</tr>
<tr>
<td class="firstcol">Future</td>
<td>48.4</td>
<td>50.0</td>
<td>51.9</td>
<td>51.3</td>
<td>34.9%</td>
<td>52.9%</td>
<td>68.0%</td>
</tr>
<tr>
<td class="firstcol">NTC MFG</td>
<td>50.4</td>
<td>51.4</td>
<td>52.3</td>
<td>52.5</td>
<td>0.9%</td>
<td>30.2%</td>
<td>41.4%</td>
</tr>
<tr class="even">
<td class="firstcol">Econ Trends (Teikoku&#39;/50 neutral/weighted diffusion)</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">MFG</td>
<td>44.6</td>
<td>45.2</td>
<td>47.0</td>
<td>47.2</td>
<td>69.7%</td>
<td>76.2%</td>
<td>85.1%</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>39.2</td>
<td>39.6</td>
<td>41.1</td>
<td>41.1</td>
<td>52.7%</td>
<td>64.3%</td>
<td>74.3%</td>
</tr>
<tr>
<td class="firstcol">Wholesale</td>
<td>42.1</td>
<td>42.8</td>
<td>44.3</td>
<td>44.6</td>
<td>68.0%</td>
<td>75.6%</td>
<td>83.5%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>48.6</td>
<td>49.1</td>
<td>50.3</td>
<td>49.9</td>
<td>83.0%</td>
<td>88.4%</td>
<td>93.6%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>36.8</td>
<td>37.7</td>
<td>38.4</td>
<td>38.7</td>
<td>77.5%</td>
<td>84.4%</td>
<td>89.2%</td>
</tr>
<tr>
<td colspan="8">100 is high; Zero is low</td>
</tr>
</tbody>
</table>
</body>
</html>

Economy watchers survey results are in the lower quarter or third of their respective five year ranges. The NTC Manufacturing survey is in the bottom one percentile of its range. Teikoku Results for Manufacturing are weakening, but [...]

Economy Watchers Index Edges Lower and Future Index Weakens

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070709a.jpg" width="353">
Economy watchers survey results are in the lower quarter or third of their respective five year ranges. The NTC Manufacturing survey is in the bottom one percentile of its range. Teikoku Results for Manufacturing are weakening, but still stronger in relative terms, in the top third of their range 
Japan is still having a hard time getting its economic traction. Its Economy Watchers Index fell in June and is further below 50; the future index fell below 50 for the first time in six months. 
The NTC MFG index for Japan has been weak and sliding, as it has dropped for five months in a row. It was less weak than its current value in June of 2003. 
The Teikoku indices are weighted diffusion readings, and the readings for MFG are even weaker than for the NTC barometer in absolute levels; but relative to its own range the reading is higher than for NTC. Still the Teikoku indices show a rapid drop in the sector readings in recent months. In the past three months various sectors have dropped 10 percentile points to 15 percentile to 20 percentile points (retailing) in terms of relative standings. Cleary Japan&#146;s economy is having some difficulties and we see that in the exchange rate. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Key Japanese surveys
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="4">Raw readings of each survey</td>
<td colspan="3">Percent of 5Yr range*</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
</tr>
<tr>
<td class="firstcol">Diffusion</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Economy Watchers</td>
<td>46.0</td>
<td>46.8</td>
<td>49.7</td>
<td>50.8</td>
<td>25.7%</td>
<td>44.4%</td>
<td>59.8%</td>
</tr>
<tr>
<td class="firstcol">Employment</td>
<td>51.2</td>
<td>50.7</td>
<td>57.1</td>
<td>56.3</td>
<td>27.5%</td>
<td>35.6%</td>
<td>63.1%</td>
</tr>
<tr>
<td class="firstcol">Future</td>
<td>48.4</td>
<td>50.0</td>
<td>51.9</td>
<td>51.3</td>
<td>34.9%</td>
<td>52.9%</td>
<td>68.0%</td>
</tr>
<tr>
<td class="firstcol">NTC MFG</td>
<td>50.4</td>
<td>51.4</td>
<td>52.3</td>
<td>52.5</td>
<td>0.9%</td>
<td>30.2%</td>
<td>41.4%</td>
</tr>
<tr class="even">
<td class="firstcol">Econ Trends (Teikoku&#39;/50 neutral/weighted diffusion)</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">MFG</td>
<td>44.6</td>
<td>45.2</td>
<td>47.0</td>
<td>47.2</td>
<td>69.7%</td>
<td>76.2%</td>
<td>85.1%</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>39.2</td>
<td>39.6</td>
<td>41.1</td>
<td>41.1</td>
<td>52.7%</td>
<td>64.3%</td>
<td>74.3%</td>
</tr>
<tr>
<td class="firstcol">Wholesale</td>
<td>42.1</td>
<td>42.8</td>
<td>44.3</td>
<td>44.6</td>
<td>68.0%</td>
<td>75.6%</td>
<td>83.5%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>48.6</td>
<td>49.1</td>
<td>50.3</td>
<td>49.9</td>
<td>83.0%</td>
<td>88.4%</td>
<td>93.6%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>36.8</td>
<td>37.7</td>
<td>38.4</td>
<td>38.7</td>
<td>77.5%</td>
<td>84.4%</td>
<td>89.2%</td>
</tr>
<tr>
<td colspan="8">100 is high; Zero is low</td>
</tr>
</tbody>
</table>
German IP is Up but Less than Expected and is Lagging Orders Growth 
by <a href="/comment/Brusca.html">Bob Brusca</a> July 9, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070709b.jpg" width="353">
German industrial output rose a firm-looking 1.9% in May, but since that followed a 2.1% drop in April the results were not as expected and were disappointing. These two months follow a mild 0.2% rise in May. As a result in Q2 German IP is falling at a 4.5% annual rate two months into the new quarter. Who would expect with that with such strong orders growth, German IP could be poised to SUBTRACT from GDP in Q2? Well yes, some of the problem is construction and that is an old theme; but the weakness in IP has a broader base. Construction is off at a sharp 30% annual rate in the quarter. Capital goods and intermediate goods output each are off at about a 4% pace and only consumer goods output at +5.2% is up in the new quarter &#150; so far. 
The chart plots IP growth vs orders as a ratio to IP. The ratio of Orders to IP does signal shifts in the growth rate of IP itself. That ratio has been on a long trend since early 2002. After a lull, it is back up strongly since February. However output, which is intrinsically volatile, has backed off in recent months as its growth has slowed. The order/IP ratio says that the pull back is temporary. 
Meanwhile the facts show that IP growth rates have slowed sequentially, not just in the second quarter. That is true for the headline figure for capital goods output and for intermediate goods and for construction. Only consumer goods output is accelerating. Given orders strength we wonder if bottle necks are setting in. Does the ECB traditional inflation pressures have to worry about in Germany? Or is the IP pull back with growth still at 4.6% Yr/Yr simply normal fluctuation in a still strong and rising trend? Orders vs. output trends in Germany will bear watching to illuminate this issue. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
German IP excluding Construction
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar exept m/m</td>
<td>May-07</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">IP total</td>
<td>1.9%</td>
<td>-2.1%</td>
<td>0.2%</td>
<td>-0.3%</td>
<td>2.3%</td>
<td>4.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>1.6%</td>
<td>-1.1%</td>
<td>1.7%</td>
<td>9.0%</td>
<td>2.0%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Capital Goods</td>
<td>2.5%</td>
<td>-2.1%</td>
<td>-0.5%</td>
<td>-0.3%</td>
<td>5.2%</td>
<td>7.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Intermediate Goods</td>
<td>2.3%</td>
<td>-2.9%</td>
<td>1.0%</td>
<td>1.3%</td>
<td>6.1%</td>
<td>7.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Auto</td>
<td>0.3%</td>
<td>-4.9%</td>
<td>-7.4%</td>
<td>-39.2%</td>
<td>-14.9%</td>
<td>-3.0%</td>
</tr>
</tbody>
</table>
 Germany's Trade Balance Improves in May: Exports to Asia and the U.S. Still below Peak Levels  
by <a href="/comment/Curley.html">Louise Curley</a> July 9, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070709d.jpg" width="353">
Germany&#39;s trade balance increased by 1.72 billion euros in May from April. Although exports declined by 0.56 billion euros, imports declined even more--2.28 billion euros. Exports reached a peak of 80.79 billion euros in October 2006. Since then, they have tended to fluctuate narrowly around a slightly lower level. Imports show a similar pattern, as can be seen in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070709c.jpg" width="353">
Much of Germany&#39;s trade is with its European neighbors, and of its neighbors, countries in the Euro Area are Germany&#39;s major trading partners. In 2006, German exports to the Euro Area accounted for 43% of total exports and imports from the Euro Area were 39% of total imports.Trading among these countries is unaffected by changes in the value of the euro.
The rise in the euro has, no doubt, dampened the demand for German exports in countries outside the Euro Area. As can be seen in the second chart, exports to the Non Euro Area fell sharply last fall. Since then, exports to the Non Euro Area of Europe have recovered more quickly than those to Asia and the United States. Data on trade by county are only available through April.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">GERMANY:&nbsp; TRADE IN GOODS ( Bil. Euros)</th>
<th scope="col">May 07</th>
<th scope="col">Apr&nbsp; 07&nbsp;</th>
<th scope="col">Mar 06&nbsp;</th>
<th scope="col">Feb 06&nbsp;</th>
<th scope="col">Jan 06&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">Exports</td>
<td>79.27</td>
<td>79.83</td>
<td>79.08</td>
<td>80.27</td>
<td>78.83</td>
<td>893.85</td>
<td>783.73</td>
<td>726.66</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>61.71</td>
<td>63.99</td>
<td>63.48</td>
<td>65.60</td>
<td>63.03</td>
<td>731.61</td>
<td>625.91</td>
<td>572.67</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance</td>
<td>15.56</td>
<td>15.84</td>
<td>15.60</td>
<td>14.67</td>
<td>15.80</td>
<td>162.24</td>
<td>157.82</td>
<td>153.99</td>
</tr>
<tr>
<td class="firstcol"> Export by Area </td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area</td>
<td>--</td>
<td>34.61</td>
<td>34.61</td>
<td>34.83</td>
<td>34.27</td>
<td>660.47</td>
<td>580.01</td>
<td>538.73</td>
</tr>
<tr class="odd">
<td class="firstcol">Non Euro Area Europe</td>
<td>--</td>
<td>26.05</td>
<td>25.17</td>
<td>25.44</td>
<td>25.17</td>
<td>280.36</td>
<td>238.40</td>
<td>220.06</td>
</tr>
<tr class="odd">
<td class="firstcol">Asia</td>
<td>--</td>
<td>9.32</td>
<td>8.94</td>
<td>9.42</td>
<td>9.00</td>
<td>107.07</td>
<td>90.10</td>
<td>84.22</td>
</tr>
<tr class="odd">
<td class="firstcol">United States</td>
<td>--</td>
<td>5.97</td>
<td>5.84</td>
<td>6.37</td>
<td>6.06</td>
<td>78.05</td>
<td>68.85</td>
<td>64.13</td>
</tr>
</tbody>
</table>
</body>
</html>

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.

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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: 2007

Jump to:

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

India's Industrial Production Up "Only" 11.1% in May

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China's Trade Surplus Continues to Climb

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German IP is Up but Less than Expected and is Lagging Orders Growth

Economy Watchers Index Edges Lower and Future Index Weakens

Economy Watchers Index Edges Lower and Future Index Weakens