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/070706d.jpg" width="353">
Sometimes it&#39;s easy to dismiss manufacturing activity in the West. Asian producers have come on so strong in the last several years that one might think European and North American manufacturing is fading away. But this is not so. Activity in the US has slowed the last several months, but new orders are still maintaining better than 5% annual growth over the past five years in nominal terms. In Europe, a volume measure published by Eurostat is rising at a similar pace. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070706e.jpg" width="353">
The most recent evidence of continued industrial vitality in the West comes from Germany, where new factory orders surged in May by 3.2%. This more than reversed a dip in April of 1.6%. These orders stand 7.5% ahead of a year ago, on top of last year&#39;s overall growth of 9.0%. Foreign customers are increasing their demand for German products, particularly those outside the Euro-Zone. Total foreign orders were up 4.4% in May, with gains among Euro partners of 3.6% and 5.1% elsewhere. Domestic orders were up 2.2% in the latest month.
Year-ago co<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070706f.jpg" width="353">mparisons suggest that growth in foreign orders is far outstripping that in domestic orders. The latter are up just 3.8% from May 2006, while orders from Euro-Zone customers are up 9.6% and from non-Euro-Zone, 12.4%. But what these figures really show is volatility. To smooth some of this out, we can examine the performance of moving averages. With the new, oncoming DLXVG3, we can perform nested-function calculations, so we can take a moving average and then do a percent change on the smoothed series. We illustrate that in the second and third graphs, with, first the 6-month moving averages and then the 12-month growth in those moving averages. We see that domestic orders have accelerated to over 8% on this basis, catching up to growth in foreign orders. The last time domestic orders were this strong was in 2000, just at the peak of the tech boom.
<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070706g.jpg" width="353">At the same time, the continuing strength in foreign orders, particularly those outside the Euro-Zone, seems surprising in view of the recent strengthening of the euro. So we looked at this relationship too, with the same year-to-year % change in the 6-month moving average. We find a rather nice, negative relationship with the effective euro exchange rate for the so-called &quot;narrow&quot; group of countries, deflated by the PPIs, which we assume would be a relevant price index for judging the competitiveness of manufacturers. The correlation ratio is -68%. We can improve that slightly, to -70%, by leading the exchange rate variable by 1 month, so that as customers examine their situation, the current exchange rate may have a modest impact on action they take the following month. We see here that the recent experience of orders gains is not really out of line with the exchange rate: as our exchange rate growth variable has started to flatten, orders growth has started to pick up, maintaining the negative reaction. The relationship is in the growth rates, not just the levels.
The German orders data are contained in the main country-source database GERMANY and also in Haver&#39;s own G10. US orders data were referenced from USECON and the European totals and exchange rate are from EUROSTAT. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">GERMANY:&nbsp; Manufacturers&#39; New Orders</th>
<th scope="col">May 2007*</th>
<th scope="col">Apr 2007*</th>
<th scope="col">Mar 2007*</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">Total (2000=100)</td>
<td>130.6</td>
<td>126.5</td>
<td>128.5</td>
<td>117.4*</td>
<td>119.0</td>
<td>109.1</td>
<td>104.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>3.2</td>
<td>-1.6</td>
<td>1.1</td>
<td>7.5</td>
<td>9.0</td>
<td>4.9</td>
<td>6.8</td>
</tr>
<tr>
<td class="firstcol">Domestic</td>
<td>2.2</td>
<td>-1.2</td>
<td>1.9</td>
<td>3.8</td>
<td>7.0</td>
<td>1.6</td>
<td>4.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-Zone</td>
<td>3.6</td>
<td>-1.5</td>
<td>-1.0</td>
<td>9.6</td>
<td>7.7</td>
<td>8.0</td>
<td>9.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Non-Euro-Zone</td>
<td>5.1</td>
<td>-2.3</td>
<td>1.4</td>
<td>12.4</td>
<td>13.8</td>
<td>8.7</td>
<td>9.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>2.4</td>
<td>-1.8</td>
<td>2.5</td>
<td>4.7</td>
<td>10.5</td>
<td>2.3</td>
<td>6.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Goods</td>
<td>3.8</td>
<td>-2.0</td>
<td>0.2</td>
<td>10.3</td>
<td>8.6</td>
<td>6.9</td>
<td>8.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Goods</td>
<td>4.0</td>
<td>1.6</td>
<td>0.2</td>
<td>4.6</td>
<td>4.8</td>
<td>4.3</td>
<td>1.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: Euro**</td>
<td>0.2</td>
<td>1.0</td>
<td>0.5</td>
<td>3.2</td>
<td>0.4</td>
<td>-1.6</td>
<td>2.6</td>
</tr>
</tbody>
</table>
</body>
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Sometimes it's easy to dismiss manufacturing activity in the West. Asian producers have come on so strong in the last several years that one might think European and North American manufacturing is fading away. But this is not so. [...]

Who Says Manufacturing Growth Is All in Asia? German Factory Orders Up Markedly in May

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070706h.jpg" width="353">
French exports have relatively long lived and broad based declining trends across industries. This is very different from the German results also reported today that showed such strong orders from overseas. While Germany may have special business ties and niches of strength that help to insulate it from the strong euro, France does not seem to be so lucky. While Mr Sarkozy is out there trying to balance one budget (or to postpone putting it in balance) it looks like he has another deficit reading that is ready to split at the seams, this one for trade.
French trends show that despite their proximity and shared currency France and Germany are as different as night and day in some respects. While German order trends for capital goods are very strong, for France actual exports are dropping by 12.3% at an annual rate in the three months ended in May and are lower by 6.3% Yr/Yr. This compares to German foreign order rise of double digits on both those horizons for capital goods. Clearly France is facing a very different situation than Germany. And after also sharing the same business cycle and fiscal issues for a time these two economies are now going their separate ways. Germany has its fiscal situation under control and its MFG sector riding high; and France is trying to postpone its promised adjustment &#150; with the Germans as some of its biggest critics &#150; and its industrial competitiveness seems to be slipping. 
It is not as simply as saying there is a capital spending boom in Europe and Germany. If that were so, wouldn&#146;t fellow Euro-zone member France get its share? France is not taking part. Rather Germany, as the most competitive Euro-zone member, is the country that will be the last to feel the effects of the strong euro. German will enjoy a competitive advantage for a while after others have lost it. Is that where we are today? Is that why Germany is still doing well while others are not?
Italy and Spain already are showing some signs of weakness. For Spain it is a clear loss of momentum in industrial output that drops the hint. For Italy weakness is a little more broad-based. The OECD leading indicators still have France on an upswing, but that may be more domestic in nature. France&#146;s external sector seems to be lacking, judging from export trends. Clearly this is a good time to look at the various Euro-zone countries as distinct entities and see which of them &#150; if any - is hurting from the strong Euro. This will be a theme in the coming months.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
French Trade Trends for Goods
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="2">m/m%</td>
<td colspan="3">% SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3M</td>
<td>6M</td>
<td>12M</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance*</td>
<td>-&#128;&#128; 3,015.00</td>
<td>-&#128;&#128; 2,493.00</td>
<td>-&#128;&#128; 2,364.33</td>
<td>-&#128;&#128; 2,402.33</td>
<td>-&#128;&#128; 2,310.42</td>
</tr>
<tr class="odd">
<td colspan="6">Exports</td>
</tr>
<tr class="odd">
<td class="firstcol">All Export</td>
<td>-1.0%</td>
<td>-1.4%</td>
<td>-5.5%</td>
<td>-4.0%</td>
<td>-1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Goods</td>
<td>-6.5%</td>
<td>0.6%</td>
<td>-12.3%</td>
<td>-9.6%</td>
<td>-6.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Motor Vehicles</td>
<td>-2.4%</td>
<td>-1.4%</td>
<td>-13.1%</td>
<td>-6.4%</td>
<td>-5.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Goods</td>
<td>-0.2%</td>
<td>-0.6%</td>
<td>-0.4%</td>
<td>-3.7%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td colspan="6">IMPORTS</td>
</tr>
<tr class="odd">
<td class="firstcol">All Import</td>
<td>-0.6%</td>
<td>2.0%</td>
<td>-2.4%</td>
<td>0.5%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Goods</td>
<td>0.6%</td>
<td>-0.1%</td>
<td>-16.7%</td>
<td>1.0%</td>
<td>-2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Motor Vehicles</td>
<td>-0.1%</td>
<td>-1.4%</td>
<td>-4.2%</td>
<td>9.1%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Goods</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>-3.2%</td>
<td>-4.1%</td>
<td>2.6%</td>
</tr>
<tr>
<td colspan="4">*Eur Blns; mo or period average</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
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French exports have relatively long lived and broad based declining trends across industries. This is very different from the German results also reported today that showed such strong orders from overseas. While Germany may have [...]

French Trade Deteriorates While German Foreign Orders Soar

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070706b.jpg" width="353">
Nonfarm payrolls grew by 132,000 during June, an increase that slightly beat the Consensus forecast for a 125,000 rise. In addition, the prior two months&#39; gains were upwardly revised by a collective 75,000.
The unemployment rate held steady last month at 4.5%. Household employment increased 197,000 (1.2%) following a 157,000 gain in May. The labor force jumped 310,000 (1.1% y/y), the largest gain this year. As a result, the labor force participation rate rose to 66.6%.
From the establishment survey, the job gain of 132,000 left the average gain in payrolls this year at 145,000 versus last year&#146;s average of 189,000. Private service sector jobs rose just 95,000 (2.0% y/y), versus last year&#146;s average gain of 154,000. Retail employment actually fell 24,200 (0.5% y/y) during June and the average this year has been a meager 7,000 per month after an outright decline of 2,000 per month during 2006. In the financial sector jobs grew just 1,000 (1.4% y/y) for an average 5,000 this year versus 16,000 last year. Professional &amp; business services employment fell 9,000 and the average monthly gain this year has been 13,000, about a quarter of last year&#146;s 42,000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070706c.jpg" width="353">
Factory sector payrolls fell again, by 18,000 (-1.3 y/y) but construction employment rose by 12,000 (-0.1% y/y). The average, though, during this year is a 1,000 per month decline versus an average 11,000 increase per month gain in 2006.
Government payrolls increased 40,000 (1.5% y/y) and in 2007 have risen an average 30,000, up from the per month average last year of 20,000.
Average hourly earnings increased 0.3% as factory sector earnings rose 0.2% (2.7% y/y and private service producing earnings rose a firm 0.4% (4.0% y/y). The monthly average increase in overall average hourly earnings this year has been 0.3% versus, down from 0.4% per month last year. 
 Inflation and Unemployment: A Layperson&#146;s Guide to the Phillips Curve from the Federal Reserve Bank of Richmond is available <a href="http://www.richmondfed.org/publications/economic_research/annual_report/2006/pdf/ar.pdf">here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>132,000</td>
<td>190,000</td>
<td>1.5%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-18,000</td>
<td>-7,000</td>
<td>-1.3%</td>
<td>-0.2%</td>
<td>-0.6%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.9</td>
<td>33.8</td>
<td>33.9 (June &#39;06)</td>
<td>33.8</td>
<td>33.8</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.3%</td>
<td>0.4%</td>
<td>3.9%</td>
<td>3.9%</td>
<td>2.8%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.5%</td>
<td>4.5%</td>
<td>4.6% (June &#39;06)</td>
<td>4.6%</td>
<td>5.1%</td>
<td>5.5%</td>
</tr>
</tbody>
</table>
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Nonfarm payrolls grew by 132,000 during June, an increase that slightly beat the Consensus forecast for a 125,000 rise. In addition, the prior two months' gains were upwardly revised by a collective 75,000. The unemployment rate held [...]

June Payrolls Beat Forecasts. Prior Months Revised Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070705e.jpg" width="353">
Japan&#146;s May rise in its LEI is the second in a two months technically, but is still not very impressive. Most growth rates still show it declining (see chart and table). However, over two years the index does post an annualized rate of growth of +0.2%. Japan&#146;s economy has been vexing in this cycle.
After a period of weakness Japan posted a rise in its LEI and of course in the underlying conditions that this index represents. The LEI&#146;s growth rate from October 2001 to July of 2004 was at an annual rate of 7.1%, pretty impressive. But then it peaked dipped and expanded again. The next result was that from the peak to next peak from roughly July 2004 &#150; May 2006 the growth of the index dropped off to a pace of 2.6%. Then really bad things began to happen as from that second peak in May 2006 the index fell to a low in March 2007 at 101.4 During that period the LEI was dropping at very fast 8.3% pace. Still the period of decline was less than a year. From the bottom of the LEI&#146;s trough back in October of 2001 the LEI is still growing but at a much more modest pace of 2.9%.
While the two-month rebound in the LEI is not definitive or a reliable guide of the future it did arrest this extended period of decline the LEI.
During this period Japan has continued to be dogged by deflation and its growth statistics have continued to be irregular, as the LEI attests. But the BOJ has been making noise as though it nonetheless wanted to hike interest rates. While the LEI does not tell a comprehensive story on the economy it does tell a capsulated story and one that should be viewed as cautionary with respect to growth conditions in Japan.
Japan at one time turned the corner fast but then it slowed and has since backtracked. Weakness in the yen attests to the mixed situation there and how investors view it. While we do not like to see governments telling central banks the kind of policies they want it is understandable in this environment that Japan&#146;s governing party is wary of the BoJ&#146;s apparent intent to go back to a rate hiking cycle so soon.
The BOJ and the Japanese government are ever mindful of the demographics and fiscal difficulties that lie ahead for them. If anything these concerns have kept them too eager to restrict fiscal policy (by hiking taxes) and too quick to raise interest rates (or too slow to cut them). Japan remains a country with the opposite policy tendencies to most Western nations even if it faces many of the same problems.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
 Japan&#39;s LEI and its Trends
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Levels</td>
<td colspan="4">Growth (saar)</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td> May-07</td>
<td> Apr-07</td>
<td> Mar-07</td>
<td> 3M0</td>
<td> 6M0</td>
<td> 12Mo</td>
<td> 24MO</td>
</tr>
<tr>
<td class="firstcol">LEI</td>
<td>102.2</td>
<td>101.5</td>
<td>101.4</td>
<td>-2.7%</td>
<td>-4.4%</td>
<td>-5.4%</td>
<td>0.2%</td>
</tr>
</tbody>
</table>
</body>
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Japans May rise in its LEI is the second in a two months technically, but is still not very impressive. Most growth rates still show it declining (see chart and table). However, over two years the index does post an annualized rate [...]

Japan’s LEI Rose in May: Signal Still Uncertain

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070705d.jpg" width="353">
The non-manufacturing sector Business Activity Index for June rose to 60.7, up a point m/m, and the gain was to the highest level since April 2006 according to the Institute for Supply Management.
Since the series&#39; inception in 1997 there has been a 46% correlation between the level of the Business Activity Index and the Q/Q change in real GDP for services plus construction.
The employment sub index ticked up to 55.0, its highest level in more than year. Since the series&#39; inception in 1997 there has been a 56% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
The new orders index in contrast, fell m/m to 56.9, a level which still indicates growth in new orders.
Pricing power fell a modest 0.9 points to 65.5 after a sharp 2.9 point rise during May. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates back to July 1997.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.
The Role of Small Businesses in Economic Development from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/2q07edmi.pdf">here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#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">Business Activity Index</td>
<td>60.7</td>
<td>59.7</td>
<td>56.9</td>
<td>58.0</td>
<td>60.2</td>
<td>62.5</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>65.5</td>
<td>66.4</td>
<td>72.3</td>
<td>65.2</td>
<td>68.0</td>
<td>68.8</td>
</tr>
</tbody>
</table>


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The non-manufacturing sector Business Activity Index for June rose to 60.7, up a point m/m, and the gain was to the highest level since April 2006 according to the Institute for Supply Management. Since the series' inception in 1997 [...]

ISM Nonmanufacturing Index Indicates Strength in Services

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070705a.jpg" width="353">
Initial unemployment insurance claims rose 2,000 to 318,000last week after a 10,000 increase the week prior.
During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims rose to 318,500 (2.8% y/y).
An 84,000 rise in continuing claims for unemployment insurance reversed all of a 32,000 decline during the week prior. 
The insured rate of unemployment ticked up to 2.0%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">06/30/07</th>
<th scope="col">06/27 /07</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">Initial Claims</td>
<td>318</td>
<td>316</td>
<td>0.6%</td>
<td>313</td>
<td>332</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,569</td>
<td>4.7%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
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Initial unemployment insurance claims rose 2,000 to 318,000last week after a 10,000 increase the week prior. During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change [...]

Initial Jobless Insurance Claims Up Slightly

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Last month, U.S. sales of light vehicles fell for the sixth consecutive month this year. The 3.4% m/m decline to an annualized selling rate of 15.6M units, according to the Autodata Corporation, was to the lowest level since October 2005<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070705c.jpg" width="353">
Sales of imported vehicles held about steady m/m, due to sharp discounting, at a 4.00M selling rate (4.4% y/y). Sales of imported cars ticked up by 0.9% y/y but sales of imported light trucks surged 11.4% y/y.
Domestic car sales fell a hard 5.0%m/m (-2.1% y/y) after a 9.2% jump during May. Sales of domestic light trucks also fell a sharp 4.2% m/m (-8.9% y/y during June after an 8.9% drop the prior 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/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>15.60</td>
<td>16.16</td>
<td>-3.5%</td>
<td>16.55</td>
<td>16.96</td>
<td>16.87</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.63</td>
<td>7.96</td>
<td>-1.1%</td>
<td>7.77</td>
<td>7.65</td>
<td>7.49</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>7.97</td>
<td>8.20</td>
<td>-5.8%</td>
<td>8.78</td>
<td>9.32</td>
<td>9.37</td>
</tr>
</tbody>
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Last month, U.S. sales of light vehicles fell for the sixth consecutive month this year. The 3.4% m/m decline to an annualized selling rate of 15.6M units, according to the Autodata Corporation, was to the lowest level since October [...]

U.S. Vehicle Sales Lowest Since 2005

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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Andrew Cates

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

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

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

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

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

260205Z5.jpg

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

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

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

260206E.jpg

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

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

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

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

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

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

260206.jpg

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

260205X15.jpg

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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

260205A2.jpg

260205B2.jpg

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

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

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

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

260205C2.jpg

260205D2.jpg

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

U.S. Initial Unemployment Claims Surged in Latest Week

260205E.jpg

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

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

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

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

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

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

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

Economy in Brief: 2007

Jump to:

Who Says Manufacturing Growth Is All in Asia? German Factory Orders Up Markedly in May

French Trade Deteriorates While German Foreign Orders Soar

June Payrolls Beat Forecasts. Prior Months Revised Up

June Payrolls Beat Forecasts. Prior Months Revised Up

Japan’s LEI Rose in May: Signal Still Uncertain

ISM Nonmanufacturing Index Indicates Strength in Services

Initial Jobless Insurance Claims Up Slightly

U.S. Vehicle Sales Lowest Since 2005