Tom Moeller

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The Mortgage Bankers Association reported that its total
Mortgage Applications Index fell 2.5% (-9.0% y/y) during the week ended February
1, about the same as during the prior two weeks. These declines followed sharp
increases early in January. Applications to purchase a home were off 4.9%, the
third straight weekly decline (-0.9% y/y). Applications to refinance a mortgage
rose 0.3% (-18.9% y/y) after two weeks of sharp decline.

The effective interest rate on a 15-year fixed-rate mortgage
eased w/w to 4.23%, down from a 4.71% high early in November. The effective rate
on a 30-year fixed-rate loan declined to 4.82%. The rate on a Jumbo 30-year loan
fell to 4.58%, and for adjustable 5-year mortgages, the effective interest rate
declined to 4.17%.

The average mortgage loan size was fairly steady at $314,500
(7.5% y/y). For purchases, the average loan size increased to $320,500 (0.5%
y/y). For refinancings, the average loan size declined to $306,000 (+16.9% y/y).

Applications for fixed-rate loans declined 10.6% y/y while
applications for adjustable-rate loans increased 16.6% y/y.

The survey covers over 75% of all U.S. retail residential
mortgage applications and has been conducted weekly since 1990. Respondents
include mortgage bankers, commercial banks and thrifts. The base period and
value for all indexes is March 16, 1990=100. The figures for weekly mortgage
applications and interest rates are available in Haver's SURVEYW database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >MBA Mortgage Applications (%,
 SA)</th>
 <th scope="col" >02/01/19</th>
 <th scope="col" >01/25/19</th>
 <th scope="col" >01/18/19</th>
 <th scope="col" >Y/Y</th>
 <th scope="col" >2018</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >Total Market Index</td>
 <td >-2.5</td>
 <td >-3.0</td>
 <td >-2.7</td>
 <td >-9.0</td>
 <td >-10.4</td>
 <td >-17.8</td>
 <td >15.6</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Purchase</td>
 <td >-4.9</td>
 <td >-2.3</td>
 <td >-2.2</td>
 <td >-0.9</td>
 <td >2.1</td>
 <td >5.6</td>
 <td >13.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Refinancing</td>
 <td >0.3</td>
 <td >-5.5</td>
 <td >-5.3</td>
 <td >-18.9</td>
 <td >-24.3</td>
 <td >-34.0</td>
 <td >17.3</td>
 </tr>
 <tr>
 <td class="firstcol" >15-Year Mortgage Effective Interest Rate
 (%)</td>
 <td >4.23</td>
 <td >4.27</td>
 <td >4.26</td>
 <td >4.16 (Feb.'18)</td>
 <td >4.35</td>
 <td >3.59</td>
 <td >3.22</td>
 </tr>
 </tbody>
 </table>
 
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The Mortgage Bankers Association reported that its total Mortgage Applications Index fell 2.5% (-9.0% y/y) during the week ended February 1, about the same as during the prior two weeks. These declines followed sharp increases early [...]

U.S. Mortgage Loan Applications Continue to Decline; Interest Rates Fall

Robert Brusca

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German industrial orders fell for the second month in a row. The drop produced the second substantial drop in a row for foreign orders as well with declines of 2.3% m/m in both December and November. Domestic orders fell by 0.6% in December after a 3% gain in November which itself was a partial rebound from an October drop.

Weakness encroaches: Can eight of nine growth rates be wrong? 
The nine growth rates calculated for total orders, foreign orders and domestic orders over three separate horizons (over three months, six months and 12 months) show eight declines with one positive growth rate for domestic orders over six months as the only exception. The growth rates, while nearly all negative, do not monotonically decline. The year-on-year decline is the sharpest for overall and foreign orders with the three-month decline the next largest decline. For domestic orders the three-month decline is the largest drop with the year-on-year decline the second largest.

However, the quarterly growth rates show a gain for Q4 total orders and for foreign orders with domestic orders lower on balance.

Sales trends show a bit more life 
Trends in real sector sales show a decline in sales in the quarter-to-date for overall sales for intermediate goods and for consumer goods. Capital goods sales are up on a quarter-to-date basis. Manufacturing sales are off over 12 months, declining over six months, but rebounding and advancing at a 3.9% annual rate over three months.

Recalibrating the orders drop 
The sharp drop in the year-over-year foreign order series is the result of recent weakness, but that weakness is exaggerated by the fact that in December 2017 foreign orders had surged. That surge lifts the base for this year’s year-on-year gain and diminishes the performance of foreign order growth over 12 months. If we calculate instead the percentage change in foreign orders from a January 2018 and November 2017 average (months adjacent to December), the drop in foreign orders over 12 months scales back to -5.6% from 9.6%. And at that, the year-on-year drop is more in alignment with the domestic order drop of 3.2%.


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But there is no re-writing history 
Recalibrate if you will, but there is no way around the conclusion that Germany is weakening. The ZEW survey, the IFO survey, the Markit PMI diffusion indexes for both manufacturing and services show weakness and substantial weakness compared to the past four years. And the Markit data put EMU and the other large EMU economies in the same fading spotlight. Germany has been running a policy of restrictive fiscal surpluses and that policy may be taking a toll on growth as tax revenues are slowing. NATO is on Germany’s back to make sure that it does not cut its NATO pledge to meet its domestic fiscal budget objective. Germany has responded that it supports its 1.5% of GDP pledge on defense spending, but Germany, the richest European NATO member, has been pressured to lift its contribution to 2% of GDP. This is something it has agreed to do but has not put any timeline on achieving it, so using a good Brooklynese expression we can say FUGGETTABBOUDIT.

Brexit negotiations reveal some inner truths... 
Meanwhile, overnight some inflammatory Brexit comments from EU Council President Donald Tusk rather revealed that his negotiating strategy all along may have been to try to force the U.K. back into the EU. Tusk said on Wednesday that he had abandoned hope that Brexit might be stopped. (Was that his job?) He also said that those who promoted Britain’s exit without any understanding of how to deliver it deserve a “special place in hell.” I dare say that those in the EU who negotiated disingenuously with the U.K. or that stonewalled them and deprived them of reasonable avenues of compromise for the purpose of making Brexit such a stark choice that it would be abandoned will also be a reserved a special front row seat with a short poker by Dante.

I have suspected all along that much of the EU hard lining on the U.K. has been to try to force them back into the EU or to make it clear that leaving the EU will require such sacrifice that no one would dare try it again. This negotiation process has always been a bit of Kabuki. Finally, that is out in the open. It has not been about resetting a new relationship with an old friend and it has been especially remiss to recognize the special place the U.K. should have in the heart of all Europeans for its amazing steadfast role in World War II. Europe exits in the form it is today largely because of the efforts and hardships endured by the U.K. Even now the U.K. has the only real military capability in Europe. And while NATO and the EU are separate organizations, it should be clear that the U.K. will continue to make special contributions to European security that the EU is simply not willing to recognize that. So who is the real free-rider? The U.K.’s Brexit is being made much more painful than it needs to be and the bureaucrats of the EU are using their iron fist to crush the U.K. instead of admitting that there is a lot of dissent within the EU itself about some of the same issues that ultimately lead the U.K. to vote to leave. Clearly, the EU is still trying to suppress that. Tusk is just being a ‘good bureaucrat’ if you’ll pardon that oxymoron.

This is not the EU’s finest hour. And Donald Tusk has distinguished himself as a hard headed, iron fisted, inflexible bureaucrat. I wonder what U.S.-EU trade negotiations are going to look like? That will be a negotiation where the EU does not hold all the cards - far from it. And Donald Trump is no Theresa May.
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German industrial orders fell for the second month in a row. The drop produced the second substantial drop in a row for foreign orders as well with declines of 2.3% m/m in both December and November. Domestic orders fell by 0.6% in [...]

German Orders Decline for the Second Month in a Row

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The U.S. trade deficit in goods and services lessened to
$49.31 during November from $55.70 billion in October, revised from $55.49
billion. A deficit of $54.0 billion had been expected by the Action Economics
Forecast Survey. Exports declined 0.6% (+3.7% y/y) after an unrevised 0.1%
easing in October, while imports fell 2.9% (+3.2% y/y) after a 0.4% gain in
October, revised from 0.2%.

The real (inflation-adjusted) goods trade balance narrowed to
$80.8 billion in November from a record $88.3 billion in October.

The deficit in goods trade declined to $70.5 billion in
November from a record $77.1 billion in October. Exports of goods declined 0.9%
(+4.6% y/y), but rose slightly in real terms. Foods, feeds and beverage exports
rebounded 0.6% (-2.2% y/y) following four months of sharp decline. Auto exports
fell 3.0% (-8.8% y/y) after a 1.9% drop, while non-auto capital goods exports weakened
5.0% (+1.4% y/y). Industrial supplies exports fell 2.9% (+11.4% y/y). Exports
of petroleum declined 3.8% (+31.7% y/y) as prices fell. Constant dollar
petroleum exports increased 6.4% m/m and by nearly one-quarter y/y.

Imports of goods decreased 3.6% (+3.4% y/y) in November after
rising for six straight months. In constant dollars, imports fell 3.0% (+1.9%
y/y) after little change in October. Nonauto consumer goods imports declined
7.5% (+2.2% y/y). Foods, feeds and beverages imports fell 1.2% (+3.8% y/y) while
imports of capital goods improved 0.6% (1.8% y/y). Imports of automobiles gained
0.8% (6.4% y/y) and have risen steadily since May. Industrial supplies imports
declined 6.9% (+2.4% y/y) but fell 5.2% in real terms (-4.1% y/y).

Petroleum imports declined 14.6% (-1.8% y/y) and by 10.7% in
real terms (-14.1% y/y). Nonpetroleum imports were off 2.5% (+3.8% y/y) and 2.2%
in real terms (+3.5% y/y). The price per barrel of crude oil declined to $57.54
from $61.23. It was down from an average $101.02 in 2012.

The surplus on services trade declined to $22.3 billion in
November, the smallest surplus in nine months. Services exports eased 0.2% m/m (+2.2%
y/y) as travel exports fell 0.2% (+0.7% y/y) and charges for the use of
intellectual property eased 0.1% (+0.9% y/y). Imports of services rose 0.3% (1.9%
y/y) as travel imports increased 2.3% (9.1% y/y). Imports of charges for the use
of intellectual property rose 0.3% (-4.6% y/y).

The trade deficit with China declined to $37.9 billion (NSA)
in November. Exports to China fell 5.1% (-32.1% y/y), the
fourth sharp decline in five months. Imports declined 10.9% (-3.3% y/y) after a
4.4% rise. The trade deficit with Japan narrowed to $5.8 billion. Exports rose
18.5% y/y and imports gained 9.9% y/y. The trade deficit with the European Union
narrowed to $15.1 billion. Exports increased 14.3% y/y and imports rose 9.9% y/y.

The international trade data as well as oil prices can be
found in Haver's USECON database. Detailed figures on international trade
are available in the USINT database. The expectations figures are from
the Action Economics Forecast Survey, which is carried in AS1REPNA.

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 <thead>
 <tr>
 <th class="firstcol" scope="col" >Foreign Trade in Goods &amp;
 Services (Current $)</th>
 <th>Nov</th>
 <th>Oct</th>
 <th>Sep</th>
 <th>Y/Y</th>
 <th>2017</th>
 <th>2016</th>
 <th>2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" scope="col" >U.S. Trade Deficit ($ bil.)</td>
 <td >49.31</td>
 <td >55.70</td>
 <td >54.56</td>
 <td >48.95 
 (11/17)</td>
 <td >552.28</td>
 <td >502.00</td>
 <td >498.53</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Exports of Goods &amp; Services (% Chg)</td>
 <td >-0.6</td>
 <td >-0.1</td>
 <td >1.5</td>
 <td >3.7</td>
 <td >6.1</td>
 <td >-2.2</td>
 <td >-4.6</td>
 </tr>
 <tr>
 <td class="firstcol" >Imports of Goods &amp; Services (% Chg)</td>
 <td >-2.9</td>
 <td >0.4</td>
 <td >1.5</td>
 <td >3.2</td>
 <td >6.8</td>
 <td >-1.7</td>
 <td >-3.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Petroleum (% Chg)</td>
 <td >-14.6</td>
 <td >-2.7</td>
 <td >-1.6</td>
 <td >-1.8</td>
 <td >27.2</td>
 <td >-19.5</td>
 <td >-45.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Nonpetroleum Goods (% Chg)</td>
 <td >-2.5</td>
 <td >0.5</td>
 <td >2.1</td>
 <td >3.8</td>
 <td >5.6</td>
 <td >-1.2</td>
 <td >2.2</td>
 </tr>
 </tbody>
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The U.S. trade deficit in goods and services lessened to $49.31 during November from $55.70 billion in October, revised from $55.49 billion. A deficit of $54.0 billion had been expected by the Action Economics Forecast Survey. Exports [...]

U.S. Trade Deficit Narrows As Oil Prices Fall

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	 Service Sector PMIs Lose Momentum
 
 
 
 

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The beat goes on…only it is much fainter than it has been, sort of like Sonny without Cher. Growth does remain in gear, but it is some of the weakest we have seen in the last four years and that is what the rank/queue standings in the table tell us. Zero for the EMU composite, 2% for the German composite, and zero for Italy's composite. With a ranking in its 34.7 percentile, the U.S. composite has the strongest reading in the table. And for these metrics, the median level occurs at a ranking of 50%.

There is some contraction 
Actually, a number of the PMI gauges are not even endorsing the notion of continued growth. Two service sectors, one in France and one in Italy, point to contraction. In both cases, the service sectors dominate to make the overall PMI into a contracting signal as well. Separately, China, Italy and Germany show contracting signals from their respective manufacturing sectors.

Don't forget weakness, lost momentum too 
The EMU tells us that it has the weakest composite index in four years and the weakest manufacturing sector and that its service sector reading is tied for the weakest in four years, tied with the reading from last month. These are weak absolute readings and they depict very poor momentum as well.


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I guess the UN does have a sense of humor... 
Just to stir the pot a bit, a UN trade official warned of 'massive' implications for the global economy if the U.S. were to slap elevated tariffs on China. The UN has somewhat hilariously pointed out that Asian nations would suffer the most from a trade war. That is the point! These are mercantilistic countries promoting export-led growth and running persistent current account surpluses, stockpiling official reserves to enable them to weaken their currencies and to continue to keep, extend and promote their trade advantage. This is not free trade! Trump wants this sort of thing to stop. He wants to promote two-way trade - the way it is supposed to be. Many people do not study trade theory, but there are not supposed to be specialty producing countries and specialist consuming countries. That is not how free trade works. Tariffs are not good and I am not pretending that they are. But they are the lever to move China from its immoveable perch as a trade abuser.

That crazy thing called...Brexit 
I am intrigued and puzzled by the ongoing Brexit discussions which seem to be at an impasse, but I read that the insiders do not expect a hard Brexit. To an outsider, it seems that is all that is left. But insiders expect a postponement of the U.K. 'leave' date…but then what? Theresa May has negotiated the best deal she could, given some really poor support at home where vultures circled her waiting for her to fail so they could swoop in and replace her. But there is nothing there worth taking over. The Prime Minister has been backed against the wall of no return. And no one wants that spot. Meanwhile, short of a new referendum and a decision to stay I don't see what 'new deal' is there for the U.K. to cut unless it is going entirely backtrack and capitulate to the sovereignty of the customs union the same union that the people just voted to leave.

In addition to Brexit issues, there are a number of important additional sticking points on the trade front. The U.S. 'NAFTA' replacement deal is not yet approved and the U.S. has ongoing, but under the radar, talks with the EU over trade….tick-tock!

Danger, Danger Will Robinson! Lost and Spaced 
The UN's warning is not incorrect; it's just obvious. Clearly, a 25% tariff would be highly disruptive especially in the era of global supply chains (chain, chain, chain…chain of fools). And that is the point. In fact, these tariff threats are an unthinkable action by just about anyone but Donald Trump. And this is what he was elected to do. He's not a Washington insider and he promised he would make trade fair. Make no mistake about it I do not view this as a warm and cozy plan. He is making an omelet and he is breaking eggs. It is a dangerous plan. But the Chinese are chronic and serial abusers of trade policy who have shown no respect for international law in their trade actions, in their disrespect for corporate trade marks, in their cyber theft, in their brazenly forcing U.S. firms to give up technology as a condition of operating in China and as grabbers of the South China Sea. When someone acts unreasonably, how do you treat them? Unleash the Kraken!!...err Trumpster. Up to this point, the answer has been to let them have their way. Donald Trump was elected on a platform of 'No More' or for our many illegal aliens… 'No Mas.'

If you put 43 economists in a line...that could be a good use for them 
Chicago's Booth school has had a panel of 43 economists (economic experts) evaluate the statement: "Imposing new US tariffs on steel and aluminum will improve Americans' welfare" <a href="http://www.igmchicago.org/surveys/steel-and-aluminum-tariffs">(here)</a>. Of course these are the worst of the Trump tariffs. And few like them. All 43 Booth survey participants disagreed with the statement, however, one and only one, David Autor from MIT, who still disagreed with the statement, offered this, "Simple answer is no! Complex answer is that this could be a strategic gambit in a longer game that deters abuse of free trade agreements." So 42 of 43 of the Booth School's panel of expert economists were not even open to that as a possibility. This, I think, is the real point of the Trump tariffs and economists are clueless to evaluate the approach. Economists are used to looking at comparative static paradigms. Look at a free trade system. Now impose tariffs. Which is better? That answer is clear. But we do not start with a free trade system. We start with a flawed system. Then we do not want to end the evaluation after imposing tariffs. We want to threaten waving the big tariff stick and try to use that to leverage a better deal. This survey is an example why I think that most comments made by economists about Trump and tariffs are completely worthless. In fairness to Booth, it only asked about the steel and aluminum tariffs and that is really not a very interesting forum for discussion. Still, few economists evaluate the policy in the correct paradigm. It is not a stand-alone.

Trade tensions underlay a lot of the economic weakness. But this policy is not simply a tariff gambit. This is an investment in the future of the United States and a pushing of a real 'reset' button. This is an attempt to make China play fair. There is a lot at stake. Global growth will be affected if China does not bend to the rules of fair play. The UN is right to put out a warning, but I do think of it as rather obvious.

May you live in interesting times...Civilization as entropy 
We live in times of great economic and geopolitical upheaval. There is a lot of stress in Latin America, with Venezuela the best example of that, along with the caravans of disillusioned people headed for the U.S. Southern border. The EU and EMU are having difficulties with members like Italy that want more slack and like aspiring former member, the U.K., that was fed up with cloying and spreading centralized EU-control. Russia grabbed the Crimean peninsula and is trying to destabilize Ukraine. The Middle East is one constant in all of this as it remains a mess as the U.S. and EU seek to have very different relationships with Iran. China is trying to spread its influence through its belt and road program that has been substantially unmasked as stealth coercion. More overtly, China grabbed the South China Sea and increased its bellicose tone with Taiwan.

Pressure can turn coal into diamonds (sort of...) 
The U.S. trade pressures fit nicely into this picture and they are part of the forces of good not of evil, at least that's how I see it. The U.S. is hardly out on its own destabilizing world growth as some would have you believe. In fact, if the U.S. is successful, its actions could usher in a long period of expanded freer trade that is better in line with the true principles of free trade with much more balanced growth and greater upside for everyone. Still, it may not turn out that way either. With Donald Trump at the wheel, you can only hope you are driving an all-terrain vehicle because you never know which way he is going to turn or if he will even stay on the road.
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The beat goes on…only it is much fainter than it has been, sort of like Sonny without Cher. Growth does remain in gear, but it is some of the weakest we have seen in the last four years and that is what the rank/queue standings in the [...]

Is the 'New Normal' Simply Substandard? Or Are Trade Wars to Blame?

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The Composite Index of Nonmanufacturing Sector Activity from
the Institute for Supply Management (ISM) fell to 56.7 during January from
December's 58.0, revised from 57.6. The index has been declining since a high of
60.8 in September. Expectations had been for 57.0 in the Action Economics
Forecast Survey. Earlier figures were revised due to new seasonal factors. A
reading above 50 indicates expansion and the figures date back to 1998.

Haver Analytics constructs a Composite Index using the ISM
factory sector series released on Friday and the ISM nonmanufacturing index. The
index fell sharply, also to 56.7, down from a September high of 60.7. During the
last ten years, there has been a 56% correlation between the index level and the
q/q change in real GDP.

A decline in the new orders index to 57.7, its lowest level
since August 2017, led the overall nonmanufacturing index lower. The business
activity reading also fell sharply to 59.7, the lowest level in six months, down
from a November high of 64.3. The supplier deliveries index held steady m/m at
a sharply reduced 51.5, the lowest level since August of 2017.

The employment component moved up slightly m/m to 57.8, but
remained well below the September high of 60.4. Twenty-two percent of
respondents reported a rise in payrolls, down from 26% in December. A slightly
lessened 13% reported a decline.

The prices paid index rose slightly to 59.4 but was below the
November high of 64.3. An increased 25% of respondents reported higher prices
while a steady eight percent reported a decline.

Amongst the other series in the nonmanufacturing survey, the
export order series collapsed to the lowest level in two years. The order
backlog series rose slightly m/m but remained well below the high last May. The
inventory change index also fell sharplys and showed liquidation of inventories
for the first time in twelve months.

The ISM figures are available in Haver's USECON
 database, with additional detail in the SURVEYS database. The
expectations figure from Action Economics is in the AS1REPNA database.

How Much Could Negative Rates Have Helped the Recovery?
from the Federal Reserve Bank of San Francisco is available <a href="https://www.frbsf.org/economic-research/files/el2019-04.pdf">here</a>.

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 <thead>
 <tr>
 <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM
 Nonmanufacturing Survey (SA)</a></th>
 <th scope="col" >Jan</th>
 <th scope="col" >Dec</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Jan'18</th>
 <th scope="col" >2018</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Composite Diffusion Index</td>
 <td >56.7</td>
 <td >58.0</td>
 <td >60.4</td>
 <td >59.4</td>
 <td >58.9</td>
 <td >57.0</td>
 <td >54.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Business Activity</td>
 <td >59.7</td>
 <td >61.2</td>
 <td >64.3</td>
 <td >60.1</td>
 <td >61.5</td>
 <td >60.2</td>
 <td >58.0</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; New Orders</td>
 <td >57.7</td>
 <td >62.7</td>
 <td >62.7</td>
 <td >61.5</td>
 <td >61.3</td>
 <td >59.3</td>
 <td >57.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp; Employment</td>
 <td >57.8</td>
 <td >56.6</td>
 <td >58.0</td>
 <td >60.5</td>
 <td >56.9</td>
 <td >55.1</td>
 <td >52.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp; Supplier Deliveries (NSA)</td>
 <td >51.5</td>
 <td >51.5</td>
 <td >56.5</td>
 <td >55.5</td>
 <td >55.8</td>
 <td >53.2</td>
 <td >51.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Prices Index</td>
 <td >59.4</td>
 <td >58.0</td>
 <td >64.3</td>
 <td >62.0</td>
 <td >62.1</td>
 <td >57.6</td>
 <td >52.6</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

The Composite Index of Nonmanufacturing Sector Activity from the Institute for Supply Management (ISM) fell to 56.7 during January from December's 58.0, revised from 57.6. The index has been declining since a high of 60.8 in [...]

U.S. ISM Nonmanufacturing Index Declines Again

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Retail gasoline prices of $2.25 per gallon last week
(-14.5% y/y) were little changed from their end-of-year level. Haver Analytics constructs factors adjusting
for the seasonal variation in gasoline pump prices. The seasonally-adjusted
price was $2.45 per gallon, up slightly from the 14-month low of $2.39 in early January.

West Texas Intermediate crude oil prices rose to an
average of $53.63 (-17.8% y/y) per barrel last week from $52.74 during the prior
week. Prices have steadily increased from the 18-month low of $44.55 reached at
the end of last year. Yesterday, prices improved to $54.56 per barrel. Brent
crude oil prices were fairly steady at an average of $61.32 per barrel last week and were
$62.58 yesterday.

Natural gas prices declined to $2.90/mmbtu last week
(-12.1% y/y) after easing to $3.19/mmbtu during the prior week. Prices declined to
$2.57 yesterday with warmer temperatures.

In the four-weeks ending January 25, gasoline demand
rose 1.4% y/y, while total petroleum product demand eased 0.2% y/y. Gasoline
inventories rose 6.3% y/y, while inventories of all petroleum products rose
2.2% y/y. Crude oil input to refineries has increased 2.4% y/y in the last four weeks.

These data are reported by the U.S. Department of Energy. The
price data can be found in Haver's WEEKLY and DAILY databases.
Greater detail on prices, as well as the demand, production and inventory data,
along with regional breakdowns, are in OILWKLY.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col">Weekly Energy Prices</th>
 <th scope="col">02/04/19</th>
 <th scope="col">01/28/19</th>
 <th scope="col">01/21/19</th>
 <th scope="col">Y/Y %</th>
 <th scope="col">2018</th>
 <th scope="col">2017</th>
 <th scope="col">2016</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol">Retail Gasoline ($ per Gallon Regular, Monday Price,
 End of Period)</td>
 <td>2.25</td>
 <td>2.26</td>
 <td>2.25</td>
 <td>-14.5</td>
 <td>2.27</td>
 <td>2.47</td>
 <td>2.31</td>
 </tr>
 <tr>
 <td class="firstcol">Light Sweet Crude Oil, WTI ($ per bbl, Previous
 Week's Average)</td>
 <td>53.63</td>
 <td>52.74</td>
 <td>52.02</td>
 <td>-17.8</td>
 <td>64.95</td>
 <td>50.87</td>
 <td>43.22</td>
 </tr>
 <tr class="odd">
 <td class="firstcol">Natural Gas ($/mmbtu, LA, Previous Week's Average)</td>
 <td>2.90</td>
 <td>3.19</td>
 <td>3.50</td>
 <td>-12.1</td>
 <td>3.18</td>
 <td>2.99</td>
 <td>2.51</td>
 </tr>
 </tbody>
 </table>
 
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Retail gasoline prices of $2.25 per gallon last week (-14.5% y/y) were little changed from their end-of-year level. Haver Analytics constructs factors adjusting for the seasonal variation in gasoline pump prices. The seasonally- [...]

U.S. Gasoline Prices Hold Steady

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The Sentix economic expectations continue to languish. The index is hovering in its lowest levels since 2012 as the ECB begins to remove its 'special sauce.' Europe has been showing much weaker signals on economic activity recently. And at the same time, inflation is falling. It may be a 'coincidence' since oil prices have fallen off and they too are highly correlated with inflation. In the EMU, Brent crude oil prices have a 0.86 correlation with manufacturing PPI prices. Brent has a 0.665 correlation with the EMU HICP and a 0.31 correlation with the HICP core excluding tobacco and alcohol.

But inflation also tends to be pro-cyclical rising in expansions and snuffed out or brought to lower rates of expansion by recessions. So when inflation and growth both turn lower together, it is a good idea to be on your guard which is different from jumping to conclusions. But better to jump to a conclusion than off a bridge.

Of the 15 EU/EMU countries in the table, all but Ireland have their PPI falling in December. Eight also show prices decelerating in November when Brent prices also fell. Over three months, prices are falling in ten of 15 countries. Over six months, they are falling in only four of 15 countries. But PPI inflation is decelerating over three months compared to its six-month annual pace in 14 countries and PPI inflation is decelerating in 12 countries over six months compared to their 12-month pace. That's a lot of price weakness. Still, it is short term weakness since 12-month inflation is still up compared to what it was 12-months before that in all but four countries. The PPI rate is at 3% year-over-year, decelerating to 2.4% over six months and to a -2.4% pace over three months.

The bottom line for PPI inflation is that prices either are falling or the inflation rate is declining across the board for all 15 of these countries with Ireland as the most frequent exception and in some cases the only exception.

Of course, PPI inflation is more readily and powerfully affected by oil prices than the HICP prices that EMU targets, but there are influences on both measures. And this price weakness comes accompanied by not just by current weakness but by forecast downgrades from the IMF.

It is surprising how quickly the global economy has transitioned from having central banks bristling to end special stimulus programs to having a global economy with weakness encroaching in some form nearly everywhere…nearly everywhere. I did warn on this.


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Missing the signs from Economics 101 
One reality that no central banker has wanted to bear in mind is that growth has been less than stellar even when aided by special stimulus. This is true in the U.S., Europe, and Japan. It was more than a little 'heroic' for central bankers to assume that this extra bit of support could be pulled out and replaced with a move toward restrictiveness (in the case of the U.S., in any event) without consequence. Also someone might have taken a hint about growth vulnerability from the fact that inflation globally just has not been able to get to and stay at 2%. Wasn't that a clue about weakness? Or what about the Fed (and others) being totally dismissive of the flat and flattening U.S. treasure yield curve? Ignoring that was like ignoring a person standing on the corner screaming for help! The yield curve may be the best economic indicator of all time in terms of the simple veracity of its signal.

Central bankers have been on a mission to get things back to normal as if taking the patient out of intensive care early and sending him back to work would make him heal. Central bankers have been too worried about their own reputations and looking for excuses to hike rates, lest inflation overtake them and cause them to bear the shame of being too loose for too long. Yet, the reality of this situation is that inflation is not to be found and it is overtaking no one. Central bankers have been focused on getting rates and polices in general back to 'normal.' They labored under the misguided decision that they had waited long enough for normalcy to be restored.

What central bankers have missed is that the financial crisis was a financial crisis alright. There was a recession that accompanied it too. But the financial crisis was also a watershed of sorts an admission that the economy is now under different influences and central bankers never bought into that. The private sector adopted the term 'new normal.' Then everyone forgot about it. Guess what? It's back! We just have to figure out what it is and central bankers need to realize that it is different from the old normal – perhaps very different. And that may be a hard lesson for them to learn. If it is, it will be a hard lesson learned for which the rest of us will pay the consequences.
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The Sentix economic expectations continue to languish. The index is hovering in its lowest levels since 2012 as the ECB begins to remove its 'special sauce.' Europe has been showing much weaker signals on economic activity recently. [...]

EMU Sentix Index Dives As Inflation Implodes

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Manufacturers' orders declined 0.6% (+4.1% y/y) during
November following an unrevised 2.1% October fall. The Action Economics Forecast
survey looked for a 0.4% rise.

Durable goods orders rebounded 0.7% m/m (5.3% y/y) after a
2.1% decline. Orders for defense and civilian aircraft recovered following sharp
October declines. Excluding transportation altogether, new orders for durable
goods fell 0.4% (+4.8% y/y). Strength in orders for metals was offset by a
decline in machinery.

Orders for nondurable goods (which equal shipments) fell 1.9%
(+2.9% y/y) after a 0.1% uptick. A 9.3% decline in shipments from petroleum
refineries led the decline (+5.2% y/y). Basic chemical shipments rose 0.9% (3.9%
y/y) and food product shipments gained 0.2% (0.3% y/y). Apparel shipments fell
1.2% (+6.9% y/y). Shipments of durable goods improved 0.7% (6.2% y/y). Computer
&amp; electronic product shipments rose 1.0% (5.6% y/y) but machinery shipments
slipped 0.4% (+2.7% y/y).

Unfilled orders from the factory sector eased 0.1% (+4.6%
y/y) after a 0.2% decline. Durable goods unfilled orders eased 0.1% (+4.6% y/y).
Transportation sector order backlogs declined 0.3% (+4.4% y/y) but total
unfilled orders less transportation rose 0.2% (4.9% y/y). Unfilled orders of
machinery were little changed (3.0% y/y) while computer &amp; electronic order
backlogs rose 0.5% (3.7% y/y).

Inventories in the manufacturing sector slipped 0.1% (+4.2%
y/y). Durable goods inventories rose 0.4% (4.9% y/y). Machinery inventories
gained 0.4% (5.3% y/y) while inventories of computers &amp; electronic products
rose 0.3% (1.1% y/y). Electrical equipment &amp; appliance inventories rose 0.9%
(8.7% y/y) while transportation sector inventories gained 0.2% (3.4% y/y).
Nondurable goods inventories declined 1.0% (+3.0% y/y) as petroleum refinery
inventories fell 8.4% (+1.5% y/y). Basic chemical inventories rose 0.6% (5.0%
y/y) and paper product inventories improved 0.1% (1.8% y/y).

The factory sector figures are available in Haver's USECON
database. The Action Economics Forecasts survey is in AS1REPNA.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Factory Sector (% chg) -
 NAICS Classification</th>
 <th scope="col" >Nov</th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Nov Y/Y</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >New Orders</td>
 <td >-0.6</td>
 <td >-2.1</td>
 <td >0.2</td>
 <td >4.1</td>
 <td >5.7</td>
 <td >-2.9</td>
 <td >-8.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Shipments</td>
 <td >-0.6</td>
 <td >-0.1</td>
 <td >0.7</td>
 <td >4.5</td>
 <td >5.0</td>
 <td >-3.2</td>
 <td >-6.2</td>
 </tr>
 <tr>
 <td class="firstcol" >Unfilled Orders</td>
 <td >-0.1</td>
 <td >-0.2</td>
 <td >0.7</td>
 <td >4.6</td>
 <td >2.0</td>
 <td >-1.2</td>
 <td >-2.7</td>
 </tr>
 <tr>
 <td class="firstcol" >Inventories</td>
 <td >-0.1</td>
 <td >0.2</td>
 <td >0.6</td>
 <td >4.2</td>
 <td >4.5</td>
 <td >-0.7</td>
 <td >-0.8</td>
 </tr>
 </tbody>
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Manufacturers' orders declined 0.6% (+4.1% y/y) during November following an unrevised 2.1% October fall. The Action Economics Forecast survey looked for a 0.4% rise. Durable goods orders rebounded 0.7% m/m (5.3% y/y) after a 2.1% [...]

U.S. Factory Orders and Shipments Fall

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

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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Sandy Batten

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The Bureau of Labor Statistics released establishment survey data for both October and November today. With the government shutdown during the month of October, there was no household survey for that month. Today’s release contained only November data for households. Nonfarm payrolls (from the establishment survey) increased 64,000 in November but fell 105,000 in October. The 119,000 increase previously reported for September was revised down to a 108,000 rise. The Action Economics Forecast Survey had expected an 80,000 decrease in October and a 35,000 increase in November. The three-month average change in payrolls rebounded to 22,000 in November from -8,000 in October. However, this figure has trended down since early this year, pointing to a modest softening of labor-market conditions. 

This softening was reinforced by a 0.2%-point jump in the unemployment rate, measured in the household survey, to 4.6% in November from 4.4% in September. (As already noted, there was no household survey in October.) The unemployment rate, including employees working part-time for economic reasons plus all marginally attached workers, surged to 8.7% in November from 8.0% in September. For both series, these were the highest readings since September 2021.

Average hourly earnings (AHE), a key variable for the Federal Reserve, showed a further slowing in wage growth. AHE edged up 0.1% m/m in November after a 0.4% monthly jump in October. Importantly, the y/y rate slowed to 3.5%, the slowest since May 2021, from 3.7% in both September and October. The annual pace of the rise in service-producing wages slowed to 3.4% in November from 3.7% in both September and October while the annual growth of goods-producing wages was unchanged at 4.0%. Depending on your estimate of productivity growth, the current pace of total AHE growth is likely still a little too fast to be consistent with the Fed’s 2% inflation target. But clearly, it is moving in the desired direction.

In the **establishment survey**, much of the recent softening reflects declines in federal government employment. Federal government employment fell again in November (-6,000). This follows a sharp decline of 162,000 in October, as some federal employees who accepted a deferred resignation offer came off federal payrolls. Federal government employment is down by 271,000 since reaching a peak in January. (Note however that federal employees on furlough during the government shutdown were counted as employed in the establishment survey because they received pay, even if later than usual, for the pay period that included the 12th of the month. Employees on paid leave or receiving ongoing severance pay are counted as employed in the establishment survey.)

Private-sector employment rose 69,000 in November and 52,000 in October following an upwardly revised 104,000 increase in September (previously 97,000). Goods sector employment rebounded in November, rising 19,000 after a 9,000 fall in October. Construction jobs increased 28,000 in November, their largest monthly gain in more than a year, but slipped 1,000 in October. Manufacturing jobs continued to decline, falling 5,000 in November and 9,000 in October. They have now declined for seven consecutive months, not the result that the Trump Administration new tariff policy had intended.

Private-sector service-producing jobs gained 50,000 in November on top of a 61,000 increase in October and an 87,000 rise in September. A 46,000 increase in healthcare jobs on top of a 44,000 increase in October and an 18,000 gain in social assistance jobs in November after a 21,000 increase in October led the overall increases in the past two months. Other major sectors mostly experienced either job declines or minimal gains in October and November.

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The length of the workweek increased to 34.3 hours in November from 34.2 hours in August, September and October. The goods-producing workweek edged up to 39.8 hours in November from 39.6 hours in October while the private service-producing workweek was unchanged at 33.2 hours in November.

In the **household survey**, the unemployment rate jumped to 4.6% in November, the highest since September 2021 and up from a recent low of 3.4% in April 2023, from 4.4% in September (again, no data for October). The labor force increased 323,000 in November from September after a 470,000 monthly gain in September. The gain in employment slowed in November with the number of employed rising only 96,000 from September following a 251,000 monthly increase in September. The number of unemployed increased 228,000 in November from September following a 219,000 monthly increase in September. The labor force participation rate rose to 62.5% in November, its highest since April, from 62.4% in September. On a slightly brighter note, the average duration of unemployment slipped to 23.0 weeks in November from 24.1 weeks in September while the median duration of unemployment fell to 9.5 weeks, the lowest since May, from 10.0 weeks in September.

The employment/population ratio for all workers slipped to 59.6% in November from 59.7% in September. It remained below the recent peak reading of 61.1% in February 2020 just prior to the pandemic. For men, the rate slipped to 64.6% in November from 64.8% in September and 65.0% in August, and for women, the rate was unchanged at 54.8% in November.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- Total payrolls rose 64k in November but fell 105k in October
- The October decline was more than accounted for by a 157k decline in government employment
- The unemployment rate jumped to 4.6% in November from 4.4% in September.
- There were no household survey data collected for October.

U.S. Employment and the Unemployment Rate Rose in November

Winnie Tapasanun

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Total retail sales were virtually unchanged m/m in October after downwardly revised increases of 0.1% in September (+0.2% initially) and 0.5% in August (+0.6% previously), data from the U.S. Census Bureau showed. The October flat reading followed four consecutive m/m rises and declines in May and April. A 0.1% m/m October increase had been expected in the Action Economics Forecast Survey. The year-on-year growth rate decelerated to 3.5% in October, the lowest since May, from 4.2% in September; this compared with 3.2% in October 2024 and remained far below a high of 17.1% in February 2022 and a peak of 51.8% in April 2021.

Excluding motor vehicles & parts, retail sales rose 0.4% (4.0% y/y) in October, the fifth straight m/m rise, after a 0.1% uptick in September (+0.3% initially). A 0.2% m/m October increase had been expected. Sales of motor vehicles & parts fell 1.6% (+1.2% y/y) following a 0.1% September downtick and three successive m/m increases; this compared to a 6.9% drop (-4.6% y/y) in unit light vehicle sales following no change in September.

Sales in the retail control group, which excludes autos, building materials, gasoline stations, and food services, rose 0.8% (5.1% y/y) in October, the fifth m/m rise in six months, following a 0.1% dip in September. These sales are used in the construction of personal consumption expenditures in NIPA accounts. Nonauto sales excluding gasoline & building materials advanced 0.6% (4.9% y/y), also up for the fifth time in six months, following a flat September reading.

Sales by category were mixed in October. To the upside, general merchandise store sales rose 0.5% (2.0% y/y), the fifth consecutive m/m rise, after a 0.1% uptick in September; within this grouping, department store sales surged 4.9% (4.6% y/y)—the third m/m increase in four months and the largest since February 2022—following a 0.3% September decline. Furniture & home furnishing store sales rebounded 2.3% (0.5% y/y), the first m/m gain since July, after a 2.4% September decrease. Sporting goods, hobby, book & music store sales climbed 1.9% (4.6% y/y), up for the third time in four months, reversing a 1.7% September decrease. Nonstore retail sales recovered 1.8% (9.0% y/y), the eighth m/m gain in nine months, after falling 0.4% in September. Miscellaneous store sales rose 1.5% (9.5% y/y) following a 2.2% September increase and two successive m/m decreases. Clothing & accessory store sales grew 0.9% (5.7% y/y), the seventh m/m rise in eight months, reversing a 0.9% September drop. Electronics & appliance store sales increased 0.7% (4.9% y/y) after holding steady in September.

To the downside, building materials & garden equipment store sales slid 0.9% (-4.5% y/y) in October, the third m/m slide in four months, after a 0.1% downtick in September. Gasoline station sales fell 0.8% (+1.9% y/y), the first m/m fall since May, after a 1.9% September advance.

In the nondiscretionary sales categories, health & personal care store sales fell 0.6% (+5.7% y/y) in October, down for the second month in three, following a 1.3% gain in September. Food & beverage store sales, however, rose 0.3% (2.2% y/y), the fourth m/m rise in five months, following a 0.1% September easing.

Consumers appeared to dine out less frequently in October amid still-high inflation (September CPI +0.3% m/m, +3.0% y/y; core CPI +0.2% m/m, +3.0% y/y). Restaurant & drinking place sales fell 0.4% (+4.1% y/y) in October, the first m/m fall since May, following a downwardly revised 0.2% increase in September (+0.7% initially).

Retail Sales data can be found in Haver's **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- October total retail sales +0.03% (+3.5% y/y), w/ mixed results across categories.
- Ex-auto sales +0.4% (+4.0% y/y); auto sales -1.6% (+1.2% y/y).
- Sales rebound m/m in department stores (+4.9%) and furniture stores (+2.3%).
- Sales drop m/m in bldg. materials & garden equipt. stores (-0.9%) and gasoline stations (-0.8%).

U.S. Retail Sales Hold Steady in October Following Four Straight M/M Gains

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The Standard & Poor’s PMI data seem to have taken a fork in the road in December as the previous strong trend toward improving has been reversed in December. Out of 24 sector changes across eight different countries (or economic regions), there are only 6 sectors that show improvement month-to-month in December. This is a sharp contrast to November when 10 sectors showed improvement and to October when 20 of 24 sectors showed improvement. The worm has turned, but is it a lasting turn or not?

The sequential data look at changes in the hard data (that's data through November) over three months, six months, and 12 months. They show a strongly weighted preponderance of sectors that are better, getting stronger, rather than getting weaker. Over three months, 9 of 24 sector readings get weaker compared to six-months. Over six months, every single sector gets stronger compared to 12-months. Over 12 months, 19 sectors get stronger compared to 12-months ago. Monthly data show that this impressive string of improving sectors shows that progress began to slow down in November and kicked into reverse in December.

As of December, the United Kingdom, which is a struggling economy, is the only reporting unit to show a stronger composite, stronger manufacturing, and stronger services. Apart from the U.K.’s strength, there's stronger manufacturing month-to-month reported in France, Japan, and Australia. And that's the end of month-to-month improvements in December. In November, there is a triple improvement in Japan with manufacturing, services, and the composite strengthening month-to-month. There are isolated sector improvements in manufacturing in Australia and in the U.K. There were also improvements for services in India as well as in services and in the composite index for France and in the European monetary union. Still, these are only 10 of 24 sectors in November.

The previous strong trend movement higher has left most of the readings as of December above their medians on data back to January 2021. Among the 24 headline and sector calculations, only six of them show standings below their 50th percentile since January 2021, which puts them below their historic median for that period. The service sector is below the 50% mark in the United Kingdom, Japan, and the United States, while the overall composite is below the 50% mark in the U.S. and in India, with India showing a below median manufacturing rating as well and the U.S. showing below 50% in services. The weaker U.S. data is a new and interesting feature with U.S. job data for November just reported and looking a bit stronger, despite a rise in the unemployment rate. The December S&P survey data, on the other hand, hint that such an improving trend may not last.

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Europe

S&P Flash PMIs Weaken in December

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The Empire State Manufacturing Index of General Business Conditions dropped more than expected to -3.9 in December, down from 18.7 in November and 10.7 in October, according to the Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. A reading of 10.7 for December had been expected in the Action Economics Forecast Survey. The December negative reading indicated that the business activity in New York State contracted for the first time since September; it was also down from 2.1 in December 2024 and a high of 20.2 in November 2024. The percentage of respondents reporting an increase in general business conditions was 31.8% in December, down from 38.7% in November; the percentage reporting a decrease was 35.7%, up from November’s 20.0%. The latest survey was conducted between December 2 and December 9.

The headline index reflects the answer to a single question concerning the state of economic activity and is not calculated from the components. Haver Analytics calculates a composite index from the five major components, which is comparable to the ISM manufacturing index. This calculated index fell to the neutral-level 50.0 in December—the lowest level since September—down from 55.4 in November, 52.7 in October, and 51.0 in December 2024 but up from a low of 42.5 in January 2024. The index is the average of five diffusion indexes: new orders, shipments, employment, supplier deliveries and inventories with equal weights (20% each).

In the latest survey, the new orders index fell to 0.0 in December after a 12.2-point gain to 15.9 in November, signaling steady orders this month and a marked improvement from a low of -35.0 in January 2024. The shipments index decreased to -5.7 in December, the lowest level in three months, following a 2.4-point increase to 16.8 in November, but it was up from a low of -22.7 in April 2024. The unfilled orders index dropped to -14.9 in December on top of a 1.9-point decrease to -5.8 in November, indicating unfilled orders contracted for the seventh straight month and to the weakest level since January 2024; the index reached a low of -24.2 in January 2024. The inventories index fell to 4.0 in December after a 7.7-point rise to 6.7 in November, suggesting that inventories expanded for two months following three consecutive months of contraction. Meanwhile, the delivery times index fell to -5.9 in December, the lowest reading since December 2024, from 7.7 in November, with 9.9% of respondents reporting higher delivery times and 15.8% reporting lower delivery times.

On the labor front, the number of employees index advanced to 7.3 in December after a 0.4-point increase to 6.6 in November, showing employment expanded for the sixth time in seven months and at the highest level since July. The index remained above a low of -9.7 in December 2023. A higher 16.2% of respondents reported an increase in employment in December while 8.9% reported a decline. The average workweek index slipped to 3.5 in December from 7.7 in November, remaining positive for a second month after two months in negative territory.

Inflation indicators eased this month but remained elevated. The prices paid index dropped to 37.6 in December, the lowest level since January, following a 3.4-point decrease to 49.0 in November. The index was up from a low of 21.1 in December 2024 and a low of 16.7 in December 2023 but significantly down from a high of 86.4 in April 2022. A 39.6% of respondents reported higher prices paid in December while only 2.0% reported lower prices paid. The prices received index fell to 19.8 in December, the lowest reading since February, following a 3.2-point decline to 24.0 in November. The index was up from a low of 4.2 in December 2024 and a low of 3.9 in July 2023 but well below a peak of 56.1 in March 2022. A 21.8% of respondents reported higher prices received in December while 2.0% reported lower prices received.

Firms grew more optimistic about the future business outlook in the latest survey. The index for future business conditions jumped to 35.7 in December, the strongest level since January, from 19.1 in November, with an increased 52.9% of respondents expecting business conditions to improve in the next six months. Future new orders rose to 38.0 in December, the highest figure since March 2022, from 23.3 in November and shipments rose to 33.3, the highest level since November 2024, from November’s 23.3. Growth in employment eased slightly to 8.8 in December from 11.9 in November but still showed continued employment expansion. Capital spending plans remained positive for the second successive month, with the future capital expenditures index at 6.9 in December compared with 11.5 in November. Expected prices paid fell to 55.4 in December, the lowest level since January, from 62.5 in November, while expected prices received rose to 46.5, the highest reading since April 2022, from November’s 41.3.

The indexes in this report are diffusion indexes and measure the percentage of respondents indicating an increase minus the percentage indicating a decrease with zero separating expansion from contraction.

The New York Fed survey data are contained in Haver’s **SURVEYS** database. The expectations series is in Haver’s **AS1REPNA** database.

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- December General Business Conditions Index down 22.6 pts. to -3.9.
- Unfilled orders (-14.9) and shipments (-5.7) negative; employment (7.3, highest since July) and inventories (4.0) positive; new orders flat (0.0).
- Prices paid at an 11-month-low 37.6 and prices received at a 10-month-low 19.8, still elevated.
- Firms optimistic: Future Business Conditions Index at an 11-month-high 35.7 and future prices paid at an 11-month-low 55.4.

U.S. Empire State Manufacturing Index Plunges in December to a Three-Month Low

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**Tankan overview:** Japan's Tankan report is an important quarterly assessment and outlook of the Japanese economy. Historically, the performance of manufacturers is considered to be the bellwether in this survey for performance of the economy. In the fourth quarter of 2025, the manufacturing index moved up to 15 from 14 in the third quarter. This compares to a value of 12 in the first quarter and a four-quarter average of 13.5. Since late-2006, the manufacturing index has averaged 5.3, marking the performance in 2025 as a substantial improvement from the long period where Japan struggled with deflation. On dated back to 2003, the manufacturing index has a standing in the queue of data in its 70.8 percentile, a reasonably firm reading. 

**Nonmanufacturers:** The index for nonmanufacturers logged a reading of 34 in the fourth quarter compared to 34 in the third quarter and a reading of 35 in the first quarter of 2025; the one-year average for nonmanufacturers is 34.3, marking that sector as little changed over the course of the year. Nonmanufacturing in the fourth quarter has an index standing at its 97.8 percentile, marking it as an extremely high standing on data back to late-2003. 

**Nonmanufacturing details:** Readings across the nonmanufacturing sector are above their respective one-year averages for all subsectors except transportation where the fourth quarter index backs down to 27 from an average of 30.5 and for restaurants & hotels that back down to a reading of 25 from an average of 39.3. The queue percentile standings for the subsectors show a good deal of strength with construction at a 98.9 percentile standing, services for businesses also at a 98.9 percentile standing, transportation - despite the back off from the average - is at a 94.4 percentile standing, and real estate and wholesaling are at 93.3 percentile standings on data back to 2003.  

**The Tankan outlook-** The survey also produces an outlook. For large manufacturers for the first quarter of 2026, the outlook metric moves up to 15 from what had been 12 for the fourth quarter of 2025. The outlook for nonmanufacturers is flat month-to-month at 28, the same as in the fourth quarter. The outlook for manufacturing has a queue standing in its 78.7 percentile on data back to 2003, while nonmanufacturing has a standing for the outlook reading at its 98.9 percentile marking these outlooks as quite good. 

**The BOJ is watching-** This is a survey the Bank of Japan will be looking at and assessing what policy should do and how strong the economy appears to be. On these data, the economy would appear to be firm, the outlook would appear to be solid, and if the Bank of Japan were to decide to pay more attention to inflation, the economy would seem to be in a position to absorb a rate hike without much difficulty.

**Other-sized enterprises-**
**Manufacturing:** The survey also produces results for medium-sized and small-sized firms, as well as outlooks for medium-sized and small-sized firms (that are not presented in the table). The fourth quarter assessments of performance, however, show improvements for manufacturing in both medium- and small-sized enterprises; they also show rankings of medium-sized firms in manufacturing in their 85th percentile, the same as for small sized enterprises. 

**Nonmanufacturing:** Nonmanufacturing for medium- and small-sized enterprises show improvements in the fourth quarter results and also demonstrates high rankings of those readings for those respective sectors.

**Summing up:**
On balance, it's a solid Tankan report for Japan's economy and should provide reassurance to the Bank of Japan and to the current government that the economy is on solid footing as each looks at the situation and tries to assess the best policy options. 