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/040402c.jpg" width="353">
The Bank of Japan (BoJ) has reorganized the key TANKAN survey, its widely followed quarterly measure of business sentiment. In the initial report, issued yesterday, April 1, the new Business Conditions reading for March is -5, compared with -11 in December. On the old survey basis, December was -15. Due to changes in the selection and grouping criteria for companies in the sample, the new data are not comparable with the old. To the extent possible, December data were reaggregated according to the structure of the new survey, so there is one historical period for comparison with actual results and with a forecast for the current period.
The BoJ made three major changes in the sample composition. Like many other countries, it reorganized the industry divisions. Similar to the US shift from &quot;SIC&quot; to &quot;NAICS&quot;, Japan is moving to the &quot;Japan Standard Industrial Classification&quot;. This captures more of the new kinds of industries that have emerged during the recent technology boom; for example, &quot;information services&quot; and &quot;communication&quot;, once subsumed in a broad &quot;services&quot; sector, are now shown separately. Secondly, the BoJ applied the results of a business census taken in 2001 to select firms for sampling. Third, it switched the method of designating businesses by size. Formerly this was judged on the basis of number of employees, but now capitalization is the criterion. This recognizes that some companies might utilize a small number of employees who actually operate a large business, such as a holding company. These changes together are thought by the BoJ to capture better the newer, more vibrant segments of the Japanese economy, which may have experienced better performance in recent years than the former industries and companies in the survey. They believe that the former survey results may have been biased downward due to its concentration on older, now less relevant industries and companies. Additionally, some concepts in the survey were redefined.
In terms of the survey results themselves, the following table indicates that business fortunes appear quite segregated by business size. Small firms are generally struggling, medium firms believe they abide in a mixed environment, and large firms are experiencing net positive performance. At the same time all major groups of companies performed better in the first quarter than they expected to. That is, the March &quot;actual&quot; is more positive or less negative than the December &quot;forecast&quot; value. Since there is no more history, it is not possible to judge whether this underestimation is a random circumstance or a habitual conservatism. Whichever would apply, large firms expanded on balance in the first quarter in both manufacturing and non-manufacturing sectors, and medium-sized manufacturing firms shifted into positive territory. Even small manufacturing companies had minimal erosion in the latest period, and they expect that to continue during the spring.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Business Conditions:&nbsp; % Favorable minus&nbsp;&nbsp;&nbsp; % Unfavorable</th>
December 2003
March 2004
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Actual</td>
<td>Forecast for March</td>
<td>Actual</td>
<td>Forecast for June</td>
</tr>
<tr>
<td class="firstcol">All Firms</td>
<td>-11</td>
<td>-12</td>
<td>-5</td>
<td>-6</td>
</tr>
<tr class="odd">
<td class="firstcol">Large Firms*</td>
<td>4</td>
<td>5</td>
<td>9</td>
<td>9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>7</td>
<td>6</td>
<td>12</td>
<td>12</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Non-manufacturing</td>
<td>0</td>
<td>4</td>
<td>5</td>
<td>7</td>
</tr>
<tr>
<td class="firstcol">Medium-sized Firms**</td>
<td>-8</td>
<td>-9</td>
<td>-2</td>
<td>-2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>-3</td>
<td>-4</td>
<td>5</td>
<td>1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Non-manufacturing</td>
<td>-12</td>
<td>-11</td>
<td>-7</td>
<td>-6</td>
</tr>
<tr class="odd">
<td class="firstcol">Small Firms***</td>
<td>-19</td>
<td>-20</td>
<td>-13</td>
<td>-15</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>-10</td>
<td>-11</td>
<td>-3</td>
<td>-3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Non-manufacturing</td>
<td>-25</td>
<td>-27</td>
<td>-20</td>
<td>-21</td>
</tr>
</tbody>
</table>
</body>
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The Bank of Japan (BoJ) has reorganized the key TANKAN survey, its widely followed quarterly measure of business sentiment. In the initial report, issued yesterday, April 1, the new Business Conditions reading for March is -5, [...]

BoJ Restructures TANKAN Survey to Match "New Economy"; March Results Better than Companies Expected

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040402b.jpg" width="353">
Non-farm payrolls grew in March the most for any one month since April 2000. The 308,000 jump was triple the Consensus expectation and followed upwardly revised payroll gains in February and January.
Service producing payrolls jumped 230,000 (0.8% y/y). The 0.2% monthly gain was the largest increase since May 2000. It was led by a 73,000 (0.3% y/y) rise in the trade (retail 47,100), transportation &amp; utilities category. These figures were boosted by the return of 10-20,000 striking workers.
Another standout was the professional &amp; business services category where payrolls rose 42,000 (2.2% y/y) but jobs in the temporary help services industry fell slightly (+9.6% y/y).
Government sector jobs jumped 31,000 (-0.2% y/y) and construction jobs surged 71,000 (3.0% y/y) following February&#39;s weather-depressed decline.
Manufacturing sector payrolls were unchanged, the first month factory sector payrolls did not decline since July 2000. Gains were scattered across several durable goods industries but payrolls in nondurable goods industries were mostly lower. The one-month diffusion index for manufacturing payrolls backpedaled some to 48.8%. Readings near 50 are consistent with roughly no change in payrolls.
The one-month diffusion index for private non-farm payrolls jumped to 61.0%, the highest level since July 2000. This breadth-of-change measure has had an 87% correlation with the monthly change in employment over the last ten years.
The index of aggregate hours worked (employment times hours worked) fell 0.1% following the upwardly revised no change in February. Aggregate hours in 1Q rose 1.5% (AR) versus 4Q when they rose 1.9%.
Average hourly earnings ticked higher by just 0.1% (1.8% y/y), the smallest gain in three months. Earnings in the factory sector were unchanged (2.4% y/y) following a downwardly revised February gain of 0.1%.
From the separate household survey the unemployment rate moved higher to 5.7% versus expectations for no change at 5.6%.
Household employment fell 3,000 (+0.7% y/y), the third decline in four months. The labor force jumped 179,000 (+0.6% y/y). The labor force participation rate was unchanged at 65.9% versus 67.1% averaged from 1997-2000.
An &quot;Explanatory Note&quot; from the Bureau of Labor Statistics defining the separate employment surveys is available <a href="http://bls.gov/news.release/empsit.tn.htm"> here</a> .
&quot;The Outsourcing Bogeyman&quot; from the Council on Foreign Relations can be found <a href="http://www.foreignaffairs.org/20040501faessay83301-p0/daniel-w-drezner/the-outsourcing-bogeyman.html"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM"> Employment</a></th>
<th scope="col"> Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>308,000</td>
<td>46,000</td>
<td>0.5%</td>
<td>-0.3%</td>
<td>-1.1%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>0,000</td>
<td>-4,000</td>
<td>-2.8%</td>
<td>-4.8%</td>
<td>-7.2%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.7</td>
<td>33.8</td>
<td>33.8</td>
<td>33.7</td>
<td>33.8</td>
<td>34.0</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.8%</td>
<td>2.7%</td>
<td>2.9%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>5.7%</td>
<td>5.6%</td>
<td>5.8%</td>
<td>6.0%</td>
<td>5.8%</td>
<td>4.8%</td>
</tr>
</tbody>
</table>
U.S. Light Vehicle Sales Up Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 2, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040402a.jpg" width="353">
Unit sales of light vehicles rose slightly for the second month in March, up 1.9% to 16.68M following a 1.5% February gain. Consensus expectations were for sales of 16.7M.
Car sales rose 4.1% to 7.72M on the heels of a 5.0% gain in February. Sales of light trucks ticked just 0.1% higher following two successive months of decline.
Domestic light vehicle sales rose 1.4% m/m to 13.32M (+4.5% y/y). Imported vehicle sales (3.36M) added 3.9% in March to the 7.0% February gain (-2.3% y/y).
Imports captured 20.2% of the US market for new vehicles in March versus 19.7% during 2003.

<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"> Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.68</td>
<td>16.37</td>
<td>3.1%</td>
<td>16.69</td>
<td>16.81</td>
<td>17.26</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.72</td>
<td>7.41</td>
<td>-0.2%</td>
<td>7.63</td>
<td>8.07</td>
<td>8.48</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.96</td>
<td>8.96</td>
<td>6.1%</td>
<td>9.06</td>
<td>8.74</td>
<td>8.78</td>
</tr>
</tbody>
</table>
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Non-farm payrolls grew in March the most for any one month since April 2000. The 308,000 jump was triple the Consensus expectation and followed upwardly revised payroll gains in February and January. Service producing payrolls jumped [...]

U.S. Non-farm Payrolls Soared

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040401d.jpg" width="353">
Purchasing Managers&#39; surveys in many countries showed manufacturing activity improved in March, according to a compilation published by NTC Research, an affiliate of Reuters in London. For some regions, an improving trend was extended, while in others, vigor increased after a pause in February.
New orders and output were both firmer in most countries. For example, output in Italy rose from 51.2 to 53.2 and new orders, from 52.7 to 53.7. In Japan, output was up from 56.8 to 57.9 and new orders from 57.6 to 58.4.
At the same time, another widespread phenomenon was a sharp advance in input prices. This development is less favorable for ongoing business strength. Recent commodity price trends suggest that metals and petroleum are major sources of the increases in manufacturers&#39; input prices. Petroleum in particular is a concern, as seen in the accompanying graph. Petroleum and products are priced in dollars, but even translated for the dollar&#39;s recent weakness versus the Euro, crude oil is rising in Euro terms as well. It thus remains to be seen what kind of impact these cost increases will have on the evolving world expansion in manufacturing activity. Some years ago, such increases were passed through to consumers and inflation accelerated. More recently, consumers have been less willing to take on this inflation burden and business slowdown has resulted. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">PMI Indexes, 50+=Expansion</th>
<th scope="col">Mar 2004</th>
<th scope="col">Feb 2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Euro-Zone</td>
<td>53.3</td>
<td>52.5</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>53.7</td>
<td>53.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Japan</td>
<td>55.3</td>
<td>54.6</td>
</tr>
<tr>
<td class="firstcol">Russia</td>
<td>53.7</td>
<td>52.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Poland</td>
<td>55.2</td>
<td>54.1</td>
</tr>
<tr>
<td class="firstcol">Memo:</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-Zone Input Prices</td>
<td>65.3</td>
<td>59.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Purchasing Managers' surveys in many countries showed manufacturing activity improved in March, according to a compilation published by NTC Research, an affiliate of Reuters in London. For some regions, an improving trend was [...]

Global Manufacturing Expansion Continues, But Will Rising Energy Costs Hurt?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040401c.jpg" width="353">
The Purchasing Managers&#146; Composite Index (PMI) for March released by the Institute of Supply Management rose to 62.5 from 61.4 in February. Consensus expectations were for a decline to 60.0.
During the last twenty years there has been a 71% correlation between the level of the Composite Index and the three month growth in factory sector industrial production. There has been a 56% correlation between the level of the Composite Index and quarterly growth in real GDP.
Higher readings for production (65.5 vs. 63.9) and employment (57.0 vs. 56.3) led the composite index higher. The index of vendor deliveries also rose to 67.9, indicating the slowest pace of vendor deliveries since April 1979.
The new orders index fell modestly to 65.7 and the inventory index fell 48.3 from 49.4.
The prices paid index surged to 86.0, the highest level since March 1980.

<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/@EF02/@EF02.HTM"> ISM Manufacturing Survey</a></th>
<th scope="col"> Mar</th>
<th scope="col">Feb</th>
<th scope="col">Mar &#39;03</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>62.5</td>
<td>61.4</td>
<td>46.6</td>
<td>53.3</td>
<td>52.4</td>
<td>43.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>65.7</td>
<td>66.4</td>
<td>47.1</td>
<td>58.1</td>
<td>56.6</td>
<td>46.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>86.0</td>
<td>81.5</td>
<td>70.0</td>
<td>59.6</td>
<td>57.6</td>
<td>42.9</td>
</tr>
</tbody>
</table>
 Producer Prices Tame In February, Mostly 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 1, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040401a.jpg" width="353">
Finished producer prices edged just 0.1% higher in February following a 0.6% spurt the prior month. The core PPI also rose a tame 0.1% on the heels of a 0.3% January rise. A 0.3% increase in the finished goods PPI and a 0.1% rise in the core had been the Consensus expectation.
Finished consumer goods prices rose just 0.1% after the 0.7% January spurt. Less food &amp; energy finished consumer goods prices were unchanged (+1.0% y/y). Consumer durable prices fell 0.2% (+0.9% y/y) and core non-durable prices rose the same 0.2% as in January (1.0% y/y). Finished capital goods prices were unchanged (+1.1% y/y).
Strength in February was evident at the intermediate goods level where prices rose 0.9% after a 0.8% January spurt. Core intermediate prices surged 0.9%, the most for any month since January 1995. Prices for intermediate materials for durable manufacturing spiked 3.5% (8.0% y/y) and prices for construction components jumped 1.4% (4.1% y/y).
Crude goods prices spiked another 2.5%, led by a 5.5% surge in the core crude price measure. Higher prices for iron &amp; steel scrap, up 19.2% m/m and 88.1% y/y, have been quite strong due to the recovery in the factory sector. Copper prices also surged 12.2% (45.9% y/y).
Finished energy prices rose just 0.2% (3.8% y/y) in February and finished foods prices were up a like 0.2% (4.1% y/y). 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM"> Producer Price Index</a></th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.1%</td>
<td>0.6%</td>
<td>2.1%</td>
<td>3.2%</td>
<td>-1.3%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>0.3%</td>
<td>1.1%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.9%</td>
<td>0.8%</td>
<td>2.7%</td>
<td>4.7%</td>
<td>-1.5%</td>
<td>0.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.9%</td>
<td>0.6%</td>
<td>2.5%</td>
<td>2.0%</td>
<td>-0.5%</td>
<td>-0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>2.5%</td>
<td>2.8%</td>
<td>10.7%</td>
<td>25.0%</td>
<td>-10.6%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>5.5%</td>
<td>3.3%</td>
<td>26.2%</td>
<td>12.3%</td>
<td>3.8%</td>
<td>-10.0%</td>
</tr>
</tbody>
</table>
Jobless Claims Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 1, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040401b.jpg" width="353">
Initial claims for jobless insurance dipped 3,000 last week to 342,000 but the prior week&#39;s level was revised up sharply. The Consensus expectations had been for 340,000 claims.
The 4-week moving average of initial claims was unchanged at 340,250 (-19.1% y/y).
Continuing claims for unemployment insurance rose 32,000 in the latest week following a little-revised 47,000 drop the week prior.
The insured rate of unemployment was unchanged at 2.4%.
Comments from Federal Reserve Board Governor Ben S. Bernanke on &quot;Trade and Jobs&quot; can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2004/20040330/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM"> Unemployment Insurance (000s)</a></th>
<th scope="col"> 3/27/04</th>
<th scope="col">3/20/04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;&nbsp; 342</td>
<td>345</td>
<td>-20.8%</td>
<td>403</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>&nbsp;&nbsp; --</td>
<td>3,062</td>
<td>-14.3%</td>
<td>3,533</td>
<td>3,573</td>
<td>3,023</td>
</tr>
</tbody>
</table>
U.S. Construction Spending Edged Lower 
by <a href="/comment/Moeller.html">Tom Moeller</a> April 1, 2004


<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040401e.jpg">
The value of total construction put in place fell 0.1% in February and the previously reported 0.3% January decline was deepened to -0.8% due to lowered figures for residential and public building. No change was expected by the Consensus.
Private residential building activity fell moderately for the second consecutive month led by modest declines in single family home building (16.8% y/y). Construction on multi-family homes ticked up 1.0% (0.3% y/y) following four months of decline.
Nonresidential building rose 1.1% after a 1.8% January flop. Office building recovered just 0.3% of a 5.0% January plunge (2.7% y/y) but the health care (-2.4% y/y) and educational (+3.7% y/y) categories moved up more.
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM"> Construction Put-in-place</a></th>
<th scope="col"> Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.1%</td>
<td>-0.8%</td>
<td>5.1%</td>
<td>4.0%</td>
<td>1.1%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.1%</td>
<td>-0.7%</td>
<td>7.5%</td>
<td>4.6%</td>
<td>-0.2%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>11.3%</td>
<td>10.1%</td>
<td>8.6%</td>
<td>3.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>1.1%</td>
<td>-1.8%</td>
<td>-0.4%</td>
<td>-5.5%</td>
<td>-13.0%</td>
<td>-1.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>-1.0%</td>
<td>-1.4%</td>
<td>-2.5%</td>
<td>2.1%</td>
<td>5.3%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

The Purchasing Managers Composite Index (PMI) for March released by the Institute of Supply Management rose to 62.5 from 61.4 in February. Consensus expectations were for a decline to 60.0. During the last twenty years there has been [...]

ISM Factory Index Rose Unexpectedly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040331d.jpg" width="353">
The Canadian economy paused in January after four successive gains in monthly GDP. The decrease was a modest -0.1%, including a similar slip in industrial production and a minuscule easing in service-producing industries. Manufacturing and mining were both off markedly, although it is not really possible to tell if their contractions were simply reactions to December increases, or whether they might have been related to the very cold weather in January or to some fundamental slowing in demand. The role of the cold weather is evident, however, in a counter move in utilities, where output was up 4.1% as people and business needed more heat.
Other industries showed increases as well. Retail trade was up 1.0%, and information and communications were up 1.1%. Among service industries, these were offset by sharp falls in wholesale trade, 3.4%, and transportation and warehousing, 0.8%. Weather was possibly responsible for the reduced volume of transportation, although, as with other sectors, it had been strong at the end of 2003, so this might be no more than a pause after a long climb. If either of these conditions is the primary source of the January slowdown both in this specific sector and in total GDP, an early spring bounce might be in the offing.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">% Chg except where noted</th>
<th scope="col">Jan 2004: Bil.Chn. 1997C$</th>
<th scope="col">Jan 2004</th>
<th scope="col">Dec 2003</th>
<th scope="col">Jan 04/ Jan 03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total GDP</td>
<td>1,025.4</td>
<td>-0.1</td>
<td>0.5</td>
<td>1.6</td>
<td>1.9</td>
<td>3.4</td>
<td>1.9</td>
</tr>
<tr>
<td class="firstcol">Industrial Production</td>
<td>243.3</td>
<td>-0.1</td>
<td>0.5</td>
<td>0.5</td>
<td>0.1</td>
<td>2.4</td>
<td>-2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>177.6</td>
<td>-0.7</td>
<td>1.2</td>
<td>-0.7</td>
<td>-0.4</td>
<td>2.9</td>
<td>-3.6</td>
</tr>
<tr>
<td class="firstcol">Mining; Oil &amp; Gas</td>
<td>37.3</td>
<td>-1.4</td>
<td>1.5</td>
<td>3.9</td>
<td>3.1</td>
<td>0.8</td>
<td>1.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Utilities</td>
<td>27.1</td>
<td>4.1</td>
<td>0.2</td>
<td>0.5</td>
<td>-2.3</td>
<td>2.2</td>
<td>-2.3</td>
</tr>
<tr>
<td class="firstcol">Service Producing</td>
<td>703.4</td>
<td>-0.0</td>
<td>0.3</td>
<td>1.7</td>
<td>2.2</td>
<td>4.2</td>
<td>3.5</td>
</tr>
</tbody>
</table>
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The Canadian economy paused in January after four successive gains in monthly GDP. The decrease was a modest -0.1%, including a similar slip in industrial production and a minuscule easing in service-producing industries. [...]

Canada GDP Slowed in January

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040331a.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association eased another 2.1% last week. That followed a 0.2% dip the prior period. Despite these recent backpedals, mortgage applications are up 25.1% in March versus February.
The effective interest rate on a conventional 30-Year mortgage rose to 5.75% from 5.62% during the prior two weeks. The effective rate on a 15-year mortgage rose to 5.08%.
Purchase applications fell 1.1% w/w (+21.7% y/y) for the second weekly decline. March purchase applications are 6.7% ahead of the February average.
During the last ten years there has been a 56% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
Applications to refinance fell 2.6% (-25.1% y/y) following six weeks of gain.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org"> here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM"> MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">03/26/04</th>
<th scope="col">03/19/04</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>1,091.3</td>
<td>1,114.9</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>443.8</td>
<td>449.9</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>4,857.6</td>
<td>4,988.7</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
</tr>
</tbody>
</table>
Chicago Purchasing Agents' Index Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 31, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040331b.jpg" width="353">
The Chicago Purchasing Managers Business Barometer for March fell to 57.6 from 63.6 in February. A lesser decline to 61.0 had been the Consensus expectation.
During the last twenty years there has been a 75% correlation between the level of the Chicago Business Barometer and quarterly growth in factory sector industrial output. There has been a 49% correlation with quarterly growth in real GDP.
The new orders index fell sharply to 60.4, the lowest level since September, and production fell to 59.1, also the lowest level since September. Still, the 1Q averages for orders and production are up versus 4Q03.
Employment fell to 49.2 but the 1Q average is up versus 4Q. During the last twenty years there has been a 71% correlation between the level of the employment index and the y/y change in factory sector payroll employment.
The index of prices paid jumped to 75.7, the highest level since May 1995.

<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/@EF05/@EF05.HTM"> Chicago Purchasing Managers Index, SA</a></th>
<th scope="col">Mar &#39;04</th>
<th scope="col">Feb &#39;04</th>
<th scope="col">Mar&nbsp; &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Business Barometer</td>
<td>57.6</td>
<td>63.6</td>
<td>49.9</td>
<td>54.7</td>
<td>52.7</td>
<td>41.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>60.4</td>
<td>67.5</td>
<td>53.9</td>
<td>58.0</td>
<td>56.2</td>
<td>42.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>75.7</td>
<td>66.9</td>
<td>63.7</td>
<td>55.8</td>
<td>56.9</td>
<td>50.4</td>
</tr>
</tbody>
</table>
Factory Orders & Inventories Rose 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 31, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040331c.jpg" width="353">
Factory orders rose 0.3% m/m in February but the gain was dominated by a surge in aircraft. Orders for commercial aircraft jumped 33.8% (29.8% y/y) and defense aircraft orders ballooned 61.4% (30.3% y/y). Excluding the transportation sector altogether orders fell 1.2% (7.4% y/y) following several months of strong gain.
Non-durable goods orders which equal shipments fell 2.0% (+4.9% y/y) due to declines in virtually all industries. The advance report of a 2.5% rise in orders for durable goods was unrevised.
Factory inventories rose 0.5% in February and that was the strongest monthly gain since January 2001. The swing to inventory accumulation from decumulation has been scattered across industries with the notable exceptions of the information technology and furniture industries.
Factory shipments fell 0.5% but the January gain was revised away.

<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/@ED01/@ED0101/@ED01016/@ED01016.HTM"> Factory Survey</a> (NAICS)</th>
<th scope="col">Feb</th>
<th scope="col">Jan</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.5%</td>
<td>0.3%</td>
<td>-0.8%</td>
<td>-1.3%</td>
<td>-1.8%</td>
<td>-6.1%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>0.3%</td>
<td>-0.9%</td>
<td>7.0%</td>
<td>3.7%</td>
<td>-1.9%</td>
<td>-6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-0.5%</td>
<td>-0.0%</td>
<td>6.5%</td>
<td>2.6%</td>
<td>-2.0%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.6%</td>
<td>-0.0%</td>
<td>5.0%</td>
<td>4.2%</td>
<td>-6.1%</td>
<td>-5.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

The index of mortgage applications compiled by the Mortgage Bankers Association eased another 2.1% last week. That followed a 0.2% dip the prior period. Despite these recent backpedals, mortgage applications are up 25.1% in March [...]

Mortgage Applications Eased As Rates Ticked Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040330a.jpg" width="353">
Chain store sales dropped 1.9% last week according to the International Council of Shopping Centers (ICSC)-UBS survey.The decline reversed all of the weekly gains during the prior two months.
The latest decline left sales so far in March 0.1% below the February average.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
During the last ten years there has been a 51% correlation between the year-to-year percent change in the ICSC-UBS measure of chain store sales and consumer sentiment.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM"> ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">03/27/04</th>
<th scope="col">03/20/04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>431.0</td>
<td>439.5</td>
<td>6.6%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
Consumer Confidence Remained Depressed 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 30, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040330b.jpg" width="353">
The Conference Board&#146;s Index of Consumer Confidence for March slipped 0.2% to 88.3 versus February&#39;s level, revised up slightly to 88.5 from 87.3 .
In contrast, the March reading of Consumer Sentiment from the University of Michigan rose 1.5% from February. The drop in Confidence was more moderate than Consensus expectations for a decline to 86.0.
During the last ten years there has been a 67% correlation between the level of consumer confidence and the y/y % change in real PCE.
The present situation reading rose 1.0% to 84.1 (+37.0% y/y) and prior month&#39;s levels were revised up sharply. The index of consumer expectations fell by 1.0% (+48.2% y/y), the third consecutive monthly decline, and prior month&#39;s levels were revised down.
Jobs were viewed as hard to get by 30.0% of respondents, an increase from prior month&#39;s levels which were revised down. The low for this series was in 2000 when 11.2% of respondents viewed jobs as hard to get.
Expectations for business conditions in six months held steady in March but only 19.3% of respondents expected conditions to improve, the lowest since last April.
The Conference Board&#146;s survey isconducted by a mailed questionnaire to 5,000 households and about 3,500 typically respond.

<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/@EF14/@EF1401/@EF1401.HTM"> Conference Board</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Consumer Confidence</td>
<td>88.3</td>
<td>88.5</td>
<td>43.8%</td>
<td>79.8</td>
<td>96.6</td>
<td>106.6</td>
</tr>
</tbody>
</table>
</body>
</html>

Chain store sales dropped 1.9% last week according to the International Council of Shopping Centers (ICSC)-UBS survey.The decline reversed all of the weekly gains during the prior two months. The latest decline left sales so far in [...]

Chain Store Sales Flop

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040329a.jpg" width="353">
Home prices as tallied by the Office of Federal Housing Enterprise Oversight (OFHEO) surged in 4Q 2003 by the most for any one period since 1Q 1979. The 3.7% jump last quarter pulled home price appreciation for the year to 6.9%.
The acceleration in home prices was notable versus the prior two years when prices rose an average of 1.6% each quarter. It was attributed to the economy&#39;s emergence from recession combined with the continued low level of interest rates. 
Home price appreciation accelerated across the country&#39;s regions. The greatest accelerations occurred in Vermont, New York and the District of Columbia.
The OFHEO house price index is a geometric weighted average based on more than 26.5 million repeat transactions over 29 years and 12,000 transactions annually.
View the latest OFHEO release <a href="http://www.ofheo.gov/media/pdf/4q03hpi.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/@E9/@E911/@E91101/@E91101.HTM"> OFHEO</a></th>
<th scope="col">4Q03</th>
<th scope="col">3Q03</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">House Price Index</td>
<td>3.7%</td>
<td>1.6%</td>
<td>8.0%</td>
<td>6.9%</td>
<td>7.1%</td>
<td>8.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

Home prices as tallied by the Office of Federal Housing Enterprise Oversight (OFHEO) surged in 4Q 2003 by the most for any one period since 1Q 1979. The 3.7% jump last quarter pulled home price appreciation for the year to 6.9%. The [...]

Home Prices Surged in 4Q03

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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

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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

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

Equity market exuberance outpacing macroeconomic data

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

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Andrew Cates

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

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

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

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

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

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

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

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

Robert Brusca

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

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

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

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

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

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

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

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

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

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

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

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

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

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

Sandy Batten

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

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

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

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

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

U.S. Initial Unemployment Claims Surged in Latest Week

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

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

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

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

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

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

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

Economy in Brief: 2004

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