Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040322a.jpg" width="353">
Prices for industrial materials have surged 13.4% since yearend, as measured by the JoC-ECRI index.
Higher prices for metals have led the gain with a 15.5% jump that reflects a 27.5% jump in steel scrap prices and a 32.2% rise in copper prices. Price gains for these metals have eased in recent weeks but zinc (11.0% YTD), tin (19.9%) and lead (15.1%) prices continue up.Aluminum prices are 7.9% higher this year.
Gains in metals prices have accompanied a 4.2% rise in factory sector production since its trough last Spring. During the last ten years there has been a 57% correlation between the level of industrial materials prices and the 6-month change in factory sector industrial production.
Textile prices were lower last week than at yearend led down a 5.3% drop in cotton prices.
Gold prices recently retraced some of the gain through early January which lifted the Handy &amp; Harman base price to $425.50. At $412.00, gold prices recently were up 23.5% y/y.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/daily/@D3/@D304/@D304.HTM"> Commodity Prices</a></th>
<th scope="col">3/19/04</th>
<th scope="col">12/31/03</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">Gold: Handy &amp; Harman Base Price ($/oz.)</td>
<td>$412.00</td>
<td>$416.70</td>
<td>23.5%</td>
<td>$363.13</td>
<td>$310.05</td>
<td>$271.06</td>
</tr>
<tr>
<td class="firstcol">Stainless Steel Scrap ($/gross ton)</td>
<td>$1,613.00</td>
<td>$1,265.00</td>
<td>77.6%</td>
<td>$953.75</td>
<td>$717.10</td>
<td>$650.52</td>
</tr>
<tr class="odd">
<td class="firstcol">Copper: High Grade (COMEX, $/Lb.)</td>
<td>$1.38</td>
<td>$1.04</td>
<td>77.8%</td>
<td>$0.81</td>
<td>$0.72</td>
<td>$0.73</td>
</tr>
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Prices for industrial materials have surged 13.4% since yearend, as measured by the JoC-ECRI index. Higher prices for metals have led the gain with a 15.5% jump that reflects a 27.5% jump in steel scrap prices and a 32.2% rise in [...]

Industrial Materials Prices Surge With Output

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/040319b.jpg" width="353">
International trade in Italy has shifted back into deficit in recent months after maintaining a surplus for nearly all of 2001 and 2002. Declines in exports are responsible, while imports have been sluggish. Further, the weakening of exports is broad-based, with trends turning soft in all three major categories: consumer, investment and intermediate goods. Imports, both in total and in each major type, have sustained a basically flat pattern for about two years.
The strong euro might be seen as an easy culprit in Italy&#39;s export slowdown. Indeed, exports to non-EU countries have decreased noticeably in a possible reaction to the surge in the Euro. At the same time, this is not the sole force; exports to other European countries have also weakened, and in fact for 2003 as a whole, were off by a larger amount than those to other nations. Further, imports, rather than increasing from non-EU areas, as might be expected with the strong currency, have been flat to down. So, if the Euro is really to blame for Italy&#39;s eroding trade accounts, it would seem more due to its impact in slowing growth across Europe. Germany&#39;s economy, Italy&#39;s largest trading partner, had virtually no growth last year. Neighboring France showed a mere 0.2%. Italy itself did make a 3.3% gain in 2003, but that was the slowest in four years. The Euro-Zone as a whole eked out just 0.4%. Thus, weakness in Italy&#39;s exports can well be explained by the lackluster performance of its neighbors, and that effect in turn is holding down Italy&#39;s own import demand.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol">Billions of &#128;</th>
Seasonally Adjusted
<th scope="col">12-Month % Change</th>
Year/Year % Changes
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Jan 2004</td>
<td>Dec 2003</td>
<td>2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">Trade Balance</td>
<td>-&#128;0.6</td>
<td>-&#128;0.4</td>
<td>&nbsp;</td>
<td>+&#128;1.6</td>
<td>+&#128;8.8</td>
<td>+&#128;10.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports, fob</td>
<td>&#128;20.2</td>
<td>&#128;20.3</td>
<td>-9.9%</td>
<td>-4.0%</td>
<td>-1.5%</td>
<td>+5.1%</td>
</tr>
<tr>
<td class="firstcol">Imports, cif</td>
<td>2&#128;0.8</td>
<td>&#128;20.7</td>
<td>-7.2%</td>
<td>-1.3%</td>
<td>-1.1%</td>
<td>+2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">EU Trade Balance</td>
<td>-&#128;0.7</td>
<td>-&#128;0.8</td>
<td>&nbsp;</td>
<td>-&#128;7.6</td>
<td>-&#128;4.6</td>
<td>-&#128;1.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>&#128;11.1</td>
<td>&#128;10.9</td>
<td>-5.8%</td>
<td>-4.6%</td>
<td>-2.2%</td>
<td>+3.0%</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>&#128;11.7</td>
<td>&#128;11.7</td>
<td>-6.0%</td>
<td>-2.3%</td>
<td>-0.1%</td>
<td>+2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Non-EU Trade Balance</td>
<td>+&#128;0.1</td>
<td>+&#128;0.4</td>
<td>&nbsp;</td>
<td>+&#128;9.2</td>
<td>+&#128;13.4</td>
<td>+&#128;11.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>&#128;9.1</td>
<td>&#128;9.4</td>
<td>-14.7%</td>
<td>-3.4%</td>
<td>-0.6%</td>
<td>+7.7%</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>&#128;9.0</td>
<td>&#128;9.0</td>
<td>-8.4%</td>
<td>0.0%</td>
<td>-2.3%</td>
<td>+1.3%</td>
</tr>
</tbody>
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International trade in Italy has shifted back into deficit in recent months after maintaining a surplus for nearly all of 2001 and 2002. Declines in exports are responsible, while imports have been sluggish. Further, the weakening of [...]

Sluggish Demand Pushes Italy Trade into Deficit

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040319a.jpg" width="353">
The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) moved higher through early March. The move was accompanied by an uptick in ECRI&#39;s Future Inflation Gauge but that followed a 7.1% decline from March &#39;03 to December &#39;03.
The Weekly Leading Index level stretched to a record high and the six-month growth rate of 11.1% is consistent with above-trend growth in real GDP.
The Future Inflation Gauge (FIG) rose 2.6% during January and February. However, since these increases followed sharp declines through most of last year the FIG&#39;s six month growth rate remained low at -2.1% versus the highs above 20% a year ago. The monthly FIG has a mean lead of 11 months and a median lead of 9 months at inflation cycle turns.
During the last ten years there has been a 68% correlation between the six-month growth in the leading index of the US economy and the two quarter growth in real GDP.
Construction of the ECRI Leading Index differs from the Index of Leading Economic Indicators published by the Conference Board. Nevertheless there has been a 75% correlation between the y/y percent change in the two series over the last 20 years.
The components of the ECRI weekly leading index are money supply plus stock &amp; bond mutual funds, the JOC-ECRI industrial materials price index, mortgage applications, bond quality spreads, stock prices, bond yields, and initial jobless insurance claims.
The median lead of the ECRI index at business cycle peaks has been 10.5 months and at cycle troughs 3.0 months. The sideways movement of the leading index in 2002 may or may not signal something about the economy&#39;s growth rate.
For more on ECRI and the Weekly Leading Index go to this <a href="http://businesscycle.com">link</a>.

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/weekly/@W8/@W801/@W801.HTM"> ECRI Leading Index</a></th>
<th scope="col"> 03/05/04</th>
<th scope="col"> 02/27/04</th>
<th scope="col"> Growth Rate</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">Weekly</td>
<td>134.2</td>
<td>133.6</td>
<td>11.1%</td>
<td>6.6%</td>
<td>1.1%</td>
<td>-5.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td> Feb</td>
<td> Jan</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Monthly</td>
<td>133.0</td>
<td>132.0</td>
<td>10.7%</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">ECRI Future Inflation Gauge</td>
<td>116.0</td>
<td>114.8</td>
<td>-2.1%</td>
<td>10.4%</td>
<td>2.9%</td>
<td>-14.0%</td>
</tr>
</tbody>
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The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) moved higher through early March. The move was accompanied by an uptick in ECRI's Future Inflation Gauge but that followed a 7.1% [...]

ECRI Leading Indicators: Economic Growth Prospects Strong & Inflation Pressure Low

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040318d.jpg">
 Eurostat today published hourly labor cost data for the Euro-Zone for Q4 2003. Total labor costs are seen to have moderated last year after a pick-up in 2001 and 2002. This pattern was exhibited in both wage costs and &quot;other&quot; costs, i.e. benefits. All of the major economies in Europe - Germany, France, Italy and Spain - participated in the slowing trend during 2003, although changes for individual quarters do vary.
It is comforting that ongoing labor cost pressures in Europe look so temperate. A particular aspect of this trend seems somewhat unexpected: these labor costs in Europe are running more slowly than those in the US. Eurostat includes a calculation of comparable hourly labor cost and wage data for the US, and as shown in the Table below, they rose considerably more last year, 4%, than the 2.5% in Europe. While the rates of advance were similar in 2002, the US also saw larger increases in the prior two years. This spread is sometimes due to wage cost differentials, but much more consistently, it is benefits where the US outstrips Europe. These data very much resemble the US&#39;s ECI information. Over the past four years the ECI benefits measure has far outrun the &quot;other&quot; component in the European data, and unpublished BLS data on health insurance suggest that item may well be the culprit. As that cost has accelerated into a double-digit pace in the last several years, it looks that the US practice of financing health care through employment arrangements is weighing on the competitive structure of private US labor costs.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">% Changes</th>
Seasonally Adjusted &nbsp;Annual Rate
4th Qtr/4th Qtr
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Q4-2003</td>
<td>Q3-2003</td>
<td>2003</td>
<td>2002</td>
<td>2001</td>
<td>2000</td>
</tr>
<tr>
<td class="firstcol">Euro-Zone: Total Labor Costs</td>
<td>2.2</td>
<td>2.6</td>
<td>2.5</td>
<td>3.4</td>
<td>3.4</td>
<td>2.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Wages &amp; Salaries</td>
<td>2.6</td>
<td>2.2</td>
<td>2.5</td>
<td>3.3</td>
<td>3.5</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">Other Labor Costs</td>
<td>2.6</td>
<td>2.6</td>
<td>2.8</td>
<td>3.8</td>
<td>3.2</td>
<td>1.6</td>
</tr>
<tr class="odd">
<td class="firstcol">US: Total Labor Costs</td>
<td>3.2</td>
<td>4.4</td>
<td>4.0</td>
<td>3.2</td>
<td>4.1</td>
<td>4.4</td>
</tr>
<tr>
<td class="firstcol">Wages &amp; Salaries</td>
<td>2.6</td>
<td>3.2</td>
<td>3.1</td>
<td>2.8</td>
<td>3.8</td>
<td>3.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: ECI Benefits</td>
<td>4.9</td>
<td>5.6</td>
<td>6.4</td>
<td>4.7</td>
<td>5.1</td>
<td>5.6</td>
</tr>
</tbody>
</table>
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Eurostat today published hourly labor cost data for the Euro-Zone for Q4 2003. Total labor costs are seen to have moderated last year after a pick-up in 2001 and 2002. This pattern was exhibited in both wage costs and "other" costs, [...]

Euro-Zone Labor Costs Slower than in US

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040318b.jpg" width="353">
Finished producer prices surged 0.6% in January. The increase was the largest since October of last year. The core PPI rose 0.3% following two months of flat-to-down prices.
Release of the figures was delayed due to the conversion to the 2002 North American Industry Classification System (NAICS) from the 1987 Standard Industrial Classification (SIC). The change affects industry breakdowns. The product-type breakdowns which are the usual focus of attention should not be meaningfully impacted. Seasonal adjustment factors also were recalculated.
Finished consumer goods prices rose 0.7% in January (4.0% y/y). Less food &amp; energy finished consumer goods prices rose 0.3% (+0.9% y/y). Consumer durable prices rose 0.4% (1.1% y/y) and reversed a December decline. Core non-durable prices jumped 0.7% (0.7% y/y).
Finished capital goods prices rose 0.3% (+1.1% y/y).
Finished energy prices rose 4.7% (11.3% y/y) on the strength of higher gasoline (13.0% y/y) and fuel oil (10.9% y/y) prices. These energy product price series are NSA.
Intermediate goods prices jumped 0.9% as energy prices rose. Core intermediate prices, up 0.6%, also rose the most for any month since February 2003. 
Crude goods prices surged 2.8% as energy prices jumped 12.5% (11.8% y/y). Core crude prices also rose 3.3%, strong for the seventh consecutive month.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM"> Producer Price Index</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</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>0.6%</td>
<td>0.2%</td>
<td>3.3%</td>
<td>3.2%</td>
<td>-1.3%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.3%</td>
<td>-0.1%</td>
<td>0.9%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.8%</td>
<td>0.4%</td>
<td>3.7%</td>
<td>4.7%</td>
<td>-1.5%</td>
<td>0.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.6%</td>
<td>0.1%</td>
<td>2.3%</td>
<td>2.0%</td>
<td>-0.5%</td>
<td>-0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>2.8%</td>
<td>2.2%</td>
<td>13.6%</td>
<td>25.1%</td>
<td>-10.6%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>3.3%</td>
<td>3.0%</td>
<td>23.9%</td>
<td>12.2%</td>
<td>3.8%</td>
<td>-10.0%</td>
</tr>
</tbody>
</table>
Initial Claims for Jobless Insurance Lower 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 18, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040318a.jpg" width="353">
Initial claims for jobless insurance fell another 6,000 to 336,000 last week. The Consensus expectation was for 340,000 claims. The prior week was revised up slightly.
The latest figure covers the survey period for March nonfarm payrolls. Claims fell 8,000 (2.3%) from the February period.
During the last ten years there has been a 77% (negative) correlation between the level of initial claims and the three-month change in non-farm payrolls.
The four-week moving average of initial claims fell to 344,000 (-18.9% y/y).
Continuing claims for unemployment insurance rose 47,000 from the prior week&#39;s level that was revised to show a 55,000 decline.
The insured rate of unemployment was unchanged at 2.4% for the fourth week.

<table border="0" cellspacing="0" width="100%">
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<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">3/13/04</th>
<th scope="col">3/06/04</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>336.0</td>
<td>342.0</td>
<td>-21.5%</td>
<td>403</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,064</td>
<td>-13.3%</td>
<td>3,535</td>
<td>3,575</td>
<td>3,022</td>
</tr>
</tbody>
</table>
Leading Indicators Unchanged 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 18, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040318c.jpg" width="353">
The Composite Index of Leading Economic Indicators reported by the Conference Board was unchanged in February, about as expected. January&#39;s 0.5% gain was revised down slightly.
The soft one-month reading was dominated by lower consumer expectations which subtracted 0.2 percentage points. The breadth-of-gain amongst the leaders&#39; component series improved slightly to 60% from a downwardly revised 50% in January. Over a six-month span 80% of the leading series rose.
The Leading index is based on eight previously reported economic data series and two that are estimated.
The coincident indicators rose 0.3%, the strongest gain since November.
The ratio of coincident-to-lagging indicators rose to another record level. The ratio is an indicator of excess relative to actual economic performance.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<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/BCI/BCI.HTM"> Business Cycle Indicators</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">Leading</td>
<td>0.0%</td>
<td>0.4%</td>
<td>4.1%</td>
<td>1.3%</td>
<td>2.2%</td>
<td>-0.8%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3%</td>
<td>0.1%</td>
<td>1.7%</td>
<td>0.4%</td>
<td>-0.5%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.0%</td>
<td>0.1%</td>
<td>-3.0%</td>
<td>-2.2%</td>
<td>-2.8%</td>
<td>-1.4%</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Fell Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 18, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040318e.jpg" width="353">
The Philadelphia Fed&#146;s March index of general business conditions in the manufacturing sector fell to 24.2 versus 31.4 last month. Consensus expectations had been for less of a decline to 29.0.
During the last twenty years there has been a 62% correlation between the level of the Philadelphia Fed Business Conditions Index and quarterly growth in real GDP. The correlation with quarterly growth in factory sector industrial production has been 76%.
Amongst the sub indexes, new orders fell sharply to 21.9 versus a high of 37.9 in December. Shipments improved slightly to 22.3 and the employment index was roughly stable at 12.3, a level consistent with expanding factory sector employment.
The business conditions index reflects a separate survey question, not the sub indexes.
A separate survey of expected business conditions in six months fell sharply to 36.7, the lowest level since February 2003.
The prices paid index surged again to 53.4, the highest level since January 1995.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0304.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM"> Philadelphia Fed Business Outlook</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>
<td class="firstcol">General Activity Index</td>
<td>24.2</td>
<td>31.4</td>
<td>-6.8</td>
<td>10.6</td>
<td>7.7</td>
<td>-17.2</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>53.4</td>
<td>43.7</td>
<td>21.2</td>
<td>16.7</td>
<td>12.2</td>
<td>-0.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Finished producer prices surged 0.6% in January. The increase was the largest since October of last year. The core PPI rose 0.3% following two months of flat-to-down prices. Release of the figures was delayed due to the conversion to [...]

Producer Prices Surged in January

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040317c.jpg" width="353">
Trade in Singapore remains in comfortable surplus through February as exports continue to grow more rapidly than imports. Growth rates of both are erratic from month to month, but uptrends show the signs of world-wide economic revival following the recession in 2001.
Singapore is widely known as a trading hub in Southeast Asia. And its trade data reflect this status quite clearly. In a distinctive (although not unique) breakdown of its exports, Singapore reports that only some 55% of its exports over the past four years have been produced locally. Of its S$251.1 billion in exports last year, S$112.2 billion represent re-exports, goods imported into the area, possibly graded and/or broken into lots and repackaged and then sent on to a final destination. Much of the Singapore economy is located on its docks.
Among those exports, both domestic and re-exports, is a substantial portion consisting of &quot;machinery and transport equipment&quot;. For Singapore, this largely means semiconductors and other electronic components and parts. The value of this line item fell nearly S$19 billion between 2000 and 2001, and through last year (December is latest available), while those exports have recovered markedly, they remained below the 2000 peak.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Singapore Dollars (except where noted)</th>
Seasonally Adj.
<th scope="col">Year/ Year</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Feb 2004</td>
<td>Jan 2004</td>
</tr>
<tr>
<td class="firstcol">Trade Balance</td>
<td>2.8</td>
<td>2.4</td>
<td>&nbsp;</td>
<td>28.3</td>
<td>15.6</td>
<td>10.3</td>
<td>5.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Total Exports</td>
<td>24.6</td>
<td>23.2</td>
<td>24.1%</td>
<td>251.1</td>
<td>223.9</td>
<td>218.0</td>
<td>237.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Exports</td>
<td>13.6</td>
<td>12.4</td>
<td>22.6%</td>
<td>138.9</td>
<td>119.4</td>
<td>118.4</td>
<td>135.9</td>
</tr>
<tr>
<td class="firstcol">Re-Exports</td>
<td>11.1</td>
<td>10.2</td>
<td>26.0%</td>
<td>112.2</td>
<td>104.5</td>
<td>99.6</td>
<td>101.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>21.8</td>
<td>20.8</td>
<td>19.8%</td>
<td>222.8</td>
<td>208.3</td>
<td>207.7</td>
<td>232.2</td>
</tr>
</tbody>
</table>
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Trade in Singapore remains in comfortable surplus through February as exports continue to grow more rapidly than imports. Growth rates of both are erratic from month to month, but uptrends show the signs of world-wide economic revival [...]

Singapore Exports Lift Trade Surplus

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040317b.jpg" width="353">
The Consumer Price Index (CPI-U) rose 0.3% in February, matching Consensus expectations for a 0.3% gain. A 0.2% rise in prices less food &amp; energy was slightly firmer than the 0.1% Consensus expectation.
Prices of core consumer goods rose 0.2%, the firmest one month gain since August 2002. This strength reflected a 0.4% (2.4% y/y) rise in medical care commodities, a 0.4% (4.7% y/y) rise in educational books &amp; supplies and a 0.4% (-0.7% y/y) gain in new vehicle prices. Prices for home furnishings &amp; operation, up 0.2% (-1.6% y/y), also rose for the second consecutive month.
Apparel prices fell another 0.1% (-1.6% y/y) and tobacco prices also were off slightly (-0.0% y/y).
Core services prices rose a modest 0.1% as shelter prices ticked up just 0.1% (2.1% y/y). Prices for medical care services jumped 0.7% (4.7% y/y) but public transportation prices eased slightly (+2.2% y/y).
Energy prices moderated to a 1.7% gain following the 4.7% January spike. Gasoline prices rose 2.5% after the 8.1% jump in January (+2.0% y/y) but are up another 4.7% so far in March. Fuel oil prices rose 1.0% (-0.7% y/y) and piped gas prices rose 0.9% (6.2% y/y).
Food prices rose 0.2% and mostly reflected higher prices for fruits &amp; vegetables, up 1.0% (2.9% y/y).
The chained CPI which adjusts for shifts in consumer buying behavior surged 0.6%. It is similar to the PCE price deflator. The core chain price measure also surged by 0.5%, the strongest gain since February 2002.
&quot;Classical Deflation Theory&quot; from the Federal Reserve Bank of Richmond can be found <a href="http://www.rich.frb.org/pubs/eq/search.cfm/article=191"> 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/@E8/@E801/@E80101/@E80101.HTM"> Consumer 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">Total&nbsp;</td>
<td>0.3%</td>
<td>0.5%</td>
<td>1.7%</td>
<td>2.3%</td>
<td>1.6%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.2%</td>
<td>1.2%</td>
<td>1.5%</td>
<td>2.3%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>0.2%</td>
<td>0.0%</td>
<td>-2.0%</td>
<td>-2.0%</td>
<td>-1.1%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.5%</td>
<td>2.9%</td>
<td>3.8%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>1.7%</td>
<td>4.7%</td>
<td>3.9%</td>
<td>12.2%</td>
<td>-5.8%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food</td>
<td>0.2%</td>
<td>0.0%</td>
<td>3.2%</td>
<td>2.1%</td>
<td>1.8%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM"> Chained CPI: Total (NSA)</a></td>
<td>0.6%</td>
<td>0.5%</td>
<td>1.4%</td>
<td>1.9%</td>
<td>1.3%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.5%</td>
<td>0.2%</td>
<td>0.8%</td>
<td>1.1%</td>
<td>1.9%</td>
<td>&nbsp;2.0%</td>
</tr>
</tbody>
</table>
Mortgage Applications Surged Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 17, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040317a.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association jumped 25.6% last week for the fifth consecutive weekly gain.
Applications to refinance surged 39.7% (-46.9% y/y) as interest rates remained low.
The effective interest rate on a conventional 30-Year mortgage rose to 5.62% from 5.61% the week prior, but these rates are the lowest since last June. The effective rate on a 15-year mortgage ticked up to 5.01%.
Purchase applications rose 5.6% w/w (+30.3% y/y) and so far in March are 6.0% 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.
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">03/12/04</th>
<th scope="col">03/05/04</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>1,117.1</td>
<td>889.1</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>452.4</td>
<td>428.6</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>4,983.7</td>
<td>3,567.6</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
</tr>
</tbody>
</table>
</body>
</html>

The Consumer Price Index (CPI-U) rose 0.3% in February, matching Consensus expectations for a 0.3% gain. A 0.2% rise in prices less food & energy was slightly firmer than the 0.1% Consensus expectation. Prices of core consumer goods [...]

Consumer Prices Rose Broadly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040316a.jpg" width="353">
Housing starts fell 4.0% last month and added to the 6.3% drop in January. February starts of 1.855M were the lowest since last August. Consensus forecasts had been for 1.93M starts in February.
Single family starts fell 4.1%, the third consecutive monthly decline.
Multi-family starts fell 3.4% and are off 9.9% during the last two months.
Starts were mixed across the country&#39;s regions last month. Housing starts fell hard m/m in the South (+10.5% y/y) and also were down in the West (+4.1% y/y). Starts rose 25.3% m/m in the Northeast (32.4% y/y) and rose in the Midwest (+25.1% y/y), recovering from the January cold snap.
Building permits fell a moderate 1.5% m/m (+6.6% y/y) for the second month.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM"> Housing Starts (000s, AR)</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>1,855</td>
<td>1,932</td>
<td>13.1%</td>
<td>1,848</td>
<td>1,711</td>
<td>1,601</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,489</td>
<td>1,553</td>
<td>13.5%</td>
<td>1,501</td>
<td>1,364</td>
<td>1,272</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>366</td>
<td>379</td>
<td>11.6%</td>
<td>347</td>
<td>347</td>
<td>330</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,903</td>
<td>1,932</td>
<td>6.6%</td>
<td>1,831</td>
<td>1,750</td>
<td>1,637</td>
</tr>
</tbody>
</table>
Housing Market Index Unchanged 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 16, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040316b.jpg" width="353">
The Composite Housing Market Index reported by the National Association of Home Builders (NAHB) was unchanged in March at 64 versus February which was revised down slightly. It was the lowest level for the index since last June.
During the last fifteen years there has been a 79% correlation between the y/y change in the NAHB index and the change in single family housing starts.
The sub index which measures expected home sales in six months fell to the lowest level since June.
The index of current market conditions for home sales fell 2.8% m/m to 69 (+16.9% y/y).
Traffic of prospective buyers rose slightly m/m in March but still was off 12.7% from the August peak.
The NAHB index is a diffusion index based on a survey of builders. Readings above 50 signal that more builders view conditions as good than poor.
Visit the National Association of Home Builders using this <a href="http://www.nahb.org">link</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM"> Nat&#39;l Association of Home Builders</a></th>
<th scope="col">Mar</th>
<th scope="col">Feb</th>
<th scope="col">3 &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Housing Market Index</td>
<td>64</td>
<td>64</td>
<td>52</td>
<td>64</td>
<td>61</td>
<td>56</td>
</tr>
</tbody>
</table>
Chain Store Sales Up Modestly 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 16, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040316c.jpg" width="353">
Chain store sales rose a modest 0.5% last week and recovered all of the prior week&#39;s 0.3% dip, according to the ICSC-UBS survey.
Sales so far in March are up 0.2% versus the February average.
During the last ten years there has been a 59% correlation between the year-to-year percent change in the ICSC-UBS measure of chain store sales and the change in non-auto retail sales less gasoline.
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.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<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">03/13/04</th>
<th scope="col">03/06/04</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>438.6</td>
<td>436.6</td>
<td>7.0%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
Manpower Index of US Hiring Intentions Up Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 16, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040316d.jpg" width="353">
The Manpower survey of hiring intentions in the US for 2Q04 improved sharply. A seasonally adjusted net 20% of 16,000 employers expect to increase hiring activity. It was the highest level for hiring intentions since 1Q 2001.
The latest reading is up from 13% in 1Q and from 7% in 3Q03. Hiring typically picks up in 2Q, therefore seasonal adjustment factors damped the increase in the seasonally adjusted index.
Since 1980 there has been a 75% correlation between the Manpower index and the y/y change in non-farm payrolls.
The latest press release from Manpower Inc. covering employment prospects in North America can be viewed <a href="http://www.manpower.com/mpcom/viewMeos?name=Americas.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@SC/@SC.HTM"> Manpower Employment Survey</a></th>
<th scope="col">2Q04</th>
<th scope="col">1Q04</th>
<th scope="col">2Q03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">All Industries - Net Higher (SA)</td>
<td>20</td>
<td>13</td>
<td>11</td>
<td>11</td>
<td>11</td>
<td>17</td>
</tr>
</tbody>
</table>
FOMC Left Rates Unchanged 
by <a href="/comment/Moeller.html">Tom Moeller</a> March 16, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040316e.jpg" width="353">
As expected, the Federal Reserve left the target rate for federal funds unchanged at 1.00%. The discount rate also was left unchanged at 2.00%.
The decision was unanimous.
The press release which accompanied the Fed&#39;s action indicated that &quot;The evidence accumulated over the intermeeting period indicates that output is continuing to expand at a solid pace. Although job losses have slowed, new hiring has lagged.&quot;
Regarding inflation, the Fed indicated that &quot;The probability of an unwelcome fall in inflation has diminished in recent months and now appears almost equal to that of a rise in inflation. With inflation quite low and resource use slack, the Committee believes that it can be patient in removing its policy accommodation.&quot;
The complete text of the Fed&#39;s latest press release can be found <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2004/20040316/default.htm"> here</a>.
&quot;How the Fed Affects the Economy: A Look at Systemic Monetary Policy&quot; from the Federal Reserve Bank of Philadelphia is available <a href="http://www.phil.frb.org/files/br/brq104md.pdf">here</a> .
&quot;Macroeconomic Principles and Monetary Policy&quot; from J. Alfred Broaddus, Jr., President of the Federal Reserve Bank of Richmond can be found <a href="http://www.rich.frb.org/pubs/eq/search.cfm/article=190"> here</a>.

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Housing starts fell 4.0% last month and added to the 6.3% drop in January. February starts of 1.855M were the lowest since last August. Consensus forecasts had been for 1.93M starts in February. Single family starts fell 4.1%, the [...]

Housing Starts Fell Again

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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Andrew Cates

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

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

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

260205Z3.jpg

**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

260206E.jpg

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

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

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

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

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

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

260206.jpg

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

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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.

260205C2.jpg

260205D2.jpg

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

U.S. Initial Unemployment Claims Surged in Latest Week

260205E.jpg

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

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

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

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

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

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

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

Economy in Brief: 2004

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