Tom Moeller

The composite index of leading economic indicators rose an expected 0.3% last month and fully recouped a 0.3% decline during April. The May gain was only the second monthly increase this year, according to the Conference Board and [...]

U.S. Leading Economic Indicators Up for Second Time This Year

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/070621c.jpg" width="353">
Industrial activity in Europe and the UK is showing signs of picking up. Surveys for June released this morning by the Confederation of British Industry and NTC Economics both indicate improvements.
The report from NTC is a new one. This compiler of global purchasing manager data began today to issue a &quot;flash&quot; estimate for the total Euro-Zone. It covers 85-90% of the full NTC panel in those countries, and for the period since its compilation, beginning January 2006, most components have run very close to their full-month counterparts. So here&#39;s an advance tool for assessing the condition of industry in Europe.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070621d.jpg" width="353">
Numbers in this survey have not been weak, but they have edged gradually lower since the middle of last year. The overall index for manufacturing has run in the mid-50s, indicating net gains at slightly more than half of the responding firms. The gauge, though, has lost about 2-1/2 points since June 2006. In today&#39;s &quot;Flash&quot;, it turned up modestly, only the fourth positive monthly move since that time. In the service sector, the peak was also in June 2006; the index lost several points almost immediately and has hovered in a narrow band since last August. So this month, the &quot;Flash&quot; for service sector &quot;business activity&quot; was up almost 1-1/2 points, putting it at the highest level since July 2006. In total, output in manufacturing and services combined, the so-called &quot;composite output&quot; index, rose just over 1 point in June. This index had dipped in April and May, so what we&#39;re noticing here as a welcome rebound may just be a reaction to those lower figures. We can only wait to see if this is a new trend or just a blip in an otherwise stagnating pattern. The final June data will be reported July 2 for manufacturing and July 4 for services and the composite figure.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070621e.jpg" width="353">
In this context of a hesitant upturn on the Continent, the UK&#39;s Confederation of British Industry survey looks that it might be providing corroborating evidence of improvement. Respondents&#39; planned output over the coming 3 months has averaged +22 since February. This is the highest average over such a long period since mid-1995; the value for June alone was +25. More striking is the behavior of order books. These readings are generally well into negative territory, reaching as low as -48 in late 1998 and averaging lower than -20 for a whole year as recently as 2005 (-21). But this order book measure has been positive now also since February and in two of these months, March and June, it has been +8, the highest readings since May 1995.
We see in the final graph here that the movement in the CBI output series is not a bad indicator of actual industrial production. Indeed, the correlation of year-to-year % changes in total industrial production and the output measure itself is a substantial 67%. So it&#39;s worth paying attention to the favorable moves of these CBI measures in judging the condition of British industry, which just might be getting better.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070621f.jpg" width="353">
The NTC-PMI data are in Haver&#39;s PMI database, and the CBI Industrial Trends Survey is in the UK database, as well as INTSRVYS.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Business Surveys: UK &amp; Euro-Zone</th>
<th scope="col">June 2007</th>
<th scope="col">May 2007</th>
<th scope="col">Apr 2007</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">CBI: Order Book</td>
<td>8</td>
<td>5</td>
<td>2</td>
<td>-12</td>
<td>-13</td>
<td>-21</td>
<td>-9</td>
</tr>
<tr class="odd">
<td class="firstcol">Output Next 3 Mos</td>
<td>25</td>
<td>18</td>
<td>18</td>
<td>14</td>
<td>10</td>
<td>4</td>
<td>12</td>
</tr>
<tr class="odd">
<td class="firstcol">Selling Prices, Next 3 Mos</td>
<td>16</td>
<td>25</td>
<td>16</td>
<td>8</td>
<td>9</td>
<td>0</td>
<td>4</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">Euro-Zone PMI Output &quot;Flash&quot;*</td>
<td>57.66</td>
<td>56.62</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
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Industrial activity in Europe and the UK is showing signs of picking up. Surveys for June released this morning by the Confederation of British Industry and NTC Economics both indicate improvements. The report from NTC is a new one. [...]

UK, Euro-Zone Industrial Surveys Show Improvement in June

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070621i.jpg" width="353">
The General Activity Index published by the Federal Reserve Bank of Philadelphia improved sharply this month to 18.0 versus a May reading of 4.2.
The average level of the index during the second quarter also improved to 7.5, the highest level in a year.
During the last twenty years there has been a 57% correlation between the level of the Philadelphia Fed Index and the quarterly change in real GDP. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070621h.jpg" width="353">
Improvement in the index of general business conditions was led by higher new orders and higher unfilled orders. The number of employees fell month to month after improvement in May while inventories fell sharply. 
The index of prices paid fell modestly after sharp gains during the prior four months. For 2Q the index of prices paid was at its highest in nearly one year but the index of prices received fell. 
Inflation Disconnect from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20070701/cover.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/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;06</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Business Conditions</td>
<td>18.0</td>
<td>4.2</td>
<td>0.48</td>
<td>8.1</td>
<td>11.5</td>
<td>28.1</td>
</tr>
</tbody>
</table>


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The General Activity Index published by the Federal Reserve Bank of Philadelphia improved sharply this month to 18.0 versus a May reading of 4.2. The average level of the index during the second quarter also improved to 7.5, the [...]

Philadelphia Fed Index Highest Since Early 2005

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070621g.jpg" width="353">
Italy&#146;s consumer confidence fell off after peaking in February 2002. It bottomed in May 2004 and has been on a moderate rising trend ever since. But since March of 2007 a new down trend has developed. 
The new weakness in Italy&#146;s consumer confidence could be as simple as high oil prices. The recent surge in oil prices has become a problem for consumers around the world. But it could also have other factors at work. The responses to ISAE&#146;s survey make me think that the latter broader scenario is the correct one. 
Overall consumer confidence in Italy is 39% of its peak relative to its trough, a weak showing. However consumers do not assess the past 12-months harshly. Their rating leaves it in the 66th percentile of its historic range. The household financial situation during that period however sank to a range position just 17% form the bottom. As a result, consumers rate their current savings as the highest of the period as they seem to have reacted by ramping up savings and spending less than they might have been able to afford. Major purchases are rated in the bottom third of their range currently. 
Ominously, for the period ahead, Italian consumers are very glum. They rate the overall conditions in the next 12 months in the bottom fifth of their range. Unemployment is rated in the top 20% of its range; consumers rate their own budget as the worst ever. They do not expect to be able to compensate and save as they rate future savings as in the bottom third of its range. 
The responses from the Italian consumers are striking for their equanimity in assessing the past 12 months which then morphs into outright pessimism for the period ahead. Italy&#146;s retail sales trends have reflected this sort of borderline angst for some time. Italy is of course one of the weaker large economies and seems to have trouble with its competitiveness. Italian industrial statistics including foreign orders have been afflicted with weakness, or at least a slowing trend. While unemployment has been dropping steadily in Italy it is clear that consumers do not extrapolate that success into the future. Is Italy alone in this, or is this sort of pessimism a harbinger of things to come in the rest of Europe?

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
 ITALY: ISAE CONSUMER CONFIDENCE
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td colspan="4"> Since 1990</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>12-MO Avg</td>
<td> AVG</td>
<td> Max</td>
<td> Min</td>
<td> % Range</td>
</tr>
<tr class="odd">
<td class="firstcol"> CONSUMER CONFIDENCE</td>
<td> 107.2</td>
<td> 109.4</td>
<td> 107.8</td>
<td> -110</td>
<td> -112</td>
<td> 128</td>
<td> 94</td>
<td> 39.5%</td>
</tr>
<tr>
<td class="firstcol"> Last 12-Mos</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Overall Situation</td>
<td>-60</td>
<td>-52</td>
<td>-55</td>
<td>57</td>
<td>68</td>
<td>-17</td>
<td>-147</td>
<td>66.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Price Trends</td>
<td>-27.5</td>
<td>-24.5</td>
<td>-26.5</td>
<td>24</td>
<td>16</td>
<td>4</td>
<td>-34</td>
<td>17.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">HH Financial Situation</td>
<td>-40</td>
<td>-35</td>
<td>-38</td>
<td>36</td>
<td>27</td>
<td>0</td>
<td>-49</td>
<td>18.4%</td>
</tr>
<tr>
<td class="firstcol"> Current</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">HH Savings**</td>
<td>78</td>
<td>77</td>
<td>73</td>
<td>-71</td>
<td>-62</td>
<td>78</td>
<td>49</td>
<td>100.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Major Purchases**</td>
<td>25.5</td>
<td>23.5</td>
<td>23</td>
<td>-24</td>
<td>-28</td>
<td>41</td>
<td>18</td>
<td>34.8%</td>
</tr>
<tr>
<td class="firstcol"> Next 12 Months</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Overall Situation*</td>
<td>-22</td>
<td>-18</td>
<td>-17</td>
<td>17</td>
<td>11</td>
<td>24</td>
<td>-34</td>
<td>20.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Trends</td>
<td>19</td>
<td>17.5</td>
<td>15.5</td>
<td>-16</td>
<td>-24</td>
<td>49</td>
<td>7</td>
<td>28.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment</td>
<td>2</td>
<td>-5</td>
<td>-5</td>
<td>5</td>
<td>5</td>
<td>9</td>
<td>-30</td>
<td>82.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Budget</td>
<td>-1</td>
<td>3</td>
<td>2</td>
<td>-7</td>
<td>-20</td>
<td>40</td>
<td>-1</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Purchases planned**</td>
<td>10.5</td>
<td>8.5</td>
<td>7.5</td>
<td>-10</td>
<td>-11</td>
<td>20</td>
<td>4</td>
<td>40.6%</td>
</tr>
<tr>
<td class="firstcol"> Future</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">**Savings</td>
<td>26.5</td>
<td>26.5</td>
<td>23</td>
<td>-27</td>
<td>-34</td>
<td>43</td>
<td>20</td>
<td>29.8%</td>
</tr>
<tr class="odd">
<td colspan="9">* Since Nov 1998, index is More +0.5 &#39;Probable&#39; or +0.5 &#39;same&#39; depending on category</td>
</tr>
</tbody>
</table>
</body>
</html>

Italys consumer confidence fell off after peaking in February 2002. It bottomed in May 2004 and has been on a moderate rising trend ever since. But since March of 2007 a new down trend has developed. The new weakness in Italys [...]

ISAE Consumer Confidence in Italy

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070621f.jpg" width="353">
With new figures on retail sales for France and Italy we have a better idea of emerging sales in the Euro area for Q2 2007. With one month&#146;s data fully out the overall retail volume trend is advancing, even if it is weaker year-over-year. Euro area retail sales are up at a 3.4% pace annualized in the current quarter-to-date period (April/Q1). That&#146;s a bit slower than the three-month annualized pace of 4.4%, but much faster than the Yr/Yr pace of 1.6% (2.4% for nonfood). France reported consumer spending for manufactured goods for May today and those figures (nominal) showed a drop for the second month in a row. Italy&#146;s sales figures just announced for April (nominal) continue to show a picture of a struggling consumer. Italy&#146;s nominal spending shows a drop in the current month. 
While far from weak, the EMU trends are showing some softness as the second quarter gets underway. Manufacturing stats have also showed some off peak performance recently although the new NTC services indicators (PMIs) showed a rebound in today&#146;s release. It is reasonable to question whether manufacturing and some of the foreign orders data are picking up signs of weakness relating to the strong euro. Are services doing relatively better because that sector is more insulated from trade impacts? Certainly EMU exports to the US have dropped off sharply this year. There may be something to the idea that the strong euro is finally taking some toll and consumers can feel it even though the service sector is not yet showing it. Consumer spending patterns do seem to be a bit more erratic &#150; except, of course, in the UK where the MPC is at odds with itself over whether to hike rates again or not. 
Germany&#146;s retail trends are still a bit hard to untangle due to the VAT hike that disrupted late 2006 and early 2007 spending. The UK is showing a strong trend in spending and so is France, but the French trend may be in jeopardy due to the slide in spending on manufactured goods by consumers. 
The category data for the Euro area is a bit uneven in terms of its timeliness. But we can see that through April the 3-month trends are on an upswing for the total and for the total excluding food. Through March (the shaded area of the table) a slowing in the most recent period is indicated for a broad class of consumer goods, at least in the recent three month period. 
The country-level data are quite strong, at least for the large EMU/EU countries. So far it is hard to build a case for encroaching weakness but some signs that growth may be topping permeate the various reports. It&#146;s a good time to watch these reports very closely and to pay attention to revisions.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
 Euro area 13 Retail Sales Volume
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td> Apr-07</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>3-Month</td>
<td>6-Month</td>
<td>12-Month</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro area 13 Total</td>
<td>0.1%</td>
<td>0.5%</td>
<td>0.5%</td>
<td>4.4%</td>
<td>1.8%</td>
<td>1.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food</td>
<td>0.4%</td>
<td>0.4%</td>
<td>0.3%</td>
<td>4.5%</td>
<td>1.8%</td>
<td>0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nonfood</td>
<td>0.0%</td>
<td>0.5%</td>
<td>0.8%</td>
<td>5.0%</td>
<td>2.1%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Textiles</td>
<td>#N/A</td>
<td>0.2%</td>
<td>1.2%</td>
<td>2.4%</td>
<td>7.6%</td>
<td>6.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">HH goods</td>
<td>#N/A</td>
<td>1.1%</td>
<td>0.4%</td>
<td>-5.1%</td>
<td>2.8%</td>
<td>5.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Books news</td>
<td>#N/A</td>
<td>0.9%</td>
<td>0.3%</td>
<td>1.1%</td>
<td>2.4%</td>
<td>2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Pharmaceutical</td>
<td>#N/A</td>
<td>0.4%</td>
<td>0.5%</td>
<td>1.3%</td>
<td>3.7%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Other Nonspecialized</td>
<td>-0.4%</td>
<td>0.8%</td>
<td>1.2%</td>
<td>0.0%</td>
<td>1.2%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Mail Order</td>
<td>1.4%</td>
<td>-1.8%</td>
<td>3.0%</td>
<td>-17.5%</td>
<td>2.2%</td>
<td>-0.2%</td>
</tr>
<tr>
<td colspan="7"> Nonfood Country detail: Volume</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>2.1%</td>
<td>0.0%</td>
<td>3.5%</td>
<td>24.9%</td>
<td>0.8%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>0.7%</td>
<td>0.8%</td>
<td>0.3%</td>
<td>7.4%</td>
<td>6.6%</td>
<td>5.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy (Total Value)</td>
<td>#N/A</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>-0.4%</td>
<td>-0.5%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK (EU)</td>
<td>-0.1%</td>
<td>0.7%</td>
<td>1.7%</td>
<td>9.8%</td>
<td>6.7%</td>
<td>5.9%</td>
</tr>
<tr class="odd">
<td colspan="7">Shaded areas calculated on a one-month lag due to lagging data.</td>
</tr>
<tr class="odd">
<td colspan="7">The Euro area 13 countries are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Slovenia and Spain.</td>
</tr>
</tbody>
</table>
</body>
</html>

With new figures on retail sales for France and Italy we have a better idea of emerging sales in the Euro area for Q2 2007. With one months data fully out the overall retail volume trend is advancing, even if it is weaker year-over- [...]

European Retail Sales

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070621a.jpg" width="353">
Initial unemployment insurance claims moved higher last week by 10,000 to 324,000 after increases of 2,000 and 3,000 during the prior two weeks. 
During the last ten years there has been a (negative) 77% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The latest weekly figure covers the survey period for June payroll employment and claims rose 28,000 (9.5%) from the May survey period.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070621b.jpg" width="353">
The four-week moving average of initial claims rose slightly to 314,500 (1.0% y/y).
Continuing claims for unemployment insurance increased 39,000 following a 46,000 decline during the week prior.
The insured rate of unemployment remained at 1.9%, about where it&#39;s beensince February.
What Do Worker Flows Tell Us About Cyclical Fluctuations in Employment? from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/files/br/2007/q2/fujita_worker-flows.pdf">here</a>. 

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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">06/16/07</th>
<th scope="col">06/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>324</td>
<td>314</td>
<td>3.8%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,523</td>
<td>3.4%</td>
<td>2,459</td>
<td>2,662</td>
<td>2,924</td>
</tr>
</tbody>
</table>
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Initial unemployment insurance claims moved higher last week by 10,000 to 324,000 after increases of 2,000 and 3,000 during the prior two weeks. During the last ten years there has been a (negative) 77% correlation between the level [...]

Initial Claims for Unemployment Insurance Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070620a.jpg" width="353">
Several European countries today reported their PPI data for May. After considerable upward pressure during 2005 and 2006, Germany has experienced some relief that began last autumn. For May, the total PPI was up 0.3%, following just 0.1% in April and the index stands 1.9% above a year ago.
Estonia and Slovenia, by contrast, are presently seeing greater wholesale price pressure than previously. Estonia&#39;s overall index was up 0.5% in May and is ahead of May 2006 by 8.7%. In Slovenia, it&#39;s a little better, with 0.4% in May and 5.1% over the year ago.
Energy, as elsewhere, makes a difference in all three countries. Germany&#39;s energy costs rose dramatically from mid-2004 through summer of 2006, erratically, to be sure, but with a strong trend. Then, inflation in that sector slowed notably in the autumn and continued easing, so that now, the status of energy costs shows them modestly below year-ago levels. Other prices have firmed somewhat since 2004. This may be related to higher energy costs, but probably also to higher prices for other raw materials, especially metals.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070620b.jpg" width="353">
The pattern in Estonia and Slovenia is different. It appears that in those regions, energy prices were restrained initially. In fact, in Estonia, they were cut in early 2005. Now, however, at least some of the higher world cost of energy is making its way into manufacturers&#39; prices. So producer prices overall just began to reflect this in early 2006 and, with the added push of other raw materials, they continue to accelerate now.
In Slovenia, prices in energy-related industries were raised in early 2004, then held back until this year. They jumped 12.5% this February and have crept somewhat higher since then. Some of this movement is apparently generated by utilities, an area where prices are often administered, which would account for the lurches in its path.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070620c.jpg" width="353">
So we see that even if the full impact of higher energy costs is postponed, it eventually must hit, contributing to increases in overall price measures. At the same time, we continue to see only limited evidence that non-energy prices have been impacted. They are probably as susceptible to moves in industrial commodity prices as to those in energy goods and services; this would be a good empirical question for some interested econometrician.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Producer Price Indexes</th>
<th scope="col">May 2007*</th>
<th scope="col">Apr 2007*</th>
<th scope="col">Mar 2007*</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>0.3</td>
<td>0.1</td>
<td>0.2</td>
<td>1.9</td>
<td>5.5</td>
<td>4.6</td>
<td>1.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ex Energy</td>
<td>0.2</td>
<td>0.4</td>
<td>0.1</td>
<td>2.7</td>
<td>2.3</td>
<td>2.0</td>
<td>1.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy (NSA)</td>
<td>0.7</td>
<td>-0.8</td>
<td>0.4</td>
<td>-0.3</td>
<td>16.0</td>
<td>14.0</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Estonia</td>
<td>0.5</td>
<td>1.5</td>
<td>0.6</td>
<td>8.7</td>
<td>4.5</td>
<td>2.1</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy</td>
<td>0.6</td>
<td>0.3</td>
<td>0.5</td>
<td>6.9</td>
<td>1.9</td>
<td>-1.5</td>
<td>3.5</td>
</tr>
<tr>
<td class="firstcol">Slovenia</td>
<td>0.4</td>
<td>0.0</td>
<td>0.5</td>
<td>5.1</td>
<td>2.3</td>
<td>2.7</td>
<td>4.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Energy-related</td>
<td>0.3</td>
<td>0.8</td>
<td>1.2</td>
<td>11.3</td>
<td>2.8</td>
<td>1.5</td>
<td>6.2</td>
</tr>
</tbody>
</table>
</body>
</html>

Several European countries today reported their PPI data for May. After considerable upward pressure during 2005 and 2006, Germany has experienced some relief that began last autumn. For May, the total PPI was up 0.3%, following just [...]

European PPIs: Energy Hits Early in Germany and Relief Is Already Evident; Estonia and Slovenia Postpone Impact, [...]

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.

260205Z2.jpg

**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.

260205Z4.jpg

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

260205Z5.jpg

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

260205Z6.jpg

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

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

260206E.jpg

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

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

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

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

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

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

260206.jpg

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

260205X15.jpg

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

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

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

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

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

260205C15.jpg

260205D15.jpg

- 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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260205B2.jpg

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

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

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

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

260205C2.jpg

260205D2.jpg

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

U.S. Initial Unemployment Claims Surged in Latest Week

260205E.jpg

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

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

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

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

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

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

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

Economy in Brief: 2007

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U.S. Leading Economic Indicators Up for Second Time This Year

UK, Euro-Zone Industrial Surveys Show Improvement in June

Philadelphia Fed Index Highest Since Early 2005

ISAE Consumer Confidence in Italy

European Retail Sales

Initial Claims for Unemployment Insurance Higher

Initial Claims for Unemployment Insurance Higher

European PPIs: Energy Hits Early in Germany and Relief Is Already Evident; Estonia and Slovenia Postpone Impact, [...]