Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070608a.jpg" width="353">
Lest the headline give you any misinformation let me point out that the US trade deficit is a nominal phenomenon and nominal exports did also outpace nominal imports. That is a necessary but not a sufficient condition to shrink the overall trade deficit in the US. Exports rose by 0.2% in April as imports sank by 1.9% as the bulk of the drop was outside of the petroleum complex of goods. 
Dropping imports is not a good sign for growth since imports tend to grow/shrink at twice the pace of GDP growth. Still imports also contain goods destined for inventories since so many consumer goods are imports and this may be a sign that the inventory cycle has not yet kicked up. That could mean that as of April inventories are still in a corrective phase and that they will not add to GDP or, not add much to 2007Q2 GDP. 
At 2% real import growth suggests GDP growth of 1% or less &#150; but the new quarter is young. 
Exports are less than 60% the size of imports (inverse ratio is nearly 1.75). That means that exports must grow by 1.75 times faster than nominal imports just to keep the nominal trade deficit from getting larger. While real exports are outpacing real imports and will augment REAL GDP the condition necessary for the nominal deficit to contract is a bit stronger: exports must grow by 1.75 times faster than imports. And over the past year or so that condition has been fulfilled. The deficit over the last 12 months has averaged -$61.81 while the deficit in April is a smaller -$58.50. The slowdown in US GDP has imparted a slowing to imports as import growth diminished to 4.8% Y/Y while exports grew by 10.7% Yr/Yr. However, recently exports have slowed and nonpetroleum imports have slowed as well (see table below). 
US trade trends are complex but telling. OPEC&#146;s own imports have slowed recently as oil prices had hit a plateau then fallen. But more recently yet, oil prices are on the rise and with it so will OPEC imports pick up again. This should mean that US exports to OPEC that had slowed will pick up as well even as higher oil prices bloat the US import total. 
US exports to China have slowed marked in early 2007 (no exhibit). In April Yr/Yr US exports to China ranked seventh out of nine since 1999. The Y/Y growth of exports to China is down to 12% in April after growing by 25% or more in each of the previous four 12-month periods ending in April. Earlier, US export figures for Jan-March show the same sort of gap with earlier years, except that Jan-March trade flows were very weak in comparison with this year as short a period ago as 2005. Early year weakness does not doom the trend for the year necessarily. But the weakness is a bit disconcerting and there is no guarantee of a reversal - still I think there is a likelihood that these exports to China will revive. 
China has been trying to slow but without much success. Rather than taking weak US exports to China as evidence of China slowing, it may be evidence of US slowing since there is also a good deal of round trip value-added trading between China and the US. Yr/Y US imports from China dropped to their lowest growth rate in NINE years in April at 2.7% Y/Y. <a name="1"></a> 
New trends show that: Technology exports and imports have slowed. Also oil prices at the time of import are now nearly the same as they have averaged over the past year: $57.29/bbl now compared to an average of $57.70/bbl. 
On the good news front: US exports to Japan received a boost in April. Their Yr/Yr growth rate ran up to 16.5% in April from 6.2% in March. A part of this is the favorable year ago comparison, however, as US exports to Japan fell by 2.6% Y/Y in April of 2006. Even so, US exports to Japan show more resilience even if they are at a lower growth rate that US exports to China or to the Asia NICs where Yr/Yr the growth rate of US export flows is dropping sharply. 
On balance there has been a slowing in US trade flows as the US economy has slowed. For a while it looked as though trade was confirming the domestic slowdown signals and that such signals could accumulate and become worrisome. But US employment growth has picked up and the inventory cycle seems to be winding itself down and in that context these slowing flows may simply be the lagged effects of that slowdown that seems to be transitioning into growth. Trade flows do lag. But we must remember that as much as US imports are tied to US growth, so US growth is still an important stimulant for global growth. The US and its hated deficit has been an engine of growth for the rest of the world; that role was reduced in the past year when the nominal US deficit actually shrank and that may have contributed to slower global growth. 
The OECD leading indicators (released today) show that growth in the US is on an upswing and points to still solid trends in China (albeit through March not April). Germany, Italy and Japan are flagged as slowing in the OECD framework though US exports to Japan seem to be a reason to cast some of those fears aside there. 
Trade, after having taken a big bite out of Q1 GDP seems to have become a mild positive for the US economy. Of course, a good deal of the reason for trade&#146;s more moderate role has been the slowing in US growth itself. Trade is one of the automatic stabilizers you may recall from your econ 101 studies. As the economy picks up trade will likely become more of a negative again, although probably by less than before because the US growth potential now seems lower. That will make imports slower and reduce their &#145;feedback&#146; drag on growth. The outlook for US exports, is, however, still questionable. There are again some scattered signs of slowing in Europe but mostly from Germany and they are new, scattered, and not pronounced, so far. Our best guess is that trade&#146;s drag is not going to be reduced and that If European growth lives up to its forecasts trade could continue to be a positive for growth in the US. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
US Merchandise and Services Trade
</tr>
</thead>
<tbody>
<tr class="grey6">
<td class="firstcol">Category</td>
<td>Current</td>
<td>Previous</td>
<td colspan="3">$SA % SAAR/Average</td>
</tr>
<tr class="grey6">
<td class="firstcol">&nbsp;</td>
<td colspan="2">% M/M: Current &amp; Prev</td>
<td colspan="3"></td>
</tr>
<tr class="grey5">
<td class="firstcol">Apr.07</td>
<td>M:$Bil/%</td>
<td>M:$Bil/%</td>
<td>3-MO</td>
<td>6-MO</td>
<td>Yr/Yr</td>
</tr>
<tr class="grey4">
<td class="firstcol">Goods &amp; Services Balance</td>
<td>-$58.50</td>
<td>-$62.39</td>
<td>-$59.49</td>
<td>-$59.01</td>
<td>-$61.81</td>
</tr>
<tr class="grey4">
<td class="firstcol">Goods Balance</td>
<td>-$67.08</td>
<td>-$70.74</td>
<td>-$67.77</td>
<td>-$67.13</td>
<td>-$69.16</td>
</tr>
<tr class="grey3">
<td class="firstcol">Exports (G&amp;S)</td>
<td>0.2%</td>
<td>2.6%</td>
<td>5.5%</td>
<td>8.0%</td>
<td>10.9%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Merchandise</td>
<td>0.1%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>6.7%</td>
<td>10.7%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Services</td>
<td>0.5%</td>
<td>2.2%</td>
<td>12.3%</td>
<td>11.1%</td>
<td>11.5%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Imports (G&amp;S)</td>
<td>-1.9%</td>
<td>4.4%</td>
<td>7.6%</td>
<td>5.8%</td>
<td>5.0%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Merchandise</td>
<td>-2.2%</td>
<td>5.0%</td>
<td>8.2%</td>
<td>5.9%</td>
<td>4.8%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Non-Petrol</td>
<td>-2.4%</td>
<td>2.2%</td>
<td>7.4%</td>
<td>1.3%</td>
<td>4.5%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Petrol &amp; Product</td>
<td>-0.2%</td>
<td>18.4%</td>
<td>1.6%</td>
<td>29.9%</td>
<td>4.0%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Services</td>
<td>-0.1%</td>
<td>1.3%</td>
<td>4.7%</td>
<td>5.0%</td>
<td>5.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Technology Trade</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey4">
<td class="firstcol">Tech Exports</td>
<td>-14.7%</td>
<td>24.6%</td>
<td>-4.0%</td>
<td>-14.4%</td>
<td>4.2%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Tech Imports</td>
<td>-6.4%</td>
<td>14.9%</td>
<td>-2.5%</td>
<td>-13.4%</td>
<td>17.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Crude Oil</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey4">
<td class="firstcol">MBD (Volume):Mb/d</td>
<td>10.16</td>
<td>10.46</td>
<td>9.88</td>
<td>9.90</td>
<td>10.22</td>
</tr>
<tr class="grey4">
<td class="firstcol">$/BBL</td>
<td>$57.28</td>
<td>$53.00</td>
<td>$53.66</td>
<td>$53.21</td>
<td>$57.70</td>
</tr>
<tr class="grey2">
<td class="firstcol">Non Petroleum trade</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey4">
<td class="firstcol">Exports</td>
<td>-0.1%</td>
<td>3.1%</td>
<td>3.0%</td>
<td>7.9%</td>
<td>11.5%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Imports</td>
<td>-2.4%</td>
<td>2.2%</td>
<td>7.4%</td>
<td>1.3%</td>
<td>4.5%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Balance</td>
<td>-$42.29</td>
<td>-$45.51</td>
<td>-$44.38</td>
<td>-$43.96</td>
<td>-$44.82</td>
</tr>
<tr class="grey1">
<td colspan="6">Real Exports and Imports: Non-Petroleum trade</td>
</tr>
<tr class="grey4">
<td class="firstcol">Real Non Oil Exports</td>
<td>-0.3%</td>
<td>3.6%</td>
<td>1.2%</td>
<td>3.6%</td>
<td>7.3%</td>
</tr>
<tr class="grey4">
<td class="firstcol">Real Non Oil Imports</td>
<td>-2.6%</td>
<td>2.1%</td>
<td>6.2%</td>
<td>-1.7%</td>
<td>1.8%</td>
</tr>
<tr class="grey4">
<td colspan="6">Balances are in Bil averages for period: Others % annualized except monthly</td>
</tr>
</tbody>
</table>
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Lest the headline give you any misinformation let me point out that the US trade deficit is a nominal phenomenon and nominal exports did also outpace nominal imports. That is a necessary but not a sufficient condition to shrink the [...]

U.S. Trade Deficit Shrinks Real Exports Outpace Real Imports

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/070607e.jpg" width="353">
As prices are sustained at stratospheric levels, we&#39;re all learning the mechanics of gasoline production. Special conditions that matter little at $1.00/gallon become significantly more important at $3.00. It&#39;s also hard to know what represents ordinary supply-demand movement and what is a &quot;special condition&quot;.
The Energy Information Administration of the Department of Energy (EIA) publishes its weekly petroleum situation every Wednesday, with gasoline prices measured through the Monday just before and other data taken as of the previous Friday. In this week&#39;s report, released yesterday morning, the national average retail price of &quot;regular grade&quot; gasoline fell -- that&#39;s &quot;fell&quot; -- in the week to June 4 by 5.2 cents to $3.157/gallon. The prior week, which included the Memorial Day weekend, saw a minuscule 0.9-cents decline. Small though this was, it is notable that the price did not rise further despite the holiday weekend driving.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607b.jpg" width="353">
We last checked in with the energy markets three weeks ago, and we highlighted the light inventory situation for gasoline, unusual for the post-winter season, which has pushed gasoline prices to record highs. We attributed this to demand conditions that weren&#39;t nearly as weak this winter as has traditionally been the case. It&#39;s also evident from the second graph that even as demand for gasoline has grown, refiners have not been able to keep up. We show refining capacity utilization and we&#39;ve drawn a line at 90%. Almost continuously since the middle of 1993, utilization has been well above this reference line. If we graph the variable with bars, they point up and down around the &quot;horizontal reference&quot;. We see easily then that Hurricanes Katrina and Rita hurt refiners badly, and it&#39;s clear that refinery utilization rates have remained well below our reference point even as they have increased somewhat over the last few weeks. Thus, refining has not recovered from those big 2005 storms, leaving the industry -- and prices -- more vulnerable to ordinary operating outages.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607d.jpg" width="353">
Another quirk in these data concerns the relationship between prices of various crudes, especially the US base, West Texas Intermediate (WTI) as delivered at Cushing, Oklahoma. As the EIA explain in <a href="http://tonto.eia.doe.gov/oog/info/twip/twiparch/070502/twipprint.html">This Week in Petroleum</a> for May 2, conditions regarding the oil itself and also the operation of the Cushing Hub have depressed the price of WTI relative to other oils. In the third graph, WTI is seen to be lower over the last 3 months or so than Brent and Indonesian oil, which are both &quot;heavier&quot; and should have lower prices than WTI. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607c.jpg" width="353">So when the price of gasoline has risen more than proportionately to the crude oil we&#39;re most familiar with, it may not be so much that refiners are trying to gouge their customers. In fact, the &quot;crack spread&quot; for Brent crude, while still high by past comparisons, has come down markedly from its recent levels. A similar measure for WTI fell last week, but it remains about $5 more per barrel than Brent, when the usual condition has been for the WTI crack spread to be marginally less than the Brent spread (since the crude is usually more expensive to begin with). As we noted at the beginning of this commentary, it makes one wonder if this mismatch of WTI and Brent (and other crude oils) is a &quot;special condition&quot; to be discounted as temporary, or is it a characteristic of the increasing supply/demand strains in the world energy market and in the US in particular? In that event, both energy suppliers and users would want factor the new relationships into their operating strategies.
The data here on prices and US inventories are in the OILWKLY database. Haver Analytics analysts perform seasonal adjustment on some demand and supply series; these are maintained in our WEEKLY database. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Select Oil Market Indicators</th>
<th scope="col">June 4</th>
<th scope="col">May 28</th>
<th scope="col">May 21</th>
<th scope="col">Month- Ago Week</th>
<th scope="col">Year-Ago Week</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Gasoline, US Regular Grade (cents/gal)</td>
<td>315.7</td>
<td>320.9</td>
<td>321.8</td>
<td>305.4</td>
<td>289.2</td>
<td>257.2</td>
<td>227.0</td>
</tr>
<tr>
<td class="firstcol">Crude Oil: West Texas Intermediate ($/barrel)</td>
<td>June 1</td>
<td>May 25</td>
<td>May 18</td>
<td>63.79</td>
<td>71.50</td>
<td>66.13</td>
<td>56.50</td>
</tr>
<tr class="odd">
<td class="firstcol">63.94</td>
<td>64.94</td>
<td>63.61</td>
</tr>
<tr>
<td class="firstcol"> UK Brent &nbsp;</td>
<td>68.91</td>
<td>70.32</td>
<td>66.92</td>
<td>66.92</td>
<td>69.43</td>
<td>65.19</td>
<td>54.58</td>
</tr>
<tr class="odd">
<td class="firstcol">Refinery Utilization (%)</td>
<td>89.63</td>
<td>91.08</td>
<td>91.10</td>
<td>89.03</td>
<td>90.97</td>
<td>89.36</td>
<td>90.35</td>
</tr>
<tr>
<td class="firstcol">Gasoline Stock: Days&#39; Supply</td>
<td>21.3</td>
<td>21.0</td>
<td>21.0</td>
<td>20.9</td>
<td>22.5</td>
<td>22.7</td>
<td>22.8</td>
</tr>
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As prices are sustained at stratospheric levels, we're all learning the mechanics of gasoline production. Special conditions that matter little at $1.00/gallon become significantly more important at $3.00. It's also hard to know what [...]

Slight Relief for Gasoline Prices as Inventories Loosen. But What Is Happening to West Texas Intermediate?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607a.jpg" width="353">
Wholesale inventory trends tell a very positive story. We take out the volatile and special readings from autos and petroleum to look at aggregated stocks and sales trends for all other wholesale classifications. Once done we obtain the chart plotted on the left that shows sales have speeded up as inventories have slowed. They have done that now for the second month in a row on six-month trends. Moreover, it shows that the ramping down in inventories has hit a low and apparent turning point in its decelerating rate of growth, yet another indication that the industry might be through its adjustment phase. 
The table below on inventories and sales behavior provides industry detail and time horizon cohorts for that detail. Over three months all main categories, save two, show that sales growth has surpassed inventory growth. The trend of sales (S) outstripping inventories (I) is widespread. Indeed, the two categories that have sales growth above inventory growth are not deficient in their rate of growth by much. Six-month horizons also are very solid. The S&gt;I growth trend seems pretty solid and well-established for now. 
Additionally the I/S ratios are in good shape. The overall ratio for all of wholesaling is at a new low dating back to 1998. Durables excluding autos are in their bottom 18 percentile and for nondurables excluding petroleum the ratio is in its bottom 10 percentile. 
Conclusion: Overall inventories are in good shape relative to sales. The recent growth rates of inventories relative to sales are settled into a good set of relationships as well. And best of all is the fact that sales growth is on an uptrend. The wholesale report is quite constructive and upbeat.

<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead>
<tr>
Inventories: Wholesaling
<th scope="col">I:S ratio</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">All growth rates annualized</td>
<td colspan="6">Inventory-&amp;-Sales Trends: Wholesalers</td>
<td>Percent of</td>
</tr>
<tr class="odd">
<td class="firstcol">2007.Apr</td>
<td colspan="2">3-mos</td>
<td colspan="2">6-mos</td>
<td colspan="2">12-mos</td>
<td>Range</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Sales</td>
<td>Inventories</td>
<td>Sales</td>
<td>Inventories</td>
<td>Sales</td>
<td>Inventories</td>
<td>1998-date</td>
</tr>
<tr>
<td class="firstcol">All Wholesaling</td>
<td>19.3%</td>
<td>4.3%</td>
<td>12.8%</td>
<td>4.6%</td>
<td>8.8%</td>
<td>7.1%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Durables</td>
<td>9.2%</td>
<td>-1.7%</td>
<td>7.2%</td>
<td>0.4%</td>
<td>7.8%</td>
<td>5.2%</td>
<td>7.8%</td>
</tr>
<tr>
<td class="firstcol">Durables less autos</td>
<td>9.2%</td>
<td>2.2%</td>
<td>7.0%</td>
<td>3.0%</td>
<td>7.6%</td>
<td>7.8%</td>
<td>19.1%</td>
</tr>
<tr>
<td class="firstcol">Autos</td>
<td>9.4%</td>
<td>-21.0%</td>
<td>8.0%</td>
<td>-13.1%</td>
<td>8.7%</td>
<td>-7.6%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">Computers</td>
<td>3.6%</td>
<td>5.1%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>5.4%</td>
<td>10.6%</td>
<td>38.3%</td>
</tr>
<tr>
<td class="firstcol">Machinery</td>
<td>3.5%</td>
<td>-2.5%</td>
<td>8.4%</td>
<td>2.3%</td>
<td>5.7%</td>
<td>7.7%</td>
<td>33.0%</td>
</tr>
<tr>
<td class="firstcol">Other Durables</td>
<td>11.8%</td>
<td>4.2%</td>
<td>7.8%</td>
<td>3.5%</td>
<td>8.5%</td>
<td>7.6%</td>
<td>14.8%</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">Non-durables</td>
<td>29.9%</td>
<td>15.7%</td>
<td>18.6%</td>
<td>12.4%</td>
<td>9.7%</td>
<td>10.4%</td>
<td>5.2%</td>
</tr>
<tr>
<td class="firstcol">Non-durables less Petrol</td>
<td>17.0%</td>
<td>12.2%</td>
<td>12.3%</td>
<td>12.9%</td>
<td>9.8%</td>
<td>11.0%</td>
<td>9.6%</td>
</tr>
<tr>
<td class="firstcol">Petroleum</td>
<td>94.5%</td>
<td>58.5%</td>
<td>46.4%</td>
<td>8.2%</td>
<td>9.3%</td>
<td>4.7%</td>
<td>45.2%</td>
</tr>
<tr>
<td class="firstcol">Groceries</td>
<td>21.7%</td>
<td>23.4%</td>
<td>21.8%</td>
<td>20.7%</td>
<td>15.3%</td>
<td>17.1%</td>
<td>50.4%</td>
</tr>
<tr>
<td class="firstcol">Other Non-durables</td>
<td>15.0%</td>
<td>9.6%</td>
<td>8.5%</td>
<td>11.0%</td>
<td>7.7%</td>
<td>9.6%</td>
<td>11.3%</td>
</tr>
</tbody>
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Wholesale inventory trends tell a very positive story. We take out the volatile and special readings from autos and petroleum to look at aggregated stocks and sales trends for all other wholesale classifications. Once done we obtain [...]

U.S. Wholesale Inventories Signal Smoother Sailing

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607a.jpg" width="353">
Wholesale inventory trends tell a very positive story. We take out the volatile and special readings from autos and petroleum to look at aggregated stocks and sales trends for all other wholesale classifications. Once done we obtain the chart plotted on the left that shows sales have speeded up as inventories have slowed. They have done that now for the second month in a row on six-month trends. Moreover, it shows that the ramping down in inventories has hit a low and apparent turning point in its decelerating rate of growth, yet another indication that the industry might be through its adjustment phase. 
The table below on inventories and sales behavior provides industry detail and time horizon cohorts for that detail. Over three months all main categories, save two, show that sales growth has surpassed inventory growth. The trend of sales (S) outstripping inventories (I) is widespread. Indeed, the two categories that have sales growth above inventory growth are not deficient in their rate of growth by much. Six-month horizons also are very solid. The S&gt;I growth trend seems pretty solid and well-established for now. 
Additionally the I/S ratios are in good shape. The overall ratio for all of wholesaling is at a new low dating back to 1998. Durables excluding autos are in their bottom 18 percentile and for nondurables excluding petroleum the ratio is in its bottom 10 percentile. 
Conclusion: Overall inventories are in good shape relative to sales. The recent growth rates of inventories relative to sales are settled into a good set of relationships as well. And best of all is the fact that sales growth is on an uptrend. The wholesale report is quite constructive and upbeat.

<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead>
<tr>
Inventories: Wholesaling
<th scope="col">I:S ratio</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">All growth rates annualized</td>
<td colspan="6">Inventory-&amp;-Sales Trends: Wholesalers</td>
<td>Percent of</td>
</tr>
<tr class="odd">
<td class="firstcol">2007.Apr</td>
<td colspan="2">3-mos</td>
<td colspan="2">6-mos</td>
<td colspan="2">12-mos</td>
<td>Range</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Sales</td>
<td>Inventories</td>
<td>Sales</td>
<td>Inventories</td>
<td>Sales</td>
<td>Inventories</td>
<td>1998-date</td>
</tr>
<tr>
<td class="firstcol">All Wholesaling</td>
<td>19.3%</td>
<td>4.3%</td>
<td>12.8%</td>
<td>4.6%</td>
<td>8.8%</td>
<td>7.1%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Durables</td>
<td>9.2%</td>
<td>-1.7%</td>
<td>7.2%</td>
<td>0.4%</td>
<td>7.8%</td>
<td>5.2%</td>
<td>7.8%</td>
</tr>
<tr>
<td class="firstcol">Durables less autos</td>
<td>9.2%</td>
<td>2.2%</td>
<td>7.0%</td>
<td>3.0%</td>
<td>7.6%</td>
<td>7.8%</td>
<td>19.1%</td>
</tr>
<tr>
<td class="firstcol">Autos</td>
<td>9.4%</td>
<td>-21.0%</td>
<td>8.0%</td>
<td>-13.1%</td>
<td>8.7%</td>
<td>-7.6%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">Computers</td>
<td>3.6%</td>
<td>5.1%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>5.4%</td>
<td>10.6%</td>
<td>38.3%</td>
</tr>
<tr>
<td class="firstcol">Machinery</td>
<td>3.5%</td>
<td>-2.5%</td>
<td>8.4%</td>
<td>2.3%</td>
<td>5.7%</td>
<td>7.7%</td>
<td>33.0%</td>
</tr>
<tr>
<td class="firstcol">Other Durables</td>
<td>11.8%</td>
<td>4.2%</td>
<td>7.8%</td>
<td>3.5%</td>
<td>8.5%</td>
<td>7.6%</td>
<td>14.8%</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">Non-durables</td>
<td>29.9%</td>
<td>15.7%</td>
<td>18.6%</td>
<td>12.4%</td>
<td>9.7%</td>
<td>10.4%</td>
<td>5.2%</td>
</tr>
<tr>
<td class="firstcol">Non-durables less Petrol</td>
<td>17.0%</td>
<td>12.2%</td>
<td>12.3%</td>
<td>12.9%</td>
<td>9.8%</td>
<td>11.0%</td>
<td>9.6%</td>
</tr>
<tr>
<td class="firstcol">Petroleum</td>
<td>94.5%</td>
<td>58.5%</td>
<td>46.4%</td>
<td>8.2%</td>
<td>9.3%</td>
<td>4.7%</td>
<td>45.2%</td>
</tr>
<tr>
<td class="firstcol">Groceries</td>
<td>21.7%</td>
<td>23.4%</td>
<td>21.8%</td>
<td>20.7%</td>
<td>15.3%</td>
<td>17.1%</td>
<td>50.4%</td>
</tr>
<tr>
<td class="firstcol">Other Non-durables</td>
<td>15.0%</td>
<td>9.6%</td>
<td>8.5%</td>
<td>11.0%</td>
<td>7.7%</td>
<td>9.6%</td>
<td>11.3%</td>
</tr>
</tbody>
</table>
 Slight Relief for Gasoline Prices as Inventories Loosen. But What Is Happening to West Texas Intermediate? 
by <a href="/comment/Stone.html">Carol Stone</a> June 7, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607e.jpg" width="353">
As prices are sustained at stratospheric levels, we&#39;re all learning the mechanics of gasoline production. Special conditions that matter little at $1.00/gallon become significantly more important at $3.00. It&#39;s also hard to know what represents ordinary supply-demand movement and what is a &quot;special condition&quot;.
The Energy Information Administration of the Department of Energy (EIA) publishes its weekly petroleum situation every Wednesday, with gasoline prices measured through the Monday just before and other data taken as of the previous Friday. In this week&#39;s report, released yesterday morning, the national average retail price of &quot;regular grade&quot; gasoline fell -- that&#39;s &quot;fell&quot; -- in the week to June 4 by 5.2 cents to $3.157/gallon. The prior week, which included the Memorial Day weekend, saw a minuscule 0.9-cents decline. Small though this was, it is notable that the price did not rise further despite the holiday weekend driving.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607b.jpg" width="353">
We last checked in with the energy markets three weeks ago, and we highlighted the light inventory situation for gasoline, unusual for the post-winter season, which has pushed gasoline prices to record highs. We attributed this to demand conditions that weren&#39;t nearly as weak this winter as has traditionally been the case. It&#39;s also evident from the second graph that even as demand for gasoline has grown, refiners have not been able to keep up. We show refining capacity utilization and we&#39;ve drawn a line at 90%. Almost continuously since the middle of 1993, utilization has been well above this reference line. If we graph the variable with bars, they point up and down around the &quot;horizontal reference&quot;. We see easily then that Hurricanes Katrina and Rita hurt refiners badly, and it&#39;s clear that refinery utilization rates have remained well below our reference point even as they have increased somewhat over the last few weeks. Thus, refining has not recovered from those big 2005 storms, leaving the industry -- and prices -- more vulnerable to ordinary operating outages.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607d.jpg" width="353">
Another quirk in these data concerns the relationship between prices of various crudes, especially the US base, West Texas Intermediate (WTI) as delivered at Cushing, Oklahoma. As the EIA explain in <a href="http://tonto.eia.doe.gov/oog/info/twip/twiparch/070502/twipprint.html">This Week in Petroleum</a> for May 2, conditions regarding the oil itself and also the operation of the Cushing Hub have depressed the price of WTI relative to other oils. In the third graph, WTI is seen to be lower over the last 3 months or so than Brent and Indonesian oil, which are both &quot;heavier&quot; and should have lower prices than WTI. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070607c.jpg" width="353"> So when the price of gasoline has risen more than proportionately to the crude oil we&#39;re most familiar with, it may not be so much that refiners are trying to gouge their customers. In fact, the &quot;crack spread&quot; for Brent crude, while still high by past comparisons, has come down markedly from its recent levels. A similar measure for WTI fell last week, but it remains about $5 more per barrel than Brent, when the usual condition has been for the WTI crack spread to be marginally less than the Brent spread (since the crude is usually more expensive to begin with). As we noted at the beginning of this commentary, it makes one wonder if this mismatch of WTI and Brent (and other crude oils) is a &quot;special condition&quot; to be discounted as temporary, or is it a characteristic of the increasing supply/demand strains in the world energy market and in the US in particular? In that event, both energy suppliers and users would want factor the new relationships into their operating strategies.
The data here on prices and US inventories are in the OILWKLY database. Haver Analytics analysts perform seasonal adjustment on some demand and supply series; these are maintained in our WEEKLY database. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Select Oil Market Indicators</th>
<th scope="col">June 4</th>
<th scope="col">May 28</th>
<th scope="col">May 21</th>
<th scope="col">Month- Ago Week</th>
<th scope="col">Year-Ago Week</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Gasoline, US Regular Grade (cents/gal)</td>
<td>315.7</td>
<td>320.9</td>
<td>321.8</td>
<td>305.4</td>
<td>289.2</td>
<td>257.2</td>
<td>227.0</td>
</tr>
<tr>
<td class="firstcol">Crude Oil: West Texas Intermediate ($/barrel)</td>
<td>June 1</td>
<td>May 25</td>
<td>May 18</td>
<td>63.79</td>
<td>71.50</td>
<td>66.13</td>
<td>56.50</td>
</tr>
<tr class="odd">
<td class="firstcol">63.94</td>
<td>64.94</td>
<td>63.61</td>
</tr>
<tr>
<td class="firstcol"> UK Brent &nbsp;</td>
<td>68.91</td>
<td>70.32</td>
<td>66.92</td>
<td>66.92</td>
<td>69.43</td>
<td>65.19</td>
<td>54.58</td>
</tr>
<tr class="odd">
<td class="firstcol">Refinery Utilization (%)</td>
<td>89.63</td>
<td>91.08</td>
<td>91.10</td>
<td>89.03</td>
<td>90.97</td>
<td>89.36</td>
<td>90.35</td>
</tr>
<tr>
<td class="firstcol">Gasoline Stock: Days&#39; Supply</td>
<td>21.3</td>
<td>21.0</td>
<td>21.0</td>
<td>20.9</td>
<td>22.5</td>
<td>22.7</td>
<td>22.8</td>
</tr>
</tbody>
</table>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070606c.jpg" width="353">
Australian GDP grew 1.6% in Q1, up from 1.1% in Q4 and the strongest quarter since Q4 2003. This compared with 1.3% expected in one major forecast survey. Year-to-year growth was 4.0%. Data for Australia are contained in Haver&#39;s ANZ database and in G10+ as well as numerous international databases from the OECD, IMF and others.
The pick-up resulted from positive inputs in several demand areas. Private consumption was up 1.5% compared to 1.2% the quarter before. Exports expanded 1.4%, up from 1.0%, while growth in imports was lower, 2.1% from 6.5%. This latter, of course, helps raise the total growth rate since imports enter the GDP calculation negatively. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070606d.jpg" width="353">
Fixed capital formation grew nicely as well, although the Q1 rise of 2.0% was less than Q4&#39;s 2.6%. It is important to note here the impact of the privatization of the telephone and telecommunications utility in Australia, Telstra. The government sold this company to private owners in November and it enters the GDP accounts in the private investment category for the first time in this report. Thus, the 5.8% surge in private fixed investment and the 16.9% plunge in public investment exaggerate the underlying movements. The Australian Bureau of Statistics reports that private investment would still have looked pretty good, at 4.8% growth in Q1, if the telephone company had been in the private sector all during Q4 as well. Public investment would still have fallen in Q1, but by &quot;only&quot; 7.5%. These latter growth rates are recorded in a footnote in our ANZ menu.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070606c.jpg" width="353">
Interestingly, among the various industrial sectors, manufacturing output declined, despite the gain in overall GDP. Gross value added in manufacturing eased by 0.5%, although that did follow two very good quarters of 1.7% and 2.0%. Agricultural output also declined, but only 0.3% and far less than in the prior two quarters. So agriculture actually contributed to the increase in GDP growth by subtracting less. Construction activity gained 2.5%, a reputable figure, but less than Q4&#39;s 3.9%. The best performances came in retail trade, up 2.4%, and finance, up 2.3%, with both at least a percentage point stronger than the quarter before. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">AUSTRALIA, % Chg,&nbsp; Chn A$, Q3/2004-Q2/2005</th>
<th scope="col">Q1 2007*</th>
<th scope="col">Q4 2006*</th>
<th scope="col">Q3 2006*</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">Real GDP</td>
<td>1.6</td>
<td>1.1</td>
<td>0.5</td>
<td>4.0</td>
<td>2.7</td>
<td>2.7</td>
<td>3.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Private Consumption</td>
<td>1.5</td>
<td>1.2</td>
<td>0.7</td>
<td>4.2</td>
<td>3.1</td>
<td>3.0</td>
<td>5.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Gross Fixed Capital Formation</td>
<td>2.0</td>
<td>2.6</td>
<td>-0.5</td>
<td>5.8</td>
<td>6.3</td>
<td>7.8</td>
<td>7.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Private</td>
<td>5.8**</td>
<td>0.9</td>
<td>-1.5</td>
<td>7.1</td>
<td>5.4</td>
<td>7.6</td>
<td>7.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Public</td>
<td>-16.9**</td>
<td>-11.3</td>
<td>5.2</td>
<td>-2.1</td>
<td>11.9</td>
<td>8.7</td>
<td>9.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>1.4</td>
<td>1.0</td>
<td>0.2</td>
<td>4.6</td>
<td>3.4</td>
<td>2.4</td>
<td>4.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>2.1</td>
<td>6.5</td>
<td>-0.5</td>
<td>11.4</td>
<td>7.7</td>
<td>8.5</td>
<td>15.3</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">Manufacturing</td>
<td>-0.5</td>
<td>2.0</td>
<td>1.8</td>
<td>3.3</td>
<td>-1.3</td>
<td>0.2</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Finance &amp; Insurance</td>
<td>2.3</td>
<td>1.0</td>
<td>0.9</td>
<td>5.9</td>
<td>6.1</td>
<td>2.5</td>
<td>3.7</td>
</tr>
</tbody>
</table>
</body>
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Australian GDP grew 1.6% in Q1, up from 1.1% in Q4 and the strongest quarter since Q4 2003. This compared with 1.3% expected in one major forecast survey. Year-to-year growth was 4.0%. Data for Australia are contained in Haver's ANZ [...]

Australia GDP Up 1.6% in Q1; Best Quarter in 3 Years

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070606b.jpg" width="353">
The first issue to grapple with in trying to assess the Challenger report is that its data are not seasonally adjusted. At the same time it is clear that this series has seasonal patterns. To get around this we compare the data to the year before.. We also have created the accompanying chart that plots each month of the year in a non-binding tunnel bearing two values representing averages for each month drawn from the period of recession and depressed growth as well as from the pre-recession times when layoffs were much lower. We add, as another reference line to the chart, the midpoint between these two cases. The chart reveals that the 2007 figures were regularly at or below the midpoint line until May when the level of layoffs is higher relative to that standard. It may be that the economy is throwing off more layoffs in May than what is normal either because of calendar quirks or because of a real deterioration that is setting in.
But the chart, even though it uses NSA data, flags May 2007 as a month of backtracking on reducing layoffs. 
The comprehensive table below provides even more comparisons. May ranks as the fifth highest layoff total in the past 14 years. April was also the fifth highest layoff month. March had ranked 9th and layoffs appeared as if they were diminishing. The three-month average ranks sixth over these same 14 years. The six-month average ranks eighth. The 12-month is displayed in the table and as of May that ranks 8th. So the ranking has been creeping up as we shorten the length to measure the moving average or to look at the month directly. The improving trend is not so clear any more, indeed it appears to have switched to one of deterioration. We can see that there has been some slippage compared to historic standards; standards that are free from the effects of seasonality. 
A slight bump up in the layoff pace is not an unequivocal message. 
But the steadiness of the slippage of the rankings on shorted moving averages is indicative of a true deterioration. A pick up in layoffs need not be a sign of economic weakness, however. At the moment both jobless claims and nonfarm job growth are indicating that the job market is solid &#150; as is the 4.5% rate of unemployment. Layoffs are another way to supply labor to an already tight labor market. We know that manufacturing firms continue to shed employees and have been doing so for decades. With the pick up in M&amp;A activity it is no surprise that layoffs step-up since that is one common result of mergers and their drive for greater efficiency. 
The gradual up turn in layoffs is a trend to be aware of, but is not yet a clear signal for policy. It may be constructive or it may be a sign of true erosion and of encroaching weakness. It bears watching.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
Summary Of Announced Corporate Layoffs
<th scope="col">Rank of</th>
<th scope="col">&quot;13-Yr&quot;</th>
</tr>
</thead>
<tbody>
<tr class="grey8">
<td colspan="4">Challenger, Gray and Christmas:</td>
<td>3-Mo Avg</td>
<td>6-Mo Avg</td>
<td>12-Mo Avg</td>
<td>12-Mo</td>
<td>Rank Of</td>
</tr>
<tr class="grey7">
<td class="firstcol">&nbsp;</td>
<td>May</td>
<td>Apr</td>
<td>Mar</td>
<td>May</td>
<td>May</td>
<td>May</td>
<td>Average</td>
<td>May</td>
</tr>
<tr class="grey6">
<td class="firstcol">Announced Layoffs: 2007</td>
<td>71,115</td>
<td>70,672</td>
<td>48,997</td>
<td>63,595</td>
<td>65,736</td>
<td>67,523</td>
<td>8</td>
<td>5</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo. Year ago (2006):</td>
<td>53,716</td>
<td>59,688</td>
<td>64,975</td>
<td>59,460</td>
<td>79,514</td>
<td>84,503</td>
<td>6</td>
<td>9</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo. Year ago (2005):</td>
<td>82,283</td>
<td>57,861</td>
<td>86,396</td>
<td>75,513</td>
<td>89,387</td>
<td>88,218</td>
<td>5</td>
<td>2</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo. 2-Years ago (2004):</td>
<td>73,368</td>
<td>72,184</td>
<td>68,034</td>
<td>71,195</td>
<td>83,569</td>
<td>89,500</td>
<td>4</td>
<td>4</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo. 3-Years ago (2003):</td>
<td>68,623</td>
<td>146,399</td>
<td>85,396</td>
<td>100,139</td>
<td>110,622</td>
<td>113,426</td>
<td>2</td>
<td>6</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo .4-Years ago (2002):</td>
<td>84,978</td>
<td>112,649</td>
<td>102,315</td>
<td>99,981</td>
<td>139,686</td>
<td>154,906</td>
<td>1</td>
<td>1</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo.5-years ago (2001):</td>
<td>80,140</td>
<td>165,564</td>
<td>162,867</td>
<td>136,190</td>
<td>131,037</td>
<td>74,439</td>
<td>7</td>
<td>3</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo.6-years ago (2000):</td>
<td>27,036</td>
<td>37,291</td>
<td>55,783</td>
<td>40,037</td>
<td>41,644</td>
<td>103,205</td>
<td>3</td>
<td>12</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo.7-years ago (1999):</td>
<td>55,231</td>
<td>54,399</td>
<td>68,984</td>
<td>59,538</td>
<td>70,553</td>
<td>65,201</td>
<td>9</td>
<td>8</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo.8-years ago (1998):</td>
<td>27,631</td>
<td>48,758</td>
<td>23,028</td>
<td>33,139</td>
<td>45,637</td>
<td>39,950</td>
<td>11</td>
<td>11</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo.9-years ago (1997):</td>
<td>21,004</td>
<td>15,214</td>
<td>50,182</td>
<td>28,800</td>
<td>34,646</td>
<td>31,851</td>
<td>13</td>
<td>13</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo.10-years ago (1996):</td>
<td>30,845</td>
<td>30,810</td>
<td>37,486</td>
<td>33,047</td>
<td>47,598</td>
<td>41,526</td>
<td>10</td>
<td>10</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo.11-years ago (1995):</td>
<td>58,530</td>
<td>15,678</td>
<td>27,809</td>
<td>34,006</td>
<td>33,240</td>
<td>35,253</td>
<td>12</td>
<td>7</td>
</tr>
<tr class="grey4">
<td class="firstcol">Comparative Data</td>
<td>May</td>
<td>Apr</td>
<td>Mar</td>
<td colspan="3">Values for previous months</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">Recession &amp; Post Recession</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Month of</td>
<td>May</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp; Median (3-Yrs)</td>
<td>80,140</td>
<td>146,399</td>
<td>102,315</td>
<td>100,139</td>
<td>131,037</td>
<td>113,426</td>
<td>tends to be</td>
<td>lower than</td>
</tr>
<tr class="grey2">
<td class="firstcol">Pre-Recession (1995-2000)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>Apr</td>
<td>60.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Median (6-Yrs)</td>
<td>29,238</td>
<td>83,524</td>
<td>77,190</td>
<td>79,759</td>
<td>90,588</td>
<td>88,822</td>
<td>of the</td>
<td>time</td>
</tr>
<tr class="grey1">
<td class="firstcol">MIDPOINT-Median</td>
<td>54,689</td>
<td>114,962</td>
<td>89,753</td>
<td>89,949</td>
<td>110,812</td>
<td>101,124</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey1">
<td class="firstcol">% of Pre &amp; Post Gap</td>
<td>82.3%</td>
<td>-20.4%</td>
<td>-112.2%</td>
<td>-79.3%</td>
<td>-61.4%</td>
<td>-86.6%</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body>
</html>

The first issue to grapple with in trying to assess the Challenger report is that its data are not seasonally adjusted. At the same time it is clear that this series has seasonal patterns. To get around this we compare the data to the [...]

Challenger Lay Offs Stay Elevated

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.

260205Z1.jpg

**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

260205Y15.jpg

**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

260205A2.jpg

260205B2.jpg

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

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

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

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

260205C2.jpg

260205D2.jpg

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

U.S. Initial Unemployment Claims Surged in Latest Week

260205E.jpg

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

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

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

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

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

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

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

Economy in Brief: 2007

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