Tom Moeller

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The U.S. current account deficit rose to $124.1 billion
during Q1 2018 from $116.1 billion in Q4 2017. It was the largest deficit since
Q4 2008. The Q1 deficit compared to $129.0 billion expected in the Action
Economics Forecast Survey. As a percent of GDP, the deficit grew to 2.5%. During
all of last year, the current account deficit deepened to $449.1 billion, the
largest since 2008. Data back to 2013 were revised.

The larger deficit last quarter was due to a deeper $220.5
billion shortfall on goods trade. A 2.4% increase in goods exports was slower
than a 2.9% rise in imports. During the last four quarters, goods exports rose
7.9%. Imports rose 9.1% y/y, the largest increase since 2011.

The surplus on services trade increased slightly to $64.9
billion, but that remained smaller than the Q1'15 peak of $67.6 billion in Q1
2015. Services exports rose 1.9% while services imports gained 2.5%. During the
last four quarters, services exports increased 6.5%. Exports of intellectual
property rights rose 7.2% y/y while travel exports increased 3.6% y/y. Services
imports gained 8.5% y/y. Charges for intellectual property increased 27.2% y/y
and travel imports rose 8.7%.

The surplus on primary income was fairly steady at the record
$62.0 billion The deficit on secondary income also was steady at $30.5 billion.

Balance of Payments data are in Haver's USINT
database, with summaries available in USECON. The expectations figure is
in the AS1REPNA database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >US Balance of Payments
 SA</th>
 <th scope="col" >Q1'18</th>
 <th scope="col" >Q4'17</th>
 <th scope="col" >Q3'17</th>
 <th scope="col" >Q4'16</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Current Account Balance ($ Billion)</td>
 <td >-124.1</td>
 <td >-116.1</td>
 <td >-103.4</td>
 <td >-107.7</td>
 <td >-449.1</td>
 <td >-432.9</td>
 <td >-407.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Deficit % of GDP</td>
 <td >-2.5</td>
 <td >-2.4</td>
 <td >-2.1</td>
 <td >-2.3</td>
 <td >-2.3</td>
 <td >-2.3</td>
 <td >-2.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Balance on Goods ($ Billion)</td>
 <td >-220.5</td>
 <td >-212.4</td>
 <td >-196.8</td>
 <td >-198.3</td>
 <td >-807.5</td>
 <td >-751.1</td>
 <td >-761.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Exports</td>
 <td >2.4%</td>
 <td >3.6%</td>
 <td >1.4%</td>
 <td >2.7%</td>
 <td >6.6%</td>
 <td >-3.6%</td>
 <td >-7.6%</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Imports</td>
 <td >2.9%</td>
 <td >5.1%</td>
 <td >0.4%</td>
 <td >2.5%</td>
 <td >6.9%</td>
 <td >-1.9%</td>
 <td >-4.7%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Balance on Services ($ Billion)</td>
 <td >64.9</td>
 <td >64.6</td>
 <td >64.0</td>
 <td >63.4</td>
 <td >255.2</td>
 <td >249.1</td>
 <td >263.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Exports</td>
 <td >1.9%</td>
 <td >1.3%</td>
 <td >2.0%</td>
 <td >2.1%</td>
 <td >5.1%</td>
 <td >0.5%</td>
 <td >1.9%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Imports</td>
 <td >2.5%</td>
 <td >1.6%</td>
 <td >2.4%</td>
 <td >1.4%</td>
 <td >6.4%</td>
 <td >3.6%</td>
 <td >2.3%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Balance on Primary Income ($
 Billion)</td>
 <td >62.0</td>
 <td >62.4</td>
 <td >58.2</td>
 <td >52.6</td>
 <td >221.7</td>
 <td >193.0</td>
 <td >203.7</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Balance on Secondary Income ($
 Billion)</td>
 <td >-30.5</td>
 <td >-30.7</td>
 <td >-28.9</td>
 <td >-25.4</td>
 <td >-118.6</td>
 <td >-123.9</td>
 <td >-112.8</td>
 </tr>
 </tbody>
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The U.S. current account deficit rose to $124.1 billion during Q1 2018 from $116.1 billion in Q4 2017. It was the largest deficit since Q4 2008. The Q1 deficit compared to $129.0 billion expected in the Action Economics Forecast [...]

U.S. Current Account Deficit Widens

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Retail gasoline prices slipped to $2.88 per gallon
last week (+24.2% y/y) from $2.91 per gallon during the prior week. Prices stood
at the lowest level in five weeks. Haver Analytics constructs factors adjusting
for the seasonal variation in gasoline pump prices. The seasonally-adjusted
price was little changed at $2.73 per gallon.

West Texas Intermediate crude oil prices increased to
an average of $66.21 (+46.2% y/y) per barrel last week. Prices remained lower
than the $71.31 per barrel high four weeks ago. Yesterday, prices eased to
$65.85 per barrel. Brent crude oil prices slipped last week to an average of
$75.66 per barrel last week and were $75.30 yesterday.

Natural gas prices increased to an average of $2.95/mmbtu
last week (-0.8% y/y) from $2.88/mmbtu and were $2.97 yesterday.

In the four-weeks ending June 8, gasoline demand
improved 0.3% y/y, while total petroleum product demand gained 1.7% y/y. Gasoline
inventories declined 2.3% y/y, while inventories of all petroleum products
dropped 8.3% y/y. Crude oil input to refineries declined 0.9% y/y in the last four weeks.

These data are reported by the U.S. Department of Energy. The
price data can be found in Haver's WEEKLY and DAILY databases.
Greater detail on prices, as well as the demand, production and inventory data,
along with regional breakdowns, are in OILWKLY.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Weekly Energy Prices</th>
 <th scope="col" >06/18/18</th>
 <th scope="col" >06/11/18</th>
 <th scope="col" >06/04/18</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
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 <td class="firstcol" >Retail Gasoline ($ per Gallon Regular,
 Monday Price)</td>
 <td >2.88</td>
 <td >2.91</td>
 <td >2.94</td>
 <td >24.2</td>
 <td >2.47</td>
 <td >2.31</td>
 <td >2.03</td>
 </tr>
 <tr>
 <td class="firstcol" >Light Sweet Crude Oil, WTI ($ per bbl,
 Previous Week's Average)</td>
 <td >66.21</td>
 <td >65.35</td>
 <td >66.97</td>
 <td >46.2</td>
 <td >50.87</td>
 <td >43.22</td>
 <td >48.90</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Natural Gas ($/mmbtu, LA, Previous
 Week's Average)</td>
 <td >2.95</td>
 <td >2.88</td>
 <td >2.86</td>
 <td >-0.8</td>
 <td >2.96</td>
 <td >2.49</td>
 <td >2.62</td>
 </tr>
 </tbody>
 </table>
 
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Retail gasoline prices slipped to $2.88 per gallon last week (+24.2% y/y) from $2.91 per gallon during the prior week. Prices stood at the lowest level in five weeks. Haver Analytics constructs factors adjusting for the seasonal [...]

U.S. Energy Prices Are Mixed

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Total housing starts rose 5.0% (20.3% y/y) during May to
1.350 million units (SAAR) from 1.286 million in April, revised from 1.287
million. It was the highest level of starts since July 2007. A level of 1.305
million starts had been expected in the Action Economics Forecast Survey.

Starts of single-family homes improved 3.9% last month (18.3%
y/y) to 936,000, following a 2.2% April rise to 901,000. Starts of multi-family
units rebounded 7.5% to 414,000 units after a 13.5% decline to 385,000 units.

The rise in starts last month was dominated by
the Midwest where housing starts surged by roughly two-thirds both m/m and y/y
to 266,000. That followed a 9.9% April decline. Elsewhere around the country
housing starts fell. Housing starts in the Northeast were off 15.0% (+20.0% y/y)
to 102,000, the lowest level since December. Starts in the West fell 4.1% (+4.8%
y/y) to 329,000, the lowest level since September. Starts in the South eased
0.9% (+16.8% y/y) to 653,000 after a 4.6% gain.

Building permits declined 4.6% (+8.0% y/y) to 1.301 million
units following a 0.9% April fall. Single-family permits were off 2.2% (+7.7%
y/y) to 844,000 after a 1.4% rise. Permits to build multi-family homes fell 8.8%
(+8.6% y/y) to 457,000, after declining 4.8%.

The housing starts and permits figures can be found in
Haver's USECON database. The expectations figure is contained in the AS1REPNA database.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >Housing Starts (000s, SAAR)</th>
 <th scope="col" >May</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Mar</th>
 <th scope="col" >May Y/Y %</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td >1,350</td>
 <td >1,286</td>
 <td >1,327</td>
 <td >20.3</td>
 <td >1,203</td>
 <td >1,174</td>
 <td >1,112</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Single-Family</td>
 <td >936</td>
 <td >901</td>
 <td >882</td>
 <td >18.3</td>
 <td >859</td>
 <td >782</td>
 <td >715</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Multi-Family&nbsp;</td>
 <td >414</td>
 <td >385</td>
 <td >445</td>
 <td >25.1</td>
 <td >354</td>
 <td >392</td>
 <td >397</td>
 </tr>
 <tr class="grey3">
 <td class="firstcol" colSpan="8" >Starts By Region</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Northeast</td>
 <td >102</td>
 <td >120</td>
 <td >120</td>
 <td >20.0</td>
 <td >111</td>
 <td >116</td>
 <td >138</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Midwest</td>
 <td >266</td>
 <td >164</td>
 <td >182</td>
 <td >62.2</td>
 <td >180</td>
 <td >182</td>
 <td >153</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;South</td>
 <td >653</td>
 <td >659</td>
 <td >630</td>
 <td >16.8</td>
 <td >599</td>
 <td >585</td>
 <td >556</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;West</td>
 <td >329</td>
 <td >343</td>
 <td >395</td>
 <td >4.8</td>
 <td >313</td>
 <td >291</td>
 <td >265</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Building Permits</td>
 <td >1,301</td>
 <td >1,364</td>
 <td >1,377</td>
 <td >8.0</td>
 <td >1,282</td>
 <td >1,207</td>
 <td >1,183</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

Total housing starts rose 5.0% (20.3% y/y) during May to 1.350 million units (SAAR) from 1.286 million in April, revised from 1.287 million. It was the highest level of starts since July 2007. A level of 1.305 million starts had been [...]

U.S. Housing Starts Recover to 11-Year High

Robert Brusca

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In May, Japan has logged its second trade deficit in 13 months and only its third in the last 28 months. Technically, the deficit was generated by a 1% drop in exports combined with a 10.6% surge in imports.

The yen has been gradually rising against the dollar over the past year, but its overall situation is more complicated than that. The dollar sharply depreciated in May falling to 109.7 from April’s 107.7, a one month drop of 1.9%, corresponding to a 25% annual rate of decline. The yen also fell against the dollar for two months in a row at an annual pace of 19%. The broad real yen has been falling at a 10% annual rate over the last two months as well. Year over year, however, the yen is still rising vs. the dollar but its falling on a real broad trade-weighted basis. Japan does most of its trading with China. The United States is Japan’s second largest trade partner. Exchange rate movements vs. China dominate movements in the real broad yen index.

In part because of these exchange rate movements, Japan’s export prices are rising by 2.4% over 12 months and faster over three months. Export prices tend to rise faster when a currency is weakening since exporters can increase their mark-up in domestic currency units and still drop their prices in foreign currency terms. Import prices are up by 6.4% over 12 months and rise even faster over three months. Import prices rise faster when a currency weakens as the higher cost of foreign exchange is added to the imported product’s price. So Japan’s exports and imports are reacting to a weakening yen. Import prices are rising faster than export prices, which is also what should happen when the yen weakens.

Japan’s trade flows in real terms show gains over 12 months with imports rising faster than exports in real terms. This should not continue if the yen continues to weaken, since a weakening yen makes imports more expensive. Weakening is what the yen is doing vs. the dollar over three months, but it is not doing that in real terms on a broad basis over three months. However, the broad real yen is moving very little recently.

Import and export prices are not just a function of currency movements; they also are due to domestic and foreign activity. Relatively stronger Japan imports compared to exports over 12 months suggest that Japan faces relatively mild demand for its goods in overseas markets while domestic demand is ramping up despite fast rising import prices – that should be short-lived. And the data are suggestive on this point as real imports are falling on balance over three months despite their one-month surge in May.

Of course, Japan’s domestic demand has not been very strong as GDP contracted in the first quarter. We would not expect such strong import demand at this time. Japan’s trade and its export and import price movements suggest some adjustment is in progress over trade flows and that the flows have not fully settled into their new trends.

Monthly data on the year-over-year changes in nominal exports and imports show that exports slowed through March and have since picked up. Imports have followed roughly the same profile.

The terms of trade are a shorthand method for gauging the welfare impact of exchange rate changes and other factors that affect export and import price developments. The ‘terms of trade’ refers to the export-to-import price ratio. When the terms of trade rise (improve), a nation’s welfare improves since it can sell goods for higher prices relative to purchases. When the terms fall, a country is getting less for its export sales relative to imports. This is, of course, a consumption view of the effect. Japan has been seeing its terms of trade fall over the last two years as the ratio 24 months ago was at 1.02 and 12 months ago it was 101.8 while in May it stands at 98.8. Looked at either way, exports are either bringing in less remuneration relative to imports or imports are costing more relative to exports. Another impact of this is that as the yen weakens Japan becomes more competitive. Goods may cost more, but jobs become more secure and job growth might even get stronger. For Japan, with a shrinking population, that is less of an enticement.

Japan’s economic position is hard to characterize. Its sector indexes are weakening according to the METI indexes and Teikoku indexes. Inflation, Chronically below target, has actually softened. On the bright side, Japan’s retail sales recently have shown some spunk. Still, Japan is in a difficult spot. U.S. ongoing negotiations with North Korea and trade sanctions hover over its head as either a direct or indirect problem. North Korean talks with the U.S. are ‘portrayed’ as having gone well, but there was nothing specific in the meeting to give Japan solace over North Korea’s missile tests or capacities. In addition, there is the trade row and the new, aggressive, U.S. posture. U.S. policy on metals tariffs is far ranging. But its most devastating attack is on China which has retaliated. China is Japan’s largest trade partner. The IMF has warned that there could be adverse effects from this aggression on global trade and growth. It is hard to handicap how much these concerns will affect growth and how much it might influence businesses to become more defensive and what the spillover effects might be. There are many things to weigh here. Japan itself has a lot of irons in these fires. Japan definitely faces outcome risk over the next few months. Odds are that it will not emerge unscathed.


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In May, Japan has logged its second trade deficit in 13 months and only its third in the last 28 months. Technically, the deficit was generated by a 1% drop in exports combined with a 10.6% surge in imports. The yen has been gradually [...]

Japan's Loses Its Trade Surplus

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The Composite Housing Market Index from the National
Association of Home Builders-Wells Fargo fell 2.9% (+3.0% y/y) to 68 during June
and retraced its May increase to 70. The latest reading compared to
expectations for 70 in the Informa Global Markets Survey. The NAHB figures are
seasonally adjusted. During the last ten years, there has been a 57% correlation
between the y/y change in the home builders index and the y/y change in new home sales.

The index of present sales conditions in the housing market
eased 1.3% (+4.2% y/y) to 75 and remained below its December high of 80. The
index for conditions in the next six months slipped to 76 (+1.3% y/y), the lowest level since November.

Home builders reported that the traffic of prospective buyers
index slipped m/m to 50 and was down from its December high of 58.

Amongst the regional indexes, the index for the Midwest fell
4.5% (-5.9% y/y) to 64 and was down versus the December high of 76. The index for
the South declined 2.8% (+1.5% y/y) to 69 and was down from the high of 75 six
months ago. Countering these declines was an 8.9% rise (32.6% y/y) in the index for the Northeast
to 61. Its level equaled the highest point since December 2005. The reading for the West
improved 1.3% (7.0% y/y) to 76 and made up its May decline.

The NAHB has compiled the Housing Market Index since 1985. It
reflects survey questions asking builders to rate market conditions as
&quot;good,&quot; &quot;fair,&quot; &quot;poor&quot; or &quot;very high&quot; to
&quot;very low.&quot; The figure is thus a diffusion index with numerical
results six over 50 indicating a predominance of &quot;good&quot; readings. The
weights assigned to the individual index components are .5920 for single-family
detached sales, present time, .1358 for single-family detached sales, next
months and .2722 for traffic of prospective buyers. The results are included in
Haver's SURVEYS database. The expectations figure is available in Haver's
MMSAMER database.

Some Industries Encountering Worker Shortages from the
Federal Reserve Bank of Atlanta is available <a href="https://www.frbatlanta.org/economy-matters/community-and-economic-development/2018/06/14/some-industries-encountering-worker-shortages">here</a>.

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	<colgroup><col><col><col><col><col><col><col><col></colgroup>

 <thead>
 <tr>
 <th class="firstcol" scope="col" >National Association of Home
 Builders</th>
 <th scope="col" >Jun</th>
 <th scope="col" >May</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Jun '17</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Composite Housing Market Index, SA (All
 Good=100)</td>
 <td >68</td>
 <td >70</td>
 <td >68</td>
 <td >66</td>
 <td >68</td>
 <td >61</td>
 <td >59</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Single-Family Sales: Present</td>
 <td >75</td>
 <td >76</td>
 <td >74</td>
 <td >72</td>
 <td >74</td>
 <td >67</td>
 <td >64</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Single-Family Sales: Next Six
 Months</td>
 <td >76</td>
 <td >77</td>
 <td >77</td>
 <td >75</td>
 <td >76</td>
 <td >67</td>
 <td >66</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Traffic of Prospective Buyers</td>
 <td >50</td>
 <td >51</td>
 <td >49</td>
 <td >51</td>
 <td >50</td>
 <td >45</td>
 <td >43</td>
 </tr>
 </tbody>
 </table>
 
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The Composite Housing Market Index from the National Association of Home Builders-Wells Fargo fell 2.9% (+3.0% y/y) to 68 during June and retraced its May increase to 70. The latest reading compared to expectations for 70 in the [...]

U.S. Home Builder Index Backpedals

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The Empire State Manufacturing Index of General Business
Conditions rose to 25.0 during June, the highest level in eight months.
Expectations had been for 18.0 in the Action Economics Forecast Survey. These
data, reported by the Federal Reserve Bank of New York, reflect business
conditions in New York, northern New Jersey and southern Connecticut.
Haver Analytics calculates a seasonally adjusted index that
is comparable to the ISM series. The calculated figure increased to 58.2, the
highest level since March 2006. During the last ten years, the index has had a
69% correlation with the quarter-on-quarter change in real GDP.
Most of the components of the Empire State Survey improved
this month. The new orders index rose to 21.3, the highest level since November.
The shipments index similarly displayed strength with its rise to 23.5, the
highest figure in six months. The unfilled orders measure also rose, but the
delivery times series eased to 13.2 and indicated the quickest delivery speeds
since February. The inventory index fell to a four-month low of 5.4.
The number of employees reading strengthened to 19.0, a
six-month high. During the last ten years, there has been a 77% correlation
between the employment index and the month-on-month change in factory sector
payrolls. While 24% of respondents reported a higher payroll level, 5% reported
a lower hiring level. Working the other way, the employee workweek reading rose
to 12.0, and was well above the recent low of 0.8 in January.
The prices paid index slipped to 52.7, but remained up
sharply from its October 2015 low of 0.9. Fifty-four percent of respondents
indicated increased prices, while just two percent reported a decline. The
prices received index improved to 23.3 and also was near the highest level since
2011.
The series measuring expectations of business conditions in
six months strengthened to 38.9 but remained down versus its February high of
50.5. Most of the expectation series improved m/m, except the price measures and
capital &amp; technology spending readings.
The Empire State figures are diffusion indexes, which are
calculated by subtracting the percent of respondents reporting declines from
those reporting gains. The data are available in Haver's SURVEYS
database. The ISM-adjusted headline index dates back to 2001. The Action
Economics Forecasts can be found in Haver's AS1REPNA database.

 <thead>
 <tr>
 <th class="firstcol" scope="col" width="1263">Empire State Manufacturing
 Survey</th>
 <th scope="col" width="86">Jun</th>
 <th scope="col" width="86">May</th>
 <th scope="col" width="86">Apr</th>
 <th scope="col" width="86">Jun'17</th>
 <th scope="col" width="86">2017</th>
 <th scope="col" width="87">2016</th>
 <th scope="col" width="87">2015</th>
 </tr>
 </thead>
 
 <tr>
 <td class="firstcol" width="1263">General Business Conditions (Diffusion
 Index, %, SA)</td>
 <td align="center" width="86">25.0</td>
 <td align="center" width="86">20.1</td>
 <td align="center" width="86">15.8</td>
 <td align="center" width="86">18.1</td>
 <td align="center" width="86">16.1</td>
 <td align="center" width="87">-2.6</td>
 <td align="center" width="87">-2.3</td>
 </tr>
 <tr>
 <td class="firstcol" width="1263">General Business Conditions Index (ISM
 Adjusted, &gt;50=Increasing Activity, SA)</td>
 <td align="center" width="86">58.2</td>
 <td align="center" width="86">56.8</td>
 <td align="center" width="86">55.2</td>
 <td align="center" width="86">55.2</td>
 <td align="center" width="86">54.6</td>
 <td align="center" width="87">48.2</td>
 <td align="center" width="87">48.8</td>
 </tr>
 <tr>
 <td class="firstcol" width="1263">&nbsp; New Orders</td>
 <td align="center" width="86">21.3</td>
 <td align="center" width="86">16.0</td>
 <td align="center" width="86">9.0</td>
 <td align="center" width="86">16.1</td>
 <td align="center" width="86">14.6</td>
 <td align="center" width="87">-0.8</td>
 <td align="center" width="87">-5.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="1263">&nbsp; Shipments</td>
 <td align="center" width="86">23.5</td>
 <td align="center" width="86">19.1</td>
 <td align="center" width="86">17.5</td>
 <td align="center" width="86">19.0</td>
 <td align="center" width="86">15.9</td>
 <td align="center" width="87">1.9</td>
 <td align="center" width="87">4.0</td>
 </tr>
 <tr>
 <td class="firstcol" width="1263">&nbsp; Unfilled Orders</td>
 <td align="center" width="86">9.3</td>
 <td align="center" width="86">5.0</td>
 <td align="center" width="86">3.7</td>
 <td align="center" width="86">4.6</td>
 <td align="center" width="86">1.9</td>
 <td align="center" width="87">-8.8</td>
 <td align="center" width="87">-10.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="1263">&nbsp; Delivery Time</td>
 <td align="center" width="86">13.2</td>
 <td align="center" width="86">13.7</td>
 <td align="center" width="86">15.6</td>
 <td align="center" width="86">5.4</td>
 <td align="center" width="86">6.1</td>
 <td align="center" width="87">-4.8</td>
 <td align="center" width="87">-5.3</td>
 </tr>
 <tr>
 <td class="firstcol" width="1263">&nbsp; Inventories</td>
 <td align="center" width="86">5.4</td>
 <td align="center" width="86">10.1</td>
 <td align="center" width="86">8.1</td>
 <td align="center" width="86">7.7</td>
 <td align="center" width="86">1.5</td>
 <td align="center" width="87">-9.6</td>
 <td align="center" width="87">-7.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="1263">&nbsp; Number of Employees</td>
 <td align="center" width="86">19.0</td>
 <td align="center" width="86">8.7</td>
 <td align="center" width="86">6.0</td>
 <td align="center" width="86">3.5</td>
 <td align="center" width="86">8.3</td>
 <td align="center" width="87">-5.1</td>
 <td align="center" width="87">2.3</td>
 </tr>
 <tr>
 <td class="firstcol" width="1263">&nbsp; Average Employee Workweek</td>
 <td align="center" width="86">12.0</td>
 <td align="center" width="86">11.1</td>
 <td align="center" width="86">16.9</td>
 <td align="center" width="86">4.3</td>
 <td align="center" width="86">4.9</td>
 <td align="center" width="87">-5.2</td>
 <td align="center" width="87">-4.8</td>
 </tr>
 <tr>
 <td class="firstcol" width="1263">&nbsp; Prices Paid</td>
 <td align="center" width="86">52.7</td>
 <td align="center" width="86">54.0</td>
 <td align="center" width="86">47.4</td>
 <td align="center" width="86">20.0</td>
 <td align="center" width="86">29.0</td>
 <td align="center" width="87">15.7</td>
 <td align="center" width="87">8.8</td>
 </tr>
 <tr>
 <td class="firstcol" width="1263">&nbsp; Prices Received</td>
 <td align="center" width="86">23.3</td>
 <td align="center" width="86">23.0</td>
 <td align="center" width="86">20.7</td>
 <td align="center" width="86">10.8</td>
 <td align="center" width="86">11.0</td>
 <td align="center" width="87">0.7</td>
 <td align="center" width="87">1.2</td>
 </tr>
 
 <td class="firstcol" width="1263">Expectations 6 Months Ahead</td>
 <td align="center" width="86">38.9</td>
 
 <td align="center" width="86">31.1</td>
 <td align="center" width="86">18.3</td>
 <td align="center" width="86">41.4</td>
 <td align="center" width="86">42.6</td>
 <td align="center" width="87">29.0</td>
 <td align="center" width="87">30.</td>
 
 


&nbsp;
U.S. Industrial Production Slips Unexpectedly 
by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>&nbsp;&nbsp;June
15, 2018
The Federal Reserve reported that industrial production eased
0.1% (+3.5% y/y) during May following a 0.9% April rise, revised from 0.7%. A
0.2% increase had been expected in the Action Economics Forecast Survey. Factory
sector production declined 0.7% (+1.7% y/y) and reversed April's 0.6% gain,
revised from 0.5%. Utility output strengthened 1.1% (4.0% y/y) after a 3.2%
increase. Mining production improved 1.8% (12.5% y/y) following a 1.0%
improvement.
The surprising decline in production partially reflected a
1.0% fall (+1.5% y/y) in consumer goods output which reversed the prior month's
increase. Durable consumer goods production declined 3.0% (0.0% y/y) after a
0.8% fall. Automotive product output declined 5.5% (-1.5% y/y) following a 1.9%
shortfall. Computer, video &amp; related production improved 0.8% (4.7% y/y)
after a 0.1% uptick. Appliance, furniture &amp; carpeting production fell 1.2%
(-1.5% y/y) and countered the prior month's 1.7% rise. Nondurable consumer goods
production fell 0.4% (+1.9% y/y) following a 1.5% gain. Energy product output
weakened 1.6% (-0.2% y/y) after a 3.7% increase. Apparel production declined
1.9% (0.0% y/y) after a 2.4% gain. Paper product output weakened 1.1% (-2.2%
y/y) after a 0.8% increase. Food &amp; tobacco production fell 0.3% (3.1% y/y)
following a 1.1% improvement. Working the other way, chemical product production
rose 0.5% (2.8% y/y) after a 0.4% gain.
Production of business equipment declined 1.1% last month
(+1.0% y/y) and reversed April's 1.1% rise. Transit equipment production fell
3.5% (-2.9% y/y) following a 0.3% dip. Production of information processing
equipment slipped 0.1% (+4.8% y/y) following four straight months of strong
increase. Industrial equipment &amp; other equipment production fell 0.4% (+1.4%
y/y) after a 1.8% rise.&nbsp;&nbsp;&nbsp; 
Construction supplies output notched 0.1% higher (3.6% y/y)
after a 0.5% increase.
Production of materials improved 0.5% (5.5% y/y) after a 0.9%
increase. Energy product materials output increased 2.0% (11.0% y/y) after two
months of roughly 1.2% gain. Durable goods materials output fell 0.8% (+2.7%
y/y) following a 0.5% rise and nondurable goods materials held steady (0.9% y/y)
following a 0.9% gain.
In the special aggregate groupings, production of selected
high-technology industries rose 0.2% (6.3% y/y) following a 1.8% jump. Nonenergy
production excluding high-tech retreated 0.6% (+1.7% y/y) and reversed a 0.6%
rise. Factory sector production excluding both high-tech and autos eased 0.2%
(+1.9% y/y) after a 0.8% strengthening.
Capacity utilization eased to 77.9% from its three-year high
of 78.1%. Factory sector capacity utilization declined to 75.3%, the lowest
level since January. Manufacturing sector capacity increased 1.0% y/y.
Industrial production and capacity data are included in
Haver's USECON database, with additional detail in the IP database. The
expectations figure is in the AS1REPNA database.
<table width="1871" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="916">Industrial Production (SA, %
 Change)</th>
 <th scope="col" width="135">May</th>
 <th scope="col" width="136">Apr</th>
 <th scope="col" width="136">Mar</th>
 <th scope="col" width="136">May Y/Y</th>
 <th scope="col" width="136">2017</th>
 <th scope="col" width="136">2016</th>
 <th scope="col" width="136">2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="916">Total Output</td>
 <td align="center" width="135">-0.1</td>
 <td align="center" width="136">0.9</td>
 <td align="center" width="136">0.5</td>
 <td align="center" width="136">3.5</td>
 <td align="center" width="136">1.6</td>
 <td align="center" width="136">-2.0</td>
 <td align="center" width="136">-1.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="916">Manufacturing</td>
 <td align="center" width="135">-0.7</td>
 <td align="center" width="136">0.6</td>
 <td align="center" width="136">-0.1</td>
 <td align="center" width="136">1.7</td>
 <td align="center" width="136">1.2</td>
 <td align="center" width="136">-0.8</td>
 <td align="center" width="136">0.1</td>
 </tr>
 <tr>
 <td class="firstcol" width="916">&nbsp;&nbsp;&nbsp; Consumer Goods</td>
 <td align="center" width="135">-1.0</td>
 <td align="center" width="136">1.0</td>
 <td align="center" width="136">0.4</td>
 <td align="center" width="136">1.5</td>
 <td align="center" width="136">0.0</td>
 <td align="center" width="136">0.7</td>
 <td align="center" width="136">1.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="916">&nbsp;&nbsp;&nbsp; Business Equipment</td>
 <td align="center" width="135">-1.1</td>
 <td align="center" width="136">1.1</td>
 <td align="center" width="136">0.1</td>
 <td align="center" width="136">1.0</td>
 <td align="center" width="136">3.2</td>
 <td align="center" width="136">-5.3</td>
 <td align="center" width="136">-2.0</td>
 </tr>
 <tr>
 <td class="firstcol" width="916">&nbsp;&nbsp;&nbsp; Construction Supplies</td>
 <td align="center" width="135">0.1</td>
 <td align="center" width="136">0.5</td>
 <td align="center" width="136">-1.0</td>
 <td align="center" width="136">3.6</td>
 <td align="center" width="136">2.5</td>
 <td align="center" width="136">0.9</td>
 <td align="center" width="136">0.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="916">&nbsp; Materials</td>
 <td align="center" width="135">0.5</td>
 <td align="center" width="136">0.9</td>
 <td align="center" width="136">0.8</td>
 <td align="center" width="136">5.5</td>
 <td align="center" width="136">2.0</td>
 <td align="center" width="136">-3.0</td>
 <td align="center" width="136">-1.5</td>
 </tr>
 <tr>
 <td class="firstcol" width="916">Utilities</td>
 <td align="center" width="135">1.1</td>
 <td align="center" width="136">3.2</td>
 <td align="center" width="136">4.1</td>
 <td align="center" width="136">4.0</td>
 <td align="center" width="136">-1.3</td>
 <td align="center" width="136">-0.4</td>
 <td align="center" width="136">-0.8</td>
 </tr>
 <tr>
 <td class="firstcol" width="916">Mining</td>
 <td align="center" width="135">1.8</td>
 <td align="center" width="136">1.0</td>
 <td align="center" width="136">1.4</td>
 <td align="center" width="136">12.5</td>
 <td align="center" width="136">6.4</td>
 <td align="center" width="136">-9.7</td>
 <td align="center" width="136">-3.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="916">Capacity Utilization (%)</td>
 <td align="center" width="135">77.9</td>
 <td align="center" width="136">78.1</td>
 <td align="center" width="136">77.5</td>
 <td align="center" width="136">76.2</td>
 <td align="center" width="136">78.1</td>
 <td align="center" width="136">75.4</td>
 <td align="center" width="136">77.3</td>
 </tr>
 <tr>
 <td class="firstcol" width="916">&nbsp;Manufacturing</td>
 <td align="center" width="135">75.3</td>
 <td align="center" width="136">75.9</td>
 <td align="center" width="136">75.5</td>
 <td align="center" width="136">74.8</td>
 <td align="center" width="136">74.8</td>
 <td align="center" width="136">74.6</td>
 <td align="center" width="136">75.8</td>
 </tr>
 </tbody>
</table>





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The Empire State Manufacturing Index of General Business Conditions rose to 25.0 during June, the highest level in eight months. Expectations had been for 18.0 in the Action Economics Forecast Survey. These data, reported by the [...]

Empire State Manufacturing Index Continues to Strengthen

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The Federal Reserve reported that industrial production eased
0.1% (+3.5% y/y) during May following a 0.9% April rise, revised from 0.7%. A
0.2% increase had been expected in the Action Economics Forecast Survey.
Factory sector production declined 0.7% (+1.7% y/y) and reversed April's 0.6%
gain, revised from 0.5%. Utility output strengthened 1.1% (4.0% y/y) after a
3.2% increase. Mining production improved 1.8% (12.5% y/y) following a 1.0%
improvement.
The surprising decline in production partially reflected a
1.0% fall (+1.5% y/y) in consumer goods output which reversed the prior month's
increase. Durable consumer goods production declined 3.0% (0.0% y/y) after a
0.8% fall. Automotive product output declined 5.5% (-1.5% y/y) following a 1.9%
shortfall. Computer, video &amp; related production improved 0.8% (4.7% y/y) after a
0.1% uptick. Appliance, furniture &amp; carpeting production fell 1.2% (-1.5% y/y)
and countered the prior month's 1.7% rise. Nondurable consumer goods production
fell 0.4% (+1.9% y/y) following a 1.5% gain. Energy product output weakened 1.6%
(-0.2%
y/y) after a 3.7% increase. Apparel production declined 1.9% (0.0% y/y) after a
2.4% gain. Paper product output weakened 1.1% (-2.2% y/y) after a 0.8% increase.
Food &amp; tobacco production fell 0.3% (3.1% y/y) following a 1.1% improvement.
Working the other way, chemical product production rose 0.5% (2.8% y/y) after a
0.4% gain.
Production of business equipment declined 1.1% last month
(+1.0% y/y) and reversed April's 1.1% rise. Transit equipment production fell
3.5% (-2.9% y/y) following a 0.3% dip. Production of information processing
equipment slipped 0.1% (+4.8% y/y) following four straight months of strong
increase. Industrial equipment &amp; other equipment production fell 0.4% (+1.4%
y/y) after a 1.8% rise.&nbsp;&nbsp;&nbsp;&nbsp;
Construction supplies output notched 0.1% higher (3.6% y/y) after a
0.5% increase.
Production of materials improved 0.5% (5.5% y/y) after a 0.9%
increase. Energy product materials output increased 2.0% (11.0% y/y) after two
months of roughly 1.2% gain. Durable goods materials output fell 0.8% (+2.7% y/y) following a
0.5% rise and nondurable goods materials held steady (0.9% y/y) following a 0.9% gain.
In the special aggregate groupings, production of selected
high-technology industries rose 0.2% (6.3% y/y) following a 1.8% jump. Nonenergy
production excluding high-tech retreated 0.6% (+1.7% y/y) and reversed a 0.6%
rise.
Factory sector production excluding both high-tech and autos eased 0.2% (+1.9%
y/y) after a 0.8% strengthening.
Capacity utilization eased to 77.9% from its three-year high
of 78.1%. Factory sector capacity utilization declined to 75.3%, the lowest
level since January. Manufacturing
sector capacity increased 1.0% y/y.
Industrial production and capacity data are included in
Haver's USECON database, with additional detail in the IP database. The
expectations figure is in the AS1REPNA database.

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<table class="centered" width="100%" border="0" cellspacing="0">
	<colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
 <tr>
 <th class="firstcol" scope="col" >Industrial Production (SA, %
 Change)</th>
 <th scope="col" >May</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Mar</th>
 <th scope="col" >May Y/Y</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total Output</td>
 <td >-0.1</td>
 <td >0.9</td>
 <td >0.5</td>
 <td >3.5</td>
 <td >1.6</td>
 <td >-2.0</td>
 <td >-1.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Manufacturing</td>
 <td >-0.7</td>
 <td >0.6</td>
 <td >-0.1</td>
 <td >1.7</td>
 <td >1.2</td>
 <td >-0.8</td>
 <td >0.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Consumer Goods</td>
 <td >-1.0</td>
 <td >1.0</td>
 <td >0.4</td>
 <td >1.5</td>
 <td >0.0</td>
 <td >0.7</td>
 <td >1.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Business Equipment</td>
 <td >-1.1</td>
 <td >1.1</td>
 <td >0.1</td>
 <td >1.0</td>
 <td >3.2</td>
 <td >-5.3</td>
 <td >-2.0</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Construction Supplies</td>
 <td >0.1</td>
 <td >0.5</td>
 <td >-1.0</td>
 <td >3.6</td>
 <td >2.5</td>
 <td >0.9</td>
 <td >0.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Materials</td>
 <td >0.5</td>
 <td >0.9</td>
 <td >0.8</td>
 <td >5.5</td>
 <td >2.0</td>
 <td >-3.0</td>
 <td >-1.5</td>
 </tr>
 <tr>
 <td class="firstcol" >Utilities</td>
 <td >1.1</td>
 <td >3.2</td>
 <td >4.1</td>
 <td >4.0</td>
 <td >-1.3</td>
 <td >-0.4</td>
 <td >-0.8</td>
 </tr>
 <tr>
 <td class="firstcol" >Mining</td>
 <td >1.8</td>
 <td >1.0</td>
 <td >1.4</td>
 <td >12.5</td>
 <td >6.4</td>
 <td >-9.7</td>
 <td >-3.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Capacity Utilization (%)</td>
 <td >77.9</td>
 <td >78.1</td>
 <td >77.5</td>
 <td >76.2</td>
 <td >78.1</td>
 <td >75.4</td>
 <td >77.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Manufacturing</td>
 <td >75.3</td>
 <td >75.9</td>
 <td >75.5</td>
 <td >74.8</td>
 <td >74.8</td>
 <td >74.6</td>
 <td >75.8</td>
 </tr>
 </tbody>
</table>


</body>

</html>

The Federal Reserve reported that industrial production eased 0.1% (+3.5% y/y) during May following a 0.9% April rise, revised from 0.7%. A 0.2% increase had been expected in the Action Economics Forecast Survey. Factory sector [...]

U.S. Industrial Production Slips Unexpectedly

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The EMU trade balance shrank in April, stepping back to a surplus of €18.1bln from €19.8 bln in March. One year ago the surplus stood at €20.4 bln. Exports nudged higher in April rising by 0.3% while imports surged by 1.4%. That combination of evens made the trade deficit smaller.

However, a shrinking surplus is not something that is well entrenched in European trade trends. Over three months exports are falling by 6.7% with imports falling by a lesser 4.3%. This pair of growth rates also reinforces a smaller deficit trend. But over six-months and 12-months the export and import growth rates are nearly identical and there is not much deficit shrinkage in the cards on those trends.

In the wake of the G7 summit, trade is obviously in a special spot light. Today, US President, Donald Trump indicated 25% tariffs on $50bln of US imports from Chinese. China wasted no time in offering the same tariffs on $50bln of US exports to China. It is not going to stop there. The US continues to make waves over trade on a broad front and the cold war over trade has just heated up. The G7 tiff was an hors d’oeuvres compared to this. Trade and trade performance is going to continue to be an issue in this tainted atmosphere. But it is also true that to a large extent the trend and fundamentals are perceived to be established and the Trump administration is looking for leverage to change results.

We see the stubborn trend in EMU manufacturing trade. Those exports and imports show imploding flows in progress with three month export and import flows declining and 12 month flows showing some gain. But on each horizon 3-months, 6-months and 12-months, exports are either stronger than imports or growing at the same pace. There is no trend ‘improvement’ that diminishes the surplus in manufacturing trade.

Non-manufacturing flows show the opposite trends. But they are substantially affected by commodity prices and especially oil. Imports of non-manufactures are stronger than exports on all horizons.

Beyond the EMU trends we offer samples of export trends from six other European nations. Five of six show exports declining over 3-months. Over six months most exports also show stable or slowing trends. And compared to one year ago the current year-over-year trends are lower. There is a broad slowdown in exports to couple with the stubborn EMU surplus.

Now, we are on the slippery slope with trade. This is no longer saber-rattling. This is stabbing and cutting and hacking. Damage will be done. The global economy already is showing some signs of slowing. The US continues to be the most resilient but US economic signals are still somewhat spotty despite the recent strength in US retail sales and in manufacturing PMI reports. Today’s drop in in US industrial output is an example of how no sector is safe or dependable. It is still too soon to know if the Trump tax cuts and fiscal reforms are going to deliver growth in the US. The European slowdown is severe enough to capture attention of newspaper reporters. Japan has cuts its outlook for inflation, but not growth. And, despite slowing in Europe and some very weak recent numbers from Germany, the Bundesbank has just cut is outlook and describes the situation as a boom with ‘strong wage growth’ and higher domestic inflation. Frankly I don’t think I have seen that particular German economy. But what’s important is that although the Bundesbank does, it’s the ECB that makes monetary policy.



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The EMU trade balance shrank in April, stepping back to a surplus of €18.1bln from €19.8 bln in March. One year ago the surplus stood at €20.4 bln. Exports nudged higher in April rising by 0.3% while imports surged by 1.4%. That [...]

EMU Trade Deficit Shrinks

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

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

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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

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

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

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

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

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

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

Equity market exuberance outpacing macroeconomic data

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

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Andrew Cates

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

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

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

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

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

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

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

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

Sandy Batten

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

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

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

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

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

U.S. Initial Unemployment Claims Surged in Latest Week

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

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

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

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

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

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

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