Robert Brusca

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The EMU PPI was a tick weaker in April as it rose by 0.1% after gaining 0.2% in March. The EMU PPI generally (but not totally, consumer goods were an exception) accelerated from 12-months to 6-months then decelerated from 6-months to 3-months. Inflation was generally lower over three months than over 12-months with a very minor exception of capital goods.

 The clearest overview statement we can make about inflation in the Euro-Area and in Europe generally is that inflation is moderate-to-low and remains stable.

Sector detail 
Among the three sectors of capital goods, consumer goods and intermediate goods we observe that capital goods price trends are exceptionally stable around the 1% mark. Consumer goods inflation has moved around a bit more but over the past year it has averaged well-below 1% over various horizons. Intermediate goods inflation has been over the 2% mark on several of its key horizons and this is the series most affected by commodity prices and oil. But over the past two months intermediate prices have only ticked higher and now oil prices are getting weaker on global markets reversing some of their past gains. The ECB targets consumer inflation (HICP measure) but at 2% the PPI is very well behaved. The chart fairly depicts the inflation bump up and run off by sector. But countries have had different and separate experiences.

Country patterns for European inflation
If we look at a sample of fifteen European countries (12 of them EMU members) we find that despite equal increases of 0.1% in the PPI in each of the last two months inflation is accelerating in 73% of these reporters in April compared to March. However, over three-months inflation accelerates compared to 6-months in only 27% percent of the countries, it accelerates over 6-months compared to 12-months in 93 percent of the countries but it accelerates in 12-months compared to the year-over-year pace of 12-months ago in no country. On balance year-over-year inflation is moderate to low. But over six months it generally picks up. Then, over three-months, inflation heads lower. In fact over three-months inflation is actually negative in seven of these reporting countries- nearly half of them. The price level is falling on all horizons in Ireland. It is rising on all horizons in Germany, France, Spain, the Netherlands, Finland, Sweden and Belgium. Sweden, Finland and Belgium are three of the most consistent inflation prone countries in the group. Besides Ireland, among the least inflation prone are these countries: Denmark, Luxembourg, Italy and Portugal. This would be a very strange list of least inflation prone countries that no one would have believed prior to the formation of EMU.

In terms of changes, inflation is falling the most consistently in Austria, the UK and Portugal. It is rising the most consistently and rapidly in Sweden, Denmark and Luxembourg.

On balance the PPI seems very steady and moderate. There are only hits of pressure cooking in a collection of Nordic countries.

The greater risk?
Perhaps the greater risk now is from trade tensions. As of this writing those tensions are not spilling over into markets. But concerns are palpable and the US trade actions are being prepared to be met by countermeasures in Europe. And while there is a focus on the higher prices that tariffs will bring the real concern is the risk that the imposition of tariffs could untrack growth and that would do the opposite and reduce inflation along with growth. It’s no wonder that markets do not know what to do. In this instance markets seem to be betting that cooler heads will prevail and that all of the threats and jockeying for position will lead to a less damaging, more compromised, solution in the end. But no one knows.

The fact is that the US has been the freest and fairest trading nation among major economies. That has led to the persistent and protracted trade and current deficits in the US that Donald Trump wants to expunge. Yet US major trading partners have come to look at the status quo as something that is righteous even though it isn’t and has had benefits that have favored them for many years. The fact that the international adjustment mechanism (here I mostly mean exchange rates and exchange rates movements) have never worked to put the US current account back in balance (or other nation’s surpluses back in balance…) is ample evidence that a new sort of solution may be needed and Mr. Trump has chosen tariffs as the great equalizer. I don’t think in a fair assessment of WTO rules on how the US Vs others have comported themselves including a fair appraisal of exchange rate management and commercial policy you really can fault the US. Germany has the highest current account surplus ratio to GDP in the world among developed economics. And it wants to brand the US, with massive deficits as an unfair trader? Where’s Waldo? Where is the truth? Germany imposes tariffs on US auto exports to Germany. Please!! Come to your senses! The time for the euro to rise and for Europe to drop restrictions on US exports is long past due. Donald Trump’s national security pretext for restrictions on imports is a rule dodge but one that is hard to disallow. The US has a much stronger basis for action than that. Europe is being a cry baby. There is no crying in international trade. Time for action not tears.



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The EMU PPI was a tick weaker in April as it rose by 0.1% after gaining 0.2% in March. The EMU PPI generally (but not totally, consumer goods were an exception) accelerated from 12-months to 6-months then decelerated from 6-months to [...]

EMU PPI Slows

Tom Moeller

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The National Association for Business Economics forecasts
2.7% growth in real GDP during 2019 following an expected 2.8% rise this year, revised
from the earlier forecast of 2.9% growth. Quarterly GDP growth is expected to
average 2.8% this year, then 2.6% next year. Growth in personal consumption
expenditures is forecast to ease next year to 2.5% from a 2.6% gain in 2018,
revised from 2.9%. Robust expected growth in business fixed investment of 4.8%,
revised from 4.6%, should follow a 5.8% advance this year, revised from 5.3%.
These are the quickest rates of growth since 2014. Residential investment growth
also is expected to improve a steady 3.4% next year. Government spending growth
is projected to remain modest at 1.8%, revised from 1.3%. Deterioration in real
net exports is forecast to continue as expected import growth of 4.7% next year
outpaces a 4.2% advance in exports. The rate of inventory investment is expected
to improve slightly next year, but remain below the gains from 2012 to 2015.
Housing starts are expected to average 1.35 million next
year, revised from 1.33 million. Expected light vehicle sales were unchanged at
16.8 million units in 2019, the lowest since 2014. Average monthly gains in
payroll employment are expected to slow to a little-changed 154,000, down from
the 250,000 average in 2014. Expectations for the unemployment rate were lowered
to 3.7% from 3.8% for next year and would leave it at the lowest level since
1969.
Consumer price inflation is expected to average a lessened 2.2%
(Q4/Q4). Price inflation as measured by the PCE price index is expected to
average 2.1%, revised from 1.9% the same as in 2018 which also was revised up. The chain PCE price index excluding food
&amp; energy should rise, however, to 2.1% (Q4/Q4), the same as forecasted
earlier. The cost of crude oil is expected to average $65 per barrel at the end of
next year, revised from $ 60 per barrel, versus $65 this coming December.
The forecasted 3.50% interest rate on 10-year Treasury notes
at the end of 2019 was lowered slightly and compares to an unchanged estimate of 3.20% at the end of
this year. The Fed is expected to continue raising the federal funds rate to
2.88% by the end of 2019, revised from 2.75%. Corporate
profits after-tax next year should rise a little-changed 4.8% after 6.3% growth this year. The
expectation for the Federal government budget deficit of $987 billion next year
was revised down from $1.019 trillion, and compares to a raised estimate of $800 billion in 2018.
The figures from the latest NABE report can be found in
Haver's SURVEYS database.
Is GDP Overstating Economic Activity? from the Federal
Reserve Bank of San Francisco can be found <a href="https://www.frbsf.org/economic-research/files/el2018-14.pdf">here</a>.

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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" ><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">National
 Association For Business Economics</a></th>
 <th scope="col" >2019</th>
 <th scope="col" >2018</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Real GDP (% Chg. SAAR)</td>
 <td >2.7</td>
 <td >2.8</td>
 <td >2.3</td>
 <td >1.5</td>
 <td >2.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Personal Consumption
 Expenditures</td>
 <td >2.5</td>
 <td >2.6</td>
 <td >2.8</td>
 <td >2.7</td>
 <td >3.6</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Business Fixed Investment</td>
 <td >4.8</td>
 <td >5.8</td>
 <td >4.7</td>
 <td >-0.6</td>
 <td >2.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Residential Investment</td>
 <td >3.4</td>
 <td >3.3</td>
 <td >1.8</td>
 <td >5.5</td>
 <td >10.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Gov't Consumption &amp; Gross
 Investment</td>
 <td >1.8</td>
 <td >1.7</td>
 <td >0.1</td>
 <td >0.8</td>
 <td >1.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Change in Real Business
 Inventories (Bil. $)</td>
 <td >48.0</td>
 <td >40.1</td>
 <td >15.2</td>
 <td >33.4</td>
 <td >100.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Real Net Exports (Bil. $)</td>
 <td >-704.6</td>
 <td >-658.0</td>
 <td >-621.8</td>
 <td >-586.3</td>
 <td >-545.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Housing Starts (Mil. Units)</td>
 <td >1.35</td>
 <td >1.30</td>
 <td >1.20</td>
 <td >1.17</td>
 <td >1.11</td>
 </tr>
 <tr>
 <td class="firstcol" >Light Vehicle Sales (Mil. Units)</td>
 <td >16.8</td>
 <td >17.0</td>
 <td >17.1</td>
 <td >17.5</td>
 <td >17.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Payroll Employment Average Monthly
 Change (000s)</td>
 <td >154</td>
 <td >192</td>
 <td >182</td>
 <td >195</td>
 <td >226</td>
 </tr>
 <tr>
 <td class="firstcol" >Civilian Unemployment Rate (%)</td>
 <td >3.7</td>
 <td >3.9</td>
 <td >4.4</td>
 <td >4.9</td>
 <td >5.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Chain Price Index for PCE (Q4/Q4 %)</td>
 <td >2.1</td>
 <td >2.1</td>
 <td >1.7</td>
 <td >1.6</td>
 <td >0.4</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Chain Price Index excl. Food &amp;
 Energy (Q4/Q4 %)</td>
 <td >2.1</td>
 <td >2.2</td>
 <td >1.5</td>
 <td >1.9</td>
 <td >1.3</td>
 </tr>
 <tr>
 <td class="firstcol" >Fed Funds Rate (%, Year-End)</td>
 <td >2.88</td>
 <td >2.20</td>
 <td >1.38</td>
 <td >0.63</td>
 <td >0.38</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >10-Year Treasury Note (%, Year-End)</td>
 <td >3.50</td>
 <td >3.20</td>
 <td >2.40</td>
 <td >2.45</td>
 <td >2.27</td>
 </tr>
 </tbody>
</table>

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The National Association for Business Economics forecasts 2.7% growth in real GDP during 2019 following an expected 2.8% rise this year, revised from the earlier forecast of 2.9% growth. Quarterly GDP growth is expected to average [...]

NABE 2019 Forecast Is Little Changed; Moderate Growth & Higher Inflation

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The job market exhibited buoyancy during May. Nonfarm payrolls increased
223,000 following a 159,000 April rise and a 155,000 March increase. Together,
payrolls during these two months were revised up 15,000. A 185,000 rise in
employment was expected in the Action Economics Forecast Survey. Signs of job
market improvement extended to a 0.3% increase (2.7% y/y) in average hourly
earnings which followed an unrevised 0.1% uptick. It was the largest gain since
January. A 0.2% rise had been expected.
The unemployment rate fell to 3.8%, the lowest level since April 2000.
Expectations had been for 3.9%. The total unemployment rate, including
marginally attached and working part time for economic reasons fell to 7.6%,
equaling its 2001 low.&nbsp;&nbsp; 

The labor market data are contained in Haver's USECON
database. Detailed figures are in the EMPL and LABOR databases.
The expectations figures are in the AS1REPNA database. 
<table width="1871" class="centered" border="0" cellSpacing="0">
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 <tr>
 <th class="firstcol" scope="col" w width="960">Employment: (SA, M/M
 Change, 000s)</th>
 <th scope="col" width="129">May</th>
 <th scope="col" width="129">Apr</th>
 <th scope="col" width="129">Mar</th>
 <th scope="col" width="130">May Y/Y</th>
 <th scope="col" width="130">2017</th>
 <th scope="col" width="130">2016</th>
 <th scope="col" width="130">2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" w width="960">Payroll Employment</td>
 <td align="center" width="129">223</td>
 <td align="center" width="129">159</td>
 <td align="center" width="129">155</td>
 <td align="center" width="130">1.6%</td>
 <td align="center" width="130">1.6%</td>
 <td align="center" width="130">1.8%</td>
 <td align="center" width="130">2.1%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" w width="960">&nbsp;Previous Estimate</td>
 <td align="center" width="129">--</td>
 <td align="center" width="129">164</td>
 <td align="center" width="129">135</td>
 <td align="center" width="130">--</td>
 <td align="center" width="130">--</td>
 <td align="center" width="130">--</td>
 <td align="center" width="130">--</td>
 </tr>
 <tr>
 <td class="firstcol" w width="960">&nbsp; Manufacturing</td>
 <td align="center" width="129">18</td>
 <td align="center" width="129">25</td>
 <td align="center" width="129">21</td>
 <td align="center" width="130">2.1</td>
 <td align="center" width="130">0.7</td>
 <td align="center" width="130">0.1</td>
 <td align="center" width="130">1.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" w width="960">&nbsp; Construction</td>
 <td align="center" width="129">25</td>
 <td align="center" width="129">21</td>
 <td align="center" width="129">-3</td>
 <td align="center" width="130">4.2</td>
 <td align="center" width="130">2.4</td>
 <td align="center" width="130">4.1</td>
 <td align="center" width="130">5.0</td>
 </tr>
 <tr>
 <td class="firstcol" w width="960">&nbsp; Private Service-Producing</td>
 <td align="center" width="129">171</td>
 <td align="center" width="129">109</td>
 <td align="center" width="129">127</td>
 <td align="center" width="130">1.7</td>
 <td align="center" width="130">1.8</td>
 <td align="center" width="130">2.2</td>
 <td align="center" width="130">2.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" w width="960">&nbsp; Government</td>
 <td align="center" width="129">5</td>
 <td align="center" width="129">-3</td>
 <td align="center" width="129">2</td>
 <td align="center" width="130">0.0</td>
 <td align="center" width="130">0.4</td>
 <td align="center" width="130">0.9</td>
 <td align="center" width="130">0.7</td>
 </tr>
 <tr>
 <td class="firstcol" w width="960">Average Weekly Hours - Private Sector</td>
 <td align="center" width="129">34.5</td>
 <td align="center" width="129">34.5</td>
 <td align="center" width="129">34.5</td>
 <td align="center" width="130">34.4</td>
 <td align="center" width="130">34.4</td>
 <td align="center" width="130">34.4</td>
 <td align="center" width="130">34.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" w width="960">Private Sector Average Hourly Earnings
 (%)</td>
 <td align="center" width="129">0.3</td>
 <td align="center" width="129">0.1</td>
 <td align="center" width="129">0.2</td>
 <td align="center" width="130">2.7</td>
 <td align="center" width="130">2.5</td>
 <td align="center" width="130">2.6</td>
 <td align="center" width="130">2.3</td>
 </tr>
 <tr>
 <td class="firstcol" w width="960">Unemployment Rate (%)</td>
 <td align="center" width="129">3.8</td>
 <td align="center" width="129">3.9</td>
 <td align="center" width="129">4.1</td>
 <td align="center" width="130">4.3</td>
 <td align="center" width="130">4.4</td>
 <td align="center" width="130">4.9</td>
 <td align="center" width="130">5.3</td>
 </tr>
 </tbody>
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&nbsp;
U.S. Light Vehicle Sales Falter 
by <a href="http://haver.com/comment/Moeller.html">Tom Moeller</a>&nbsp;&nbsp;June
1, 2018
Total sales of light vehicles declined 1.9% during April
(+0.6% y/y) to 17.15 million units (SAAR), following a 2.4% March rise,
according to the Autodata Corporation. The decline placed sales 7.6% below the
18.57 million unit high reached last September. April sales have declined 4.0%
since December, following a 1.7% twelve-month shortfall during 2017.
Leading last month's decline was a 3.4% drop (-16.4% y/y) in
passenger car sales to 5.42 million units. Sales of domestically made autos
eased 5.0% (-17.5% y/y) to 3.90 million units, the lowest level since November
2010. Sales of imported passenger cars improved 0.9% (-13.3% y/y) to 1.53
million units.
Sales of light trucks declined 1.2% (+11.0% y/y) to 11.72
million units. Domestic light truck sales eased 3.8% (+6.9% y/y) to 9.28 million
units. Sales of imported light trucks increased 9.9% (30.1% y/y) to 2.45 million
units.
Trucks' share of the U.S. vehicle market rose to 68.4% in
April, up from 63.2% during all of last year and 48.8% during all of 2008.
Imports' share of the U.S. vehicle market surged to 23.2%
last month, up from 19.9% in 2015. Imports' share of the passenger car market
increased to 28.2% from 27.7% last year. Imports share of the light truck market
surged to 20.9% versus 12.7% low during 2014.
U.S. vehicle sales figures can be found in Haver's USECON
database.
<table width="1871" class="centered" border="0" cellSpacing="0">
 <thead>
 <tr>
 <th class="firstcol" scope="col" width="969">Light Weight Vehicle Sales
 (SAAR, Million Units)</th>
 <th scope="col" width="128">May</th>
 <th scope="col" width="128">Apr</th>
 <th scope="col" width="128">Mar</th>
 <th scope="col" width="128">May Y/Y %</th>
 <th scope="col" width="128">2017</th>
 <th scope="col" width="129">2016</th>
 <th scope="col" width="129">2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" width="969">Total</td>
 <td align="center" width="128"></td>
 <td align="center" width="128">17.15</td>
 <td align="center" width="128">17.48</td>
 <td align="center" width="128">0.6</td>
 <td align="center" width="128">17.27</td>
 <td align="center" width="129">17.55</td>
 <td align="center" width="129">17.48</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="969">&nbsp;Autos</td>
 <td align="center" width="128"></td>
 <td align="center" width="128">5.42</td>
 <td align="center" width="128">5.62</td>
 <td align="center" width="128">-16.4</td>
 <td align="center" width="128">6.35</td>
 <td align="center" width="129">7.10</td>
 <td align="center" width="129">7.73</td>
 </tr>
 <tr>
 <td class="firstcol" width="969">&nbsp;&nbsp;Domestic</td>
 <td align="center" width="128"></td>
 <td align="center" width="128">3.90</td>
 <td align="center" width="128">4.10</td>
 <td align="center" width="128">-17.5</td>
 <td align="center" width="128">4.59</td>
 <td align="center" width="129">5.20</td>
 <td align="center" width="129">5.63</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="969">&nbsp;&nbsp;Imported</td>
 <td align="center" width="128"></td>
 <td align="center" width="128">1.53</td>
 <td align="center" width="128">1.51</td>
 <td align="center" width="128">-13.3</td>
 <td align="center" width="128">1.76</td>
 <td align="center" width="129">1.90</td>
 <td align="center" width="129">2.10</td>
 </tr>
 <tr>
 <td class="firstcol" width="969">&nbsp;Light Trucks</td>
 <td align="center" width="128"></td>
 <td align="center" width="128">11.72</td>
 <td align="center" width="128">11.87</td>
 <td align="center" width="128">11.0</td>
 <td align="center" width="128">10.92</td>
 <td align="center" width="129">10.44</td>
 <td align="center" width="129">9.74</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" width="969">&nbsp;&nbsp;Domestic</td>
 <td align="center" width="128"></td>
 <td align="center" width="128">9.28</td>
 <td align="center" width="128">9.64</td>
 <td align="center" width="128">6.9</td>
 <td align="center" width="128">9.02</td>
 <td align="center" width="129">8.75</td>
 <td align="center" width="129">8.37</td>
 </tr>
 <tr>
 <td class="firstcol" width="969">&nbsp;&nbsp;Imported</td>
 <td align="center" width="128"></td>
 <td align="center" width="128">2.45</td>
 <td align="center" width="128">2.23</td>
 <td align="center" width="128">30.1</td>
 <td align="center" width="128">1.90</td>
 <td align="center" width="129">1.69</td>
 <td align="center" width="129">1.38</td>
 </tr>
 </tbody>
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The labor market data are contained in Haver's USECON database. Detailed figures are in the EMPL and LABOR databases. The expectations figures are in the AS1REPNA database. Employment: (SA, M/M Change, 000s) May Apr Mar May Y/Y 2017 [...]

U.S. Payroll & Earnings Growth Improve; Jobless Rate Declines

Sandy Batten

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The value of construction put-in-place recovered in April, rising a larger-than-expected 1.8% m/m (8.3% y/y) after having fallen 1.7% m/m in March (unrevised). The 1.0% m/m increase initially reported for February was revised up to a 1.2% m/m gain. The Action Economics Forecast Survey had looked for a 0.8% m/m rise in building activity in April. Weather in March was unseasonal and thereby restrained construction activity. So, some of the April increase reflected a payback from the return to more normal weather. The strong April report gets the second quarter off to a very good start with construction spending already 1.1% (not annualized) above the first quarter average.

The private sector, particularly residential construction, led the April rebound. Private sector building activity jumped 2.8% m/m (8.4% y/y). The March figure was downwardly revised, but this was almost completely offset by an upward revision to February. Construction spending in March is now reported to have fallen 2.6% m/m vs. a 2.1% m/m decline initially reported. February construction spending is now reported as up 1.6% m/m vs. the initially reported 1.2% m/m rise. Residential construction spending led the overall rebound in April. It jumped 4.5% m/m (10.1% y/y) following a downwardly revised 4.1% decline in March. The strength of residential construction, however, was concentrated in multi-family construction and home improvements, both volatile series. Multi-family construction was up 3.6% m/m in April following a 4.3% m/m decline in March. Spending on home improvements surged 11.6% m/m in April, more than offsetting the 10.1% m/m plunge in March. These two monthly swings were the largest in seventeen years and highlight the volatility of this series. Private nonresidential construction spending increased 0.8% m/m (6.4% y/y) in April after having declined a modestly downwardly revised 0.6% m/m in March.

The value of public sector building activity fell 1.3% m/m (+8.0% y/y) in April after an upwardly revised 1.2% m/m rise in March (initially reported as unchanged). Looking at the two key components of public construction, highway and street construction, the largest component, fell 1.0% m/m following an upwardly revised 2.1% m/m jump in March. Education construction, the second largest component, was unchanged in April after a 0.5% m/m rise in March.

The construction spending figures, some of which date back to
1946 (e.g., public construction figures), are in Haver's USECON database
and the expectations reading can be found 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" >Construction Put in Place
 (SA, %)</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Mar</th>
 <th scope="col" >Feb</th>
 <th scope="col" >Apr 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 >1.8</td>
 <td >-1.7</td>
 <td >1.2</td>
 <td >8.3</td>
 <td >4.1</td>
 <td >6.5</td>
 <td >10.7</td>
 </tr>
 </tbody>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Private</td>
 <td >2.8</td>
 <td >-2.6</td>
 <td >1.6</td>
 <td >8.4</td>
 <td >6.2</td>
 <td >9.2</td>
 <td >12.9</td>
 </tr>
 </tbody>
 <tbody>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Residential</td>
 <td >4.5</td>
 <td >-4.1</td>
 <td >1.0</td>
 <td >10.1</td>
 <td >10.9</td>
 <td >10.5</td>
 <td >14.2</td>
 </tr>
 </tbody>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;&nbsp; Nonresidential</td>
 <td >0.8</td>
 <td >-0.6</td>
 <td >2.2</td>
 <td >6.4</td>
 <td >1.1</td>
 <td >7.7</td>
 <td >11.5</td>
 </tr>
 </tbody>
 <tbody>
 <tr>
 <td class="firstcol" >&nbsp; Public</td>
 <td >-1.3</td>
 <td >1.2</td>
 <td >-0.1</td>
 <td >8.0</td>
 <td >-2.5</td>
 <td >-1.2</td>
 <td >5.1</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

The value of construction put-in-place recovered in April, rising a larger-than-expected 1.8% m/m (8.3% y/y) after having fallen 1.7% m/m in March (unrevised). The 1.0% m/m increase initially reported for February was revised up to a [...]

U.S. Construction Spending Stronger than Expected in April

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Total sales of light vehicles declined 1.5% during May (+0.7%
y/y) to 16.91 million units (SAAR), following a 1.8% April decline to 17.17
million units, according to the Autodata Corporation. The decline left sales 8.9%
below the 18.57 million unit high reached last September. May sales declined 5.3%
since December, following a 1.7% twelve-month shortfall during 2017.

Sales of light trucks declined 2.2% (+8.7% y/y) to 11.48
million units. Domestic light truck sales eased 2.1% (+5.1% y/y) to 9.09 million
units. Sales of imported light trucks fell 2.5% (+25.4% y/y) to 2.39 million units.

Passenger car sales were fairly steady m/m at 5.44 million
units. Sales of domestically made autos eased 0.1% (-13.5% y/y) to 3.90 million
units, the lowest level since November 2010. Sales of imported passenger cars
improved 0.7% (-11.1% y/y) to 1.54 million units.

Trucks' share of the U.S. vehicle market slipped to 67.9% in
May, but remained up versus 63.2% during all of last year and 48.8% during all of 2008.

Imports' share of the U.S. vehicle market was steady at 23.2%
last month, up from 19.9% in 2015. Imports' share of the passenger car market
increased to 28.3% from 27.7% last year. Imports share of the light truck market
held steady at&nbsp; 20.8% versus a 12.7% low during 2014.

U.S. vehicle sales figures can be found in Haver's USECON 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" >Light Weight Vehicle Sales
 (SAAR, Million Units)</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 >16.91</td>
 <td >17.17</td>
 <td >17.48</td>
 <td >0.7</td>
 <td >17.27</td>
 <td >17.55</td>
 <td >17.48</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Autos</td>
 <td >5.44</td>
 <td >5.43</td>
 <td >5.62</td>
 <td >-12.8</td>
 <td >6.35</td>
 <td >7.10</td>
 <td >7.73</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Domestic</td>
 <td >3.90</td>
 <td >3.91</td>
 <td >4.10</td>
 <td >-13.5</td>
 <td >4.59</td>
 <td >5.20</td>
 <td >5.63</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Imported</td>
 <td >1.54</td>
 <td >1.53</td>
 <td >1.51</td>
 <td >-11.1</td>
 <td >1.76</td>
 <td >1.90</td>
 <td >2.10</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Light Trucks</td>
 <td >11.48</td>
 <td >11.73</td>
 <td >11.87</td>
 <td >8.7</td>
 <td >10.92</td>
 <td >10.44</td>
 <td >9.74</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Domestic</td>
 <td >9.09</td>
 <td >9.28</td>
 <td >9.64</td>
 <td >5.1</td>
 <td >9.02</td>
 <td >8.75</td>
 <td >8.37</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Imported</td>
 <td >2.39</td>
 <td >2.45</td>
 <td >2.23</td>
 <td >25.4</td>
 <td >1.90</td>
 <td >1.69</td>
 <td >1.38</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

Total sales of light vehicles declined 1.5% during May (+0.7% y/y) to 16.91 million units (SAAR), following a 1.8% April decline to 17.17 million units, according to the Autodata Corporation. The decline left sales 8.9% below the [...]

U.S. Light Vehicle Sales Slip

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The job market exhibited buoyancy during May. Nonfarm payrolls increased
223,000 following a 159,000 April rise and a 155,000 March increase. Together,
payrolls during these two months were revised up 15,000. A 185,000 rise in
employment was expected in the Action Economics Forecast Survey. Signs of job
market improvement extended to a 0.3% increase (2.7% y/y) in average hourly
earnings which followed an unrevised 0.1% uptick. It was the largest gain since
January. A 0.2% rise had been expected.

The unemployment rate fell to 3.8%, the lowest level since April 2000.
Expectations had been for 3.9%. The total unemployment rate, including
marginally attached and working part time for economic reasons fell to 7.6%,
equaling its 2001 low.

From the payroll employment survey, the 223,000 increase in jobs
reflected an 18,000 increase (2.1% y/y) in factory sector jobs which was the
weakest gain since September of last year. Construction sector employment offset
some of this moderation with a 25,000 rise (4.2% y/y) which was the largest gain
in three months. Mining sector jobs gained 5,500 (9.9% y/y), the smallest rise since December.

Employment in private services increased 171,000 (1.7% y/y), the largest rise
since February. Employment in trade, transportation &amp; public utilities rose
53,000 (1.3% y/y) following no change in April. Jobs in education and the health
services industry increased 39,000 (1.9% y/y), the strongest rise since January.
Professional &amp; business service sector employment improved 31,000 (2.4%
y/y), the weakest rise since December. Employment in the leisure &amp;
hospitality sector grew 21,000 (1.6% y/y), up from 12,000 during the prior
month. Financial activities employment grew 8,000 (1.5% y/y), the strongest gain
in three months. Employment in the information services sector increased 6,000
(-0.6% y/y). Increases here in the last three months followed monthly declines
during most of last year.

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Hiring in the government sector rose 5,000 last month but was unchanged y/y.
Jobs in local government improved 6,000 (0.5% y/y) after a 3,000 rise. State
government employment grew 2,000 (-0.8% y/y) and compared to declines during
much of last year. Federal government employment fell 3,000 (-0.9% y/y), about
as it did February through April.

Average hourly earnings grew 0.3% (2.7% y/y) reflecting a 0.3% rise
(2.8% y/y) in private service-producing industries. The gain was powered by a
1.4% jump (5.6% y/y) in financial industry earnings. Earnings in trade,
transportation &amp; utilities grew 0.3% (2.4% y/y). Education &amp; health
services earnings grew 0.4% (2.4% y/y) but professional &amp; business services
earnings held steady (2.3% y/y). Construction sector earnings improved 0.1%
(3.2% y/y), but factory sector pay was unchanged (1.5% y/y).

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The length of the average workweek held at 34.5 hours, where it's been since
February. Mining sector hours lengthened to 46.1 from a low of 42.8 hours in
March of 2016. Factory sector hours declined to 40.8, the fewest since January.
The construction sector workweek lengthened to 39.6 hours, the most since
December 2015. Hours in private services held steady at 33.3 hours. Financial
activities hours were unchanged at 37.5 while professional &amp; business
services improved to 36.2 hours, equaling the most since January 2016. Education
&amp; health services hours remained at 33.0, the most since October 2008.
Leisure &amp; hospitality hours ticked up m/m to 26.1, about where they've been since early 2016.

From the household employment survey, the decline in the unemployment
rate to 3.8% reflected a 293,000 increase (1.7% y/y) in employment and a 12,000
rise (1.1% y/y) in the labor force. The labor force participation rate declined
to 62.7% and equaled the lowest level in two years. The rate for women aged
25-54 eased m/m to 74.8% and for men of that age it held steady m/m at 89.2%.
The number of people not in the labor force grew 0.9% y/y, nearly the quickest
rate of increase in two years.

By educational attainment, the unemployment rate for those with less than a
high school diploma fell to 5.4% from 14.8% averaged in 2010. For high school
graduates with no college, it fell to 3.9%, also down from the 2010 high of
10.3%. For those with some college but no degree, the jobless rate declined to
an eight year low of 3.2% and for those with a college degree, it was 2.0%.

The teenage unemployment rate fell to a recovery low of 12.8%, down from the
2010 high of 25.9%. For individuals aged 20-24, it was 7.1% versus 15.5% in
2010. For individuals aged 25-54, the rate dropped to 3.1% from 8.6% in 2010,
and for those aged 55 or more it fell to 2.8% from 7.0% in 2010.

The labor market data are contained in Haver's USECON
database. Detailed figures are in the EMPL and LABOR databases.
The expectations figures are 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" >Employment: (SA, M/M
 Change, 000s)</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" >Payroll Employment</td>
 <td >223</td>
 <td >159</td>
 <td >155</td>
 <td >1.6%</td>
 <td >1.6%</td>
 <td >1.8%</td>
 <td >2.1%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Previous Estimate</td>
 <td >--</td>
 <td >164</td>
 <td >135</td>
 <td >--</td>
 <td >--</td>
 <td >--</td>
 <td >--</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Manufacturing</td>
 <td >18</td>
 <td >25</td>
 <td >21</td>
 <td >2.1</td>
 <td >0.7</td>
 <td >0.1</td>
 <td >1.2</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Construction</td>
 <td >25</td>
 <td >21</td>
 <td >-3</td>
 <td >4.2</td>
 <td >2.4</td>
 <td >4.1</td>
 <td >5.0</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp; Private Service-Producing</td>
 <td >171</td>
 <td >109</td>
 <td >127</td>
 <td >1.7</td>
 <td >1.8</td>
 <td >2.2</td>
 <td >2.4</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp; Government</td>
 <td >5</td>
 <td >-3</td>
 <td >2</td>
 <td >0.0</td>
 <td >0.4</td>
 <td >0.9</td>
 <td >0.7</td>
 </tr>
 <tr>
 <td class="firstcol" >Average Weekly Hours - Private Sector</td>
 <td >34.5</td>
 <td >34.5</td>
 <td >34.5</td>
 <td >34.4</td>
 <td >34.4</td>
 <td >34.4</td>
 <td >34.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Private Sector Average Hourly Earnings
 (%)</td>
 <td >0.3</td>
 <td >0.1</td>
 <td >0.2</td>
 <td >2.7</td>
 <td >2.5</td>
 <td >2.6</td>
 <td >2.3</td>
 </tr>
 <tr>
 <td class="firstcol" >Unemployment Rate (%)</td>
 <td >3.8</td>
 <td >3.9</td>
 <td >4.1</td>
 <td >4.3</td>
 <td >4.4</td>
 <td >4.9</td>
 <td >5.3</td>
 </tr>
 </tbody>
 </table>
 
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The job market exhibited buoyancy during May. Nonfarm payrolls increased 223,000 following a 159,000 April rise and a 155,000 March increase. Together, payrolls during these two months were revised up 15,000. A 185,000 rise in [...]

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Activity in the factory sector picked up in May following a moderation in April. The ISM headline manufacturing index jumped 1.4 points to 58.7 in May from 57.3 in April. This index has moderated since earlier this year, but remains elevated in historical terms. Readings over the past nine months have been among the highest since mid-2004. A level of 58.0 had been expected in the Action Economics Forecast Survey. During the last ten years, there has been a 76% correlation between the level of this index and q/q growth in real GDP. Indeed, the report from the ISM estimated that the May figure corresponds to a 4.8% annual rate increase in real GDP. This was the 21st consecutive month that this index exceeded the critical expansion-contraction level of 50.

The strength in the May report was widespread. Four of the five components of the headline index rose in May. Particularly strong were new orders and production. The new orders index jumped up 2.5 points to 63.7, its 13th consecutive monthly reading above 60. The production index surged 4.3 points to 61.5. It has been above 60 in 12 of the past 13 months. Supplier delivery times rose to 62.0, inventories fell and order backlogs rose in May (to its highest level since April 2004), indicating that manufacturers are having more difficulty keeping up with demand. Of the 18 industries in the survey, 16 reported growth in May, while 2 reported no change from April. None reported declines. In keeping with the stronger-than-expected May employment report (released earlier today), the employment index rebounded to 56.3 in May.

The prices paid index (NSA) edged up to an elevated 79.5 in May (its highest reading since April 2011) from 79.3 in April, indicating that most producers are experiencing increases in raw materials prices. However, note that oil prices are currently rising and all producers use energy. Historically, this index has risen to elevated levels during periods of rising oil prices.

Among the other series measured by the ISM, the export order index continued to decline, falling to 55.6, its third consecutive monthly fall. The import order index also experienced its third consecutive monthly decline, falling to 54.1 in May.

The ISM figures are diffusion indexes where a reading above
50 indicates expansion. The figures from the Institute for Supply Management can
be found in Haver's USECON database. The expectations number is available
in Haver's 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" >ISM Mfg (SA)</th>
 <th scope="col" >May</th>
 <th scope="col" >Apr</th>
 <th scope="col" >Mar</th>
 <th scope="col" >May'17</th>
 <th scope="col" >2017</th>
 <th scope="col" >2016</th>
 <th scope="col" >2015</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Headline Index</td>
 <td >58.7</td>
 <td >57.3</td>
 <td >59.3</td>
 <td >55.5</td>
 <td >57.4</td>
 <td >51.4</td>
 <td >51.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;New Orders</td>
 <td >63.7</td>
 <td >61.2</td>
 <td >61.9</td>
 <td >60.0</td>
 <td >62.2</td>
 <td >54.5</td>
 <td >52.3</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Production</td>
 <td >61.5</td>
 <td >57.2</td>
 <td >61.0</td>
 <td >57.5</td>
 <td >61.0</td>
 <td >53.8</td>
 <td >59.3</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Employment</td>
 <td >56.3</td>
 <td >54.2</td>
 <td >57.3</td>
 <td >53.3</td>
 <td >56.8</td>
 <td >49.2</td>
 <td >50.7</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Supplier Deliveries</td>
 <td >62.0</td>
 <td >61.1</td>
 <td >60.6</td>
 <td >54.4</td>
 <td >56.8</td>
 <td >51.8</td>
 <td >50.8</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Inventories</td>
 <td >50.2</td>
 <td >52.9</td>
 <td >55.5</td>
 <td >52.1</td>
 <td >50.4</td>
 <td >47.5</td>
 <td >49.4</td>
 </tr>
 <tr>
 <td class="firstcol" >Prices Paid Index (NSA)</td>
 <td >79.5</td>
 <td >79.3</td>
 <td >78.1</td>
 <td >59.5</td>
 <td >65.0</td>
 <td >53.1</td>
 <td >40.1</td>
 </tr>
 </tbody>
 </table>
 
</body></html>

Activity in the factory sector picked up in May following a moderation in April. The ISM headline manufacturing index jumped 1.4 points to 58.7 in May from 57.3 in April. This index has moderated since earlier this year, but remains [...]

ISM Factory Sector Index Rebounds in May

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.

260206.jpg

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

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

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

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

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

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

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

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

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

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

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

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

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

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

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

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

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

U.S. Initial Unemployment Claims Surged in Latest Week

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

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

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

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

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

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

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

Economy in Brief

Jump to:

EMU PPI Slows

NABE 2019 Forecast Is Little Changed; Moderate Growth & Higher Inflation

U.S. Payroll & Earnings Growth Improve; Jobless Rate Declines

U.S. Construction Spending Stronger than Expected in April

U.S. Light Vehicle Sales Slip

U.S. Payroll & Earnings Growth Improve; Jobless Rate Declines

ISM Factory Sector Index Rebounds in May

U.S. Construction Spending Stronger than Expected in April