Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070606a.jpg" width="353">
Productivity is trending lower for manufacturing (MFG) as well as overall for nonfarm businesses. The accompanying chart makes the downturn clear. For nonfarm business the erosion seems to date back to mid-2005. For nonfarm productivity it looks like a trend decline is still in train - that would be very bad news indeed. It&#146;s bad enough that productivity has slowed to 1% Yr/Yr. 
With productivity at 1% Yr/Yr and population growth at about 1% Yr/Yr, GDP growth faces strong constraints. While labor force growth can surpass population growth, one-half of one percent is about all the extra growth it might be prudent to look for. And to encourage greater labor force participation it generally takes higher wages and that would be a problem for the Fed since it is trying to keep inflation contained. On balance, 2.5% growth seems about the limit to GDP under this new productivity growth rate scenario. 
Of course productivity is a fickle series. The chart on the left shows a good deal of variation in Yr/Yr growth. Quarterly growth in productivity and GDP can move around by a lot more. Still it is the trend we should be most concerned with. That is what the Fed will be looking at as it makes an assessment of its own policy options. 
The main implication of structurally weaker productivity growth is that the Fed will be seeing the economy with a lower speed limit. This is something markets have been having a hard time dealing with for sometime now. We have seen the slowing in labor force growth that has meant that 118K jobs per month (in nonfarm payrolls) is all that the job market needs to produce to steady the unemployment rate. Now a lower GDP number will also associate with that weaker job growth. 
The paradox is that this low growth will not be a cause for alarm that growth is slipping, rather the Fed will get worried about inflation pressures and speeding at growth rates that used to be quite acceptable and sustainable. 
Productivity is one of the most important contributors to growth and it is one of the most volatile. As such it is a variable that is hard to pin down. Even so the Fed will not be pleased with the new result and the trend it hints at. 
A diminished trend in productivity means that wage pressures can become inflation problems more easily. With high productivity in train sizeable wage increases can be blunted and &#145;paid for&#146; by accelerated productivity growth. But when productivity growth is low, firms have to be more careful about giving in to wage demands since the productivity cushion is smaller. 
In Q1 2007 compensation per hour of 3.2% less productivity of 1% leaves unit labor costs higher by 2.2%. In Q4 of 2005 compensation per hour of 3.7% translated into unit labor costs of just +1.5% because productivity was up by 2.1%. 
With the Fed putting the top of its inflation comfort zone at 2% in terms of Core PCE it is easy to see that wages are to be held in a narrow band if productivity stays this low and if the Fed is to be successful in keeping inflation at bay.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Nonfarm Productivity
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Year/Year Pct</td>
<td>07/Q1</td>
<td>06/Q4</td>
<td>06/Q3</td>
<td>06/Q2</td>
<td>06/Q1</td>
<td>05/Q4</td>
</tr>
<tr class="odd">
<td class="firstcol">NF Unit Labor Cost</td>
<td>2.2%</td>
<td>4.0%</td>
<td>2.6%</td>
<td>3.1%</td>
<td>3.6%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">NF Output/Hr</td>
<td>1.0%</td>
<td>1.6%</td>
<td>0.9%</td>
<td>1.9%</td>
<td>2.0%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">NF Comp/Hr</td>
<td>3.2%</td>
<td>5.6%</td>
<td>3.5%</td>
<td>5.1%</td>
<td>5.7%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">NF Real Comp/Hr</td>
<td>0.7%</td>
<td>3.6%</td>
<td>0.1%</td>
<td>1.0%</td>
<td>1.9%</td>
<td>0.0%</td>
</tr>
<tr>
<td colspan="7">Manufacturing</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG Unit Labor Cost</td>
<td>-0.4%</td>
<td>0.7%</td>
<td>-2.3%</td>
<td>0.1%</td>
<td>2.0%</td>
<td>-1.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG Output/Hour</td>
<td>3.5%</td>
<td>3.9%</td>
<td>4.2%</td>
<td>3.6%</td>
<td>4.1%</td>
<td>4.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG Comp/Hour</td>
<td>3.1%</td>
<td>4.6%</td>
<td>1.8%</td>
<td>3.7%</td>
<td>6.1%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG Real Comp/Hour</td>
<td>0.6%</td>
<td>2.6%</td>
<td>-1.5%</td>
<td>-0.3%</td>
<td>2.3%</td>
<td>-0.4%</td>
</tr>
</tbody>
</table>
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Productivity is trending lower for manufacturing (MFG) as well as overall for nonfarm businesses. The accompanying chart makes the downturn clear. For nonfarm business the erosion seems to date back to mid-2005. For nonfarm [...]

U.S. Productivity is Down and Unit Labor Costs are Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070606a.jpg" width="353">
Productivity is trending lower for manufacturing (MFG) as well as overall for nonfarm businesses. The accompanying chart makes the downturn clear. For nonfarm business the erosion seems to date back to mid-2005. For nonfarm productivity it looks like a trend decline is still in train - that would be very bad news indeed. It&#146;s bad enough that productivity has slowed to 1% Yr/Yr. 
With productivity at 1% Yr/Yr and population growth at about 1% Yr/Yr, GDP growth faces strong constraints. While labor force growth can surpass population growth, one-half of one percent is about all the extra growth it might be prudent to look for. And to encourage greater labor force participation it generally takes higher wages and that would be a problem for the Fed since it is trying to keep inflation contained. On balance, 2.5% growth seems about the limit to GDP under this new productivity growth rate scenario. 
Of course productivity is a fickle series. The chart on the left shows a good deal of variation in Yr/Yr growth. Quarterly growth in productivity and GDP can move around by a lot more. Still it is the trend we should be most concerned with. That is what the Fed will be looking at as it makes an assessment of its own policy options. 
The main implication of structurally weaker productivity growth is that the Fed will be seeing the economy with a lower speed limit. This is something markets have been having a hard time dealing with for sometime now. We have seen the slowing in labor force growth that has meant that 118K jobs per month (in nonfarm payrolls) is all that the job market needs to produce to steady the unemployment rate. Now a lower GDP number will also associate with that weaker job growth. 
The paradox is that this low growth will not be a cause for alarm that growth is slipping, rather the Fed will get worried about inflation pressures and speeding at growth rates that used to be quite acceptable and sustainable. 
Productivity is one of the most important contributors to growth and it is one of the most volatile. As such it is a variable that is hard to pin down. Even so the Fed will not be pleased with the new result and the trend it hints at. 
A diminished trend in productivity means that wage pressures can become inflation problems more easily. With high productivity in train sizeable wage increases can be blunted and &#145;paid for&#146; by accelerated productivity growth. But when productivity growth is low, firms have to be more careful about giving in to wage demands since the productivity cushion is smaller. 
In Q1 2007 compensation per hour of 3.2% less productivity of 1% leaves unit labor costs higher by 2.2%. In Q4 of 2005 compensation per hour of 3.7% translated into unit labor costs of just +1.5% because productivity was up by 2.1%. 
With the Fed putting the top of its inflation comfort zone at 2% in terms of Core PCE it is easy to see that wages are to be held in a narrow band if productivity stays this low and if the Fed is to be successful in keeping inflation at bay.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Nonfarm Productivity
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Year/Year Pct</td>
<td>07/Q1</td>
<td>06/Q4</td>
<td>06/Q3</td>
<td>06/Q2</td>
<td>06/Q1</td>
<td>05/Q4</td>
</tr>
<tr class="odd">
<td class="firstcol">NF Unit Labor Cost</td>
<td>2.2%</td>
<td>4.0%</td>
<td>2.6%</td>
<td>3.1%</td>
<td>3.6%</td>
<td>1.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">NF Output/Hr</td>
<td>1.0%</td>
<td>1.6%</td>
<td>0.9%</td>
<td>1.9%</td>
<td>2.0%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">NF Comp/Hr</td>
<td>3.2%</td>
<td>5.6%</td>
<td>3.5%</td>
<td>5.1%</td>
<td>5.7%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">NF Real Comp/Hr</td>
<td>0.7%</td>
<td>3.6%</td>
<td>0.1%</td>
<td>1.0%</td>
<td>1.9%</td>
<td>0.0%</td>
</tr>
<tr>
<td colspan="7">Manufacturing</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG Unit Labor Cost</td>
<td>-0.4%</td>
<td>0.7%</td>
<td>-2.3%</td>
<td>0.1%</td>
<td>2.0%</td>
<td>-1.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG Output/Hour</td>
<td>3.5%</td>
<td>3.9%</td>
<td>4.2%</td>
<td>3.6%</td>
<td>4.1%</td>
<td>4.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG Comp/Hour</td>
<td>3.1%</td>
<td>4.6%</td>
<td>1.8%</td>
<td>3.7%</td>
<td>6.1%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG Real Comp/Hour</td>
<td>0.6%</td>
<td>2.6%</td>
<td>-1.5%</td>
<td>-0.3%</td>
<td>2.3%</td>
<td>-0.4%</td>
</tr>
</tbody>
</table>
Challenger Lay Offs Stay Elevated 
by <a href="/comment/Brusca.html">Robert Brusca</a> June 6, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070606b.jpg" width="353">
The first issue to grapple with in trying to assess the Challenger report is that its data are not seasonally adjusted. At the same time it is clear that this series has seasonal patterns. To get around this we compare the data to the year before.. We also have created the accompanying chart that plots each month of the year in a non-binding tunnel bearing two values representing averages for each month drawn from the period of recession and depressed growth as well as from the pre-recession times when layoffs were much lower. We add, as another reference line to the chart, the midpoint between these two cases. The chart reveals that the 2007 figures were regularly at or below the midpoint line until May when the level of layoffs is higher relative to that standard. It may be that the economy is throwing off more layoffs in May than what is normal either because of calendar quirks or because of a real deterioration that is setting in.
But the chart, even though it uses NSA data, flags May 2007 as a month of backtracking on reducing layoffs. 
The comprehensive table below provides even more comparisons. May ranks as the fifth highest layoff total in the past 14 years. April was also the fifth highest layoff month. March had ranked 9th and layoffs appeared as if they were diminishing. The three-month average ranks sixth over these same 14 years. The six-month average ranks eighth. The 12-month is displayed in the table and as of May that ranks 8th. So the ranking has been creeping up as we shorten the length to measure the moving average or to look at the month directly. The improving trend is not so clear any more, indeed it appears to have switched to one of deterioration. We can see that there has been some slippage compared to historic standards; standards that are free from the effects of seasonality. 
A slight bump up in the layoff pace is not an unequivocal message. 
But the steadiness of the slippage of the rankings on shorted moving averages is indicative of a true deterioration. A pick up in layoffs need not be a sign of economic weakness, however. At the moment both jobless claims and nonfarm job growth are indicating that the job market is solid &#150; as is the 4.5% rate of unemployment. Layoffs are another way to supply labor to an already tight labor market. We know that manufacturing firms continue to shed employees and have been doing so for decades. With the pick up in M&amp;A activity it is no surprise that layoffs step-up since that is one common result of mergers and their drive for greater efficiency. 
The gradual up turn in layoffs is a trend to be aware of, but is not yet a clear signal for policy. It may be constructive or it may be a sign of true erosion and of encroaching weakness. It bears watching.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
Summary Of Announced Corporate Layoffs
<th scope="col">Rank of</th>
<th scope="col">&quot;13-Yr&quot;</th>
</tr>
</thead>
<tbody>
<tr class="grey8">
<td colspan="4">Challenger, Gray and Christmas:</td>
<td>3-Mo Avg</td>
<td>6-Mo Avg</td>
<td>12-Mo Avg</td>
<td>12-Mo</td>
<td>Rank Of</td>
</tr>
<tr class="grey7">
<td class="firstcol">&nbsp;</td>
<td>May</td>
<td>Apr</td>
<td>Mar</td>
<td>May</td>
<td>May</td>
<td>May</td>
<td>Average</td>
<td>May</td>
</tr>
<tr class="grey6">
<td class="firstcol">Announced Layoffs: 2007</td>
<td>71,115</td>
<td>70,672</td>
<td>48,997</td>
<td>63,595</td>
<td>65,736</td>
<td>67,523</td>
<td>8</td>
<td>5</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo. Year ago (2006):</td>
<td>53,716</td>
<td>59,688</td>
<td>64,975</td>
<td>59,460</td>
<td>79,514</td>
<td>84,503</td>
<td>6</td>
<td>9</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo. Year ago (2005):</td>
<td>82,283</td>
<td>57,861</td>
<td>86,396</td>
<td>75,513</td>
<td>89,387</td>
<td>88,218</td>
<td>5</td>
<td>2</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo. 2-Years ago (2004):</td>
<td>73,368</td>
<td>72,184</td>
<td>68,034</td>
<td>71,195</td>
<td>83,569</td>
<td>89,500</td>
<td>4</td>
<td>4</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo. 3-Years ago (2003):</td>
<td>68,623</td>
<td>146,399</td>
<td>85,396</td>
<td>100,139</td>
<td>110,622</td>
<td>113,426</td>
<td>2</td>
<td>6</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo .4-Years ago (2002):</td>
<td>84,978</td>
<td>112,649</td>
<td>102,315</td>
<td>99,981</td>
<td>139,686</td>
<td>154,906</td>
<td>1</td>
<td>1</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo.5-years ago (2001):</td>
<td>80,140</td>
<td>165,564</td>
<td>162,867</td>
<td>136,190</td>
<td>131,037</td>
<td>74,439</td>
<td>7</td>
<td>3</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo.6-years ago (2000):</td>
<td>27,036</td>
<td>37,291</td>
<td>55,783</td>
<td>40,037</td>
<td>41,644</td>
<td>103,205</td>
<td>3</td>
<td>12</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo.7-years ago (1999):</td>
<td>55,231</td>
<td>54,399</td>
<td>68,984</td>
<td>59,538</td>
<td>70,553</td>
<td>65,201</td>
<td>9</td>
<td>8</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo.8-years ago (1998):</td>
<td>27,631</td>
<td>48,758</td>
<td>23,028</td>
<td>33,139</td>
<td>45,637</td>
<td>39,950</td>
<td>11</td>
<td>11</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo.9-years ago (1997):</td>
<td>21,004</td>
<td>15,214</td>
<td>50,182</td>
<td>28,800</td>
<td>34,646</td>
<td>31,851</td>
<td>13</td>
<td>13</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo.10-years ago (1996):</td>
<td>30,845</td>
<td>30,810</td>
<td>37,486</td>
<td>33,047</td>
<td>47,598</td>
<td>41,526</td>
<td>10</td>
<td>10</td>
</tr>
<tr class="grey5">
<td class="firstcol">Same Mo.11-years ago (1995):</td>
<td>58,530</td>
<td>15,678</td>
<td>27,809</td>
<td>34,006</td>
<td>33,240</td>
<td>35,253</td>
<td>12</td>
<td>7</td>
</tr>
<tr class="grey4">
<td class="firstcol">Comparative Data</td>
<td>May</td>
<td>Apr</td>
<td>Mar</td>
<td colspan="3">Values for previous months</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">Recession &amp; Post Recession</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Month of</td>
<td>May</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp; Median (3-Yrs)</td>
<td>80,140</td>
<td>146,399</td>
<td>102,315</td>
<td>100,139</td>
<td>131,037</td>
<td>113,426</td>
<td>tends to be</td>
<td>lower than</td>
</tr>
<tr class="grey2">
<td class="firstcol">Pre-Recession (1995-2000)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td>Apr</td>
<td>60.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp; Median (6-Yrs)</td>
<td>29,238</td>
<td>83,524</td>
<td>77,190</td>
<td>79,759</td>
<td>90,588</td>
<td>88,822</td>
<td>of the</td>
<td>time</td>
</tr>
<tr class="grey1">
<td class="firstcol">MIDPOINT-Median</td>
<td>54,689</td>
<td>114,962</td>
<td>89,753</td>
<td>89,949</td>
<td>110,812</td>
<td>101,124</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="grey1">
<td class="firstcol">% of Pre &amp; Post Gap</td>
<td>82.3%</td>
<td>-20.4%</td>
<td>-112.2%</td>
<td>-79.3%</td>
<td>-61.4%</td>
<td>-86.6%</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
Australia GDP Up 1.6% in Q1; Best Quarter in 3 Years  
by <a href="/comment/Stone.html">Carol Stone</a> June 6, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070606c.jpg" width="353">
Australian GDP grew 1.6% in Q1, up from 1.1% in Q4 and the strongest quarter since Q4 2003. This compared with 1.3% expected in one major forecast survey. Year-to-year growth was 4.0%. Data for Australia are contained in Haver&#39;s ANZ database and in G10+ as well as numerous international databases from the OECD, IMF and others.
The pick-up resulted from positive inputs in several demand areas. Private consumption was up 1.5% compared to 1.2% the quarter before. Exports expanded 1.4%, up from 1.0%, while growth in imports was lower, 2.1% from 6.5%. This latter, of course, helps raise the total growth rate since imports enter the GDP calculation negatively. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070606d.jpg" width="353">
Fixed capital formation grew nicely as well, although the Q1 rise of 2.0% was less than Q4&#39;s 2.6%. It is important to note here the impact of the privatization of the telephone and telecommunications utility in Australia, Telstra. The government sold this company to private owners in November and it enters the GDP accounts in the private investment category for the first time in this report. Thus, the 5.8% surge in private fixed investment and the 16.9% plunge in public investment exaggerate the underlying movements. The Australian Bureau of Statistics reports that private investment would still have looked pretty good, at 4.8% growth in Q1, if the telephone company had been in the private sector all during Q4 as well. Public investment would still have fallen in Q1, but by &quot;only&quot; 7.5%. These latter growth rates are recorded in a footnote in our ANZ menu.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070606c.jpg" width="353">
Interestingly, among the various industrial sectors, manufacturing output declined, despite the gain in overall GDP. Gross value added in manufacturing eased by 0.5%, although that did follow two very good quarters of 1.7% and 2.0%. Agricultural output also declined, but only 0.3% and far less than in the prior two quarters. So agriculture actually contributed to the increase in GDP growth by subtracting less. Construction activity gained 2.5%, a reputable figure, but less than Q4&#39;s 3.9%. The best performances came in retail trade, up 2.4%, and finance, up 2.3%, with both at least a percentage point stronger than the quarter before. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">AUSTRALIA, % Chg,&nbsp; Chn A$, Q3/2004-Q2/2005</th>
<th scope="col">Q1 2007*</th>
<th scope="col">Q4 2006*</th>
<th scope="col">Q3 2006*</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Real GDP</td>
<td>1.6</td>
<td>1.1</td>
<td>0.5</td>
<td>4.0</td>
<td>2.7</td>
<td>2.7</td>
<td>3.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Private Consumption</td>
<td>1.5</td>
<td>1.2</td>
<td>0.7</td>
<td>4.2</td>
<td>3.1</td>
<td>3.0</td>
<td>5.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Gross Fixed Capital Formation</td>
<td>2.0</td>
<td>2.6</td>
<td>-0.5</td>
<td>5.8</td>
<td>6.3</td>
<td>7.8</td>
<td>7.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Private</td>
<td>5.8**</td>
<td>0.9</td>
<td>-1.5</td>
<td>7.1</td>
<td>5.4</td>
<td>7.6</td>
<td>7.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Public</td>
<td>-16.9**</td>
<td>-11.3</td>
<td>5.2</td>
<td>-2.1</td>
<td>11.9</td>
<td>8.7</td>
<td>9.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>1.4</td>
<td>1.0</td>
<td>0.2</td>
<td>4.6</td>
<td>3.4</td>
<td>2.4</td>
<td>4.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports</td>
<td>2.1</td>
<td>6.5</td>
<td>-0.5</td>
<td>11.4</td>
<td>7.7</td>
<td>8.5</td>
<td>15.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>-0.5</td>
<td>2.0</td>
<td>1.8</td>
<td>3.3</td>
<td>-1.3</td>
<td>0.2</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Finance &amp; Insurance</td>
<td>2.3</td>
<td>1.0</td>
<td>0.9</td>
<td>5.9</td>
<td>6.1</td>
<td>2.5</td>
<td>3.7</td>
</tr>
</tbody>
</table>
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Productivity is Down and Unit Labor Costs are Up

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070605c.jpg" width="353">
Eurostat released preliminary data for April retail trade today for the aggregates of the 13 countries in the Euro Area and the 27 countries in the European Union. The preliminary data are based on reports by countries representing at least 60% of the weight of the total. As a result data for all countries are not available at this time.
Eurostat does not publish, nor is it possible to derive, an index for total retail trade of the &quot;Fourteen&quot; non Euro Area countries included in the total. However, the fact that retail trade in the Euro Area increased 0.18% in April from March while trade in the entire Union declined, albeit slightly, 0.05%, suggests that retail trade in the &quot;Fourteen&quot; declined in April. The first chart shows the indexes of retail trade in the Euro Area and the European Union. The widening gap between the two series suggests that the greater growth in the retail trade of the European Union has been due largely to the &quot;Fourteen&quot;.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070605d.jpg" width="353">
The &quot;Fourteen&quot; non Euro Area countries includes three developed countries--the United Kingdom, Sweden and Denmark and eleven emerging countries of central and eastern Europe. Retail trade in the three developed countries has shown more strength than the total of the Euro Area as can be seen in the second chart. This growth, however, falls short of the dramatic growth of retail trade in the central and eastern European countries, as shown in the third chart where the paths of retail trade in Latvia, Estonia and Bulgaria are taken as illustrative of the group of emerging countries. It should however be kept in mind that these countries began to grow only after the fall of the Berlin Wall hence their growth has been from a very low base compared with that of the developed countries.
Growth of retail trade within the Euro Area has varied widely with Germany being the laggard. The fourth chart compares retail trade in Germany with that of France, Finland, and Spain among those with good growth. It appears that retail trade in Germany may finally be showing signs of growth.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070605e.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070605f.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">VOLUME OF RETAIL TRADE EX AUTOS&nbsp; (SA, 2000=100)&nbsp;</th>
<th scope="col">Apr&nbsp;&nbsp; 07</th>
<th scope="col">Mar&nbsp; 07&nbsp;</th>
<th scope="col">Apr&nbsp;&nbsp; 06</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">European Area 13</td>
<td>110.22</td>
<td>110.02</td>
<td>108.41</td>
<td>0.18</td>
<td>1.67</td>
<td>108.84</td>
<td>106.72</td>
<td>105.32</td>
</tr>
<tr>
<td class="firstcol">European Union 27</td>
<td>118.01</td>
<td>118.07</td>
<td>114.84</td>
<td>-0.05</td>
<td>2.76</td>
<td>115.46</td>
<td>112.14</td>
<td>109.97</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>120.6</td>
<td>119.5</td>
<td>116.1</td>
<td>0.92</td>
<td>3.88</td>
<td>116.9</td>
<td>114.7</td>
<td>113.2</td>
</tr>
<tr>
<td class="firstcol"> Germany </td>
<td>104.0</td>
<td>101.3</td>
<td>103.3</td>
<td>2.67</td>
<td>0.68</td>
<td>103.5</td>
<td>101.7</td>
<td>100.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>122.22</td>
<td>124.40</td>
<td>119.69</td>
<td>-1.75</td>
<td>2.11</td>
<td>120.38</td>
<td>118.02</td>
<td>116.27</td>
</tr>
<tr>
<td class="firstcol">Finland</td>
<td>132.0</td>
<td>136.1</td>
<td>128.7</td>
<td>-3.01</td>
<td>2.56</td>
<td>129.0</td>
<td>122.2</td>
<td>116.5</td>
</tr>
<tr class="odd">
<td class="firstcol">United Kingdom</td>
<td>133.14</td>
<td>133.09</td>
<td>127.45</td>
<td>0.04</td>
<td>4.46</td>
<td>128.65</td>
<td>124.65</td>
<td>122.28</td>
</tr>
<tr>
<td class="firstcol">Sweden</td>
<td>145.6</td>
<td>145.5</td>
<td>136.6</td>
<td>0.07</td>
<td>6.59</td>
<td>138.3</td>
<td>126.7</td>
<td>118.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Denmark</td>
<td>132.0</td>
<td>134.0</td>
<td>130.0</td>
<td>-1.49</td>
<td>1.54</td>
<td>130.7</td>
<td>126.4</td>
<td>116.8</td>
</tr>
<tr>
<td class="firstcol">Latvia</td>
<td>249.98</td>
<td>251.69</td>
<td>202.48</td>
<td>-0.68</td>
<td>23.46</td>
<td>213.49</td>
<td>178.03</td>
<td>146.91</td>
</tr>
<tr class="odd">
<td class="firstcol">Bulgaria</td>
<td>232.14</td>
<td>232.71</td>
<td>210.84</td>
<td>-0.24</td>
<td>10.10</td>
<td>215.48</td>
<td>190.29</td>
<td>102.49</td>
</tr>
<tr>
<td class="firstcol">Estonia</td>
<td>233.51</td>
<td>242.72</td>
<td>205.19</td>
<td>-3.79</td>
<td>13.80</td>
<td>211.88</td>
<td>181.86</td>
<td>158.98</td>
</tr>
</tbody>
</table>
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Eurostat released preliminary data for April retail trade today for the aggregates of the 13 countries in the Euro Area and the 27 countries in the European Union. The preliminary data are based on reports by countries representing at [...]

April Retail Trade in the Euro Area Picks Up, Trade in Other EU Countries Slows

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070605b.jpg" width="353">
The NonMFG ISM shows that its components are indeed cycling higher. Prices are up strongly. Backlogs while below the neutral value of 50 are nonetheless rising strongly from their six month average. Still, they edged lower in the month of May. Orders also are edging higher. And activity is firming but not yet stronger on a three-month vs six month comparison. 
In May the Non MFG ISM activity index moved up sharply. Orders also rose briskly. The report generated exactly the sort of strength we thought we would see after seeing employment strength in May. 
The percentile positions of the various ISM components show a great deal of variation in the various ISM components (see table below). For the most part the readings are strong but not all are. The supplier deliveries reading, for example is in the bottom 12 percentile of its range and shows the same sort of slack or absence of tension on deliveries as the ISM MFG and other regional reports. Even as activity has ramped up slack has increased. Contrarily exports and inventories are at the top of their respective ranges going back to 1998. Activity is high in its range. Orders, prices and employment are at firm relative readings (Percentiles). While prices are 10 % above their average value, they has such large variation (std dev= 8.2) that they are still at a moderate position within their range of values. 
Private non MFG jobs statistics are at the bottom of this table. Readings (monthly changes in non MFG jobs) are in the 65th percentile of their range since 1998 close to the 68.8 percentile for the Non Mfg ISM job diffusion reading. We appear to be getting consistent signals about the growing strength and firmness of the economy. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
ISM Non Manufacturing Statistics from Jan 1998 to Date
<th scope="col">&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">ISM-Non MFG</td>
<td>Current</td>
<td>Last Mo</td>
<td>Std Dev</td>
<td>Average</td>
<td>SD% Avg</td>
<td>MAX</td>
<td>MIN</td>
<td>Range</td>
<td>Percentile</td>
<td>% of AVG</td>
</tr>
<tr>
<td class="firstcol">PM Activity</td>
<td>59.7</td>
<td>56.0</td>
<td>4.7</td>
<td>57.6</td>
<td>8.2</td>
<td>67.9</td>
<td>40.5</td>
<td>27.4</td>
<td>70.1</td>
<td>104</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>57.4</td>
<td>55.5</td>
<td>4.7</td>
<td>57.2</td>
<td>8.2</td>
<td>66.9</td>
<td>41.3</td>
<td>25.6</td>
<td>62.9</td>
<td>100</td>
</tr>
<tr>
<td class="firstcol">Backlogs</td>
<td>48.0</td>
<td>50.0</td>
<td>3.7</td>
<td>51.0</td>
<td>7.2</td>
<td>57.0</td>
<td>40.5</td>
<td>16.5</td>
<td>45.5</td>
<td>94</td>
</tr>
<tr>
<td class="firstcol">Supplier Deliveries</td>
<td>49.5</td>
<td>51.0</td>
<td>2.2</td>
<td>53.6</td>
<td>4.1</td>
<td>60.5</td>
<td>48.0</td>
<td>12.5</td>
<td>12.0</td>
<td>92</td>
</tr>
<tr>
<td class="firstcol">Inventory Sentiment*</td>
<td>61.0</td>
<td>60.5</td>
<td>2.7</td>
<td>63.0</td>
<td>4.3</td>
<td>69.0</td>
<td>55.0</td>
<td>14.0</td>
<td>42.9</td>
<td>97</td>
</tr>
<tr>
<td class="firstcol">Inventories</td>
<td>61.0</td>
<td>52.0</td>
<td>3.3</td>
<td>50.6</td>
<td>6.6</td>
<td>61.0</td>
<td>43.5</td>
<td>17.5</td>
<td>100.0</td>
<td>121</td>
</tr>
<tr>
<td class="firstcol">Prices</td>
<td>66.4</td>
<td>63.5</td>
<td>8.2</td>
<td>60.1</td>
<td>13.6</td>
<td>80.5</td>
<td>41.3</td>
<td>39.2</td>
<td>64.0</td>
<td>110</td>
</tr>
<tr>
<td class="firstcol">Employment</td>
<td>54.9</td>
<td>51.9</td>
<td>3.7</td>
<td>51.7</td>
<td>7.1</td>
<td>59.9</td>
<td>43.9</td>
<td>16.0</td>
<td>68.8</td>
<td>106</td>
</tr>
<tr>
<td class="firstcol">Export Orders</td>
<td>66.0</td>
<td>55.5</td>
<td>4.6</td>
<td>55.0</td>
<td>8.4</td>
<td>66.0</td>
<td>44.5</td>
<td>21.5</td>
<td>100.0</td>
<td>120</td>
</tr>
<tr>
<td class="firstcol">Import Orders</td>
<td>55.5</td>
<td>52.5</td>
<td>4.0</td>
<td>54.8</td>
<td>7.3</td>
<td>63.5</td>
<td>45.5</td>
<td>18.0</td>
<td>55.6</td>
<td>101</td>
</tr>
<tr>
<td class="firstcol">Private Non MFG jobs</td>
<td>154.0</td>
<td>98.0</td>
<td>112.5</td>
<td>99.6</td>
<td>113.0</td>
<td>346.0</td>
<td>-202.0</td>
<td>548.0</td>
<td>65.0</td>
<td>155</td>
</tr>
</tbody>
</table>
</body>
</html>

The NonMFG ISM shows that its components are indeed cycling higher. Prices are up strongly. Backlogs while below the neutral value of 50 are nonetheless rising strongly from their six month average. Still, they edged lower in the [...]

Non MFG ISM strength is cycling higher—so are prices

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070605b.jpg" width="353">
The nonmanufacturing ISM shows that its components are indeed cycling higher. Prices are up strongly. Backlogs while below the neutral value of 50 are nonetheless rising strongly from their six month average. Still, they edged lower in the month of May. Orders also are edging higher. And activity is firming but not yet stronger on a three-month vs six-month comparison. 
In May the nonmanufacturing ISM activity index moved up sharply. Orders also rose briskly. The report generated exactly the sort of strength we thought we would see after seeing employment strength in May. 
The percentile positions of the various ISM components show a great deal of variation in the various ISM components (see table below). For the most part the readings are strong but not all are. The supplier deliveries reading, for example is in the bottom 12 percentile of its range and shows the same sort of slack or absence of tension on deliveries as the ISM MFG and other regional reports. Even as activity has ramped up slack has increased. Contrarily exports and inventories are at the top of their respective ranges going back to 1998. Activity is high in its range. Orders, prices and employment are at firm relative readings (Percentiles). While prices are 10 % above their average value, they have such large variation (std dev = 8.2) that they are still at a moderate position within their range of values. 
Private nonmanufacturing jobs statistics are at the bottom of this table. Readings (monthly changes in nonmanufacturing jobs) are in the 65th percentile of their range since 1998 close to the 68.8 percentile for the nonmanufacturing ISM job diffusion reading. We appear to be getting consistent signals about the growing strength and firmness of the economy. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
ISM Non Manufacturing Statistics from Jan 1998 to Date
<th scope="col">&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">ISM-Non MFG</td>
<td>Current</td>
<td>Last Mo</td>
<td>Std Dev</td>
<td>Average</td>
<td>SD% Avg</td>
<td>MAX</td>
<td>MIN</td>
<td>Range</td>
<td>Percentile</td>
<td>% of AVG</td>
</tr>
<tr>
<td class="firstcol">PM Activity</td>
<td>59.7</td>
<td>56.0</td>
<td>4.7</td>
<td>57.6</td>
<td>8.2</td>
<td>67.9</td>
<td>40.5</td>
<td>27.4</td>
<td>70.1</td>
<td>104</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>57.4</td>
<td>55.5</td>
<td>4.7</td>
<td>57.2</td>
<td>8.2</td>
<td>66.9</td>
<td>41.3</td>
<td>25.6</td>
<td>62.9</td>
<td>100</td>
</tr>
<tr>
<td class="firstcol">Backlogs</td>
<td>48.0</td>
<td>50.0</td>
<td>3.7</td>
<td>51.0</td>
<td>7.2</td>
<td>57.0</td>
<td>40.5</td>
<td>16.5</td>
<td>45.5</td>
<td>94</td>
</tr>
<tr>
<td class="firstcol">Supplier Deliveries</td>
<td>49.5</td>
<td>51.0</td>
<td>2.2</td>
<td>53.6</td>
<td>4.1</td>
<td>60.5</td>
<td>48.0</td>
<td>12.5</td>
<td>12.0</td>
<td>92</td>
</tr>
<tr>
<td class="firstcol">Inventory Sentiment*</td>
<td>61.0</td>
<td>60.5</td>
<td>2.7</td>
<td>63.0</td>
<td>4.3</td>
<td>69.0</td>
<td>55.0</td>
<td>14.0</td>
<td>42.9</td>
<td>97</td>
</tr>
<tr>
<td class="firstcol">Inventories</td>
<td>61.0</td>
<td>52.0</td>
<td>3.3</td>
<td>50.6</td>
<td>6.6</td>
<td>61.0</td>
<td>43.5</td>
<td>17.5</td>
<td>100.0</td>
<td>121</td>
</tr>
<tr>
<td class="firstcol">Prices</td>
<td>66.4</td>
<td>63.5</td>
<td>8.2</td>
<td>60.1</td>
<td>13.6</td>
<td>80.5</td>
<td>41.3</td>
<td>39.2</td>
<td>64.0</td>
<td>110</td>
</tr>
<tr>
<td class="firstcol">Employment</td>
<td>54.9</td>
<td>51.9</td>
<td>3.7</td>
<td>51.7</td>
<td>7.1</td>
<td>59.9</td>
<td>43.9</td>
<td>16.0</td>
<td>68.8</td>
<td>106</td>
</tr>
<tr>
<td class="firstcol">Export Orders</td>
<td>66.0</td>
<td>55.5</td>
<td>4.6</td>
<td>55.0</td>
<td>8.4</td>
<td>66.0</td>
<td>44.5</td>
<td>21.5</td>
<td>100.0</td>
<td>120</td>
</tr>
<tr>
<td class="firstcol">Import Orders</td>
<td>55.5</td>
<td>52.5</td>
<td>4.0</td>
<td>54.8</td>
<td>7.3</td>
<td>63.5</td>
<td>45.5</td>
<td>18.0</td>
<td>55.6</td>
<td>101</td>
</tr>
<tr>
<td class="firstcol">Private Non MFG jobs</td>
<td>154.0</td>
<td>98.0</td>
<td>112.5</td>
<td>99.6</td>
<td>113.0</td>
<td>346.0</td>
<td>-202.0</td>
<td>548.0</td>
<td>65.0</td>
<td>155</td>
</tr>
</tbody>
</table>
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The nonmanufacturing ISM shows that its components are indeed cycling higher. Prices are up strongly. Backlogs while below the neutral value of 50 are nonetheless rising strongly from their six month average. Still, they edged lower [...]

Nonmfg ISM Strength is Cycling Higher - so are Prices

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070605b.jpg" width="353">
The nonmanufacturing ISM shows that its components are indeed cycling higher. Prices are up strongly. Backlogs while below the neutral value of 50 are nonetheless rising strongly from their six month average. Still, they edged lower in the month of May. Orders also are edging higher. And activity is firming but not yet stronger on a three-month vs six- month comparison. 
In May the nonmanufacturing ISM activity index moved up sharply. Orders also rose briskly. The report generated exactly the sort of strength we thought we would see after seeing employment strength in May. 
The percentile positions of the various ISM components show a great deal of variation in the various ISM components (see table below). For the most part the readings are strong but not all are. The supplier deliveries reading, for example is in the bottom 12 percentile of its range and shows the same sort of slack or absence of tension on deliveries as the ISM MFG and other regional reports. Even as activity has ramped up slack has increased. Contrarily exports and inventories are at the top of their respective ranges going back to 1998. Activity is high in its range. Orders, prices and employment are at firm relative readings (Percentiles). While prices are 10 % above their average value, they have such large variation (std dev = 8.2) that they are still at a moderate position within their range of values. 
Private nonmanufacturing jobs statistics are at the bottom of this table. Readings (monthly changes in nonmanufacturing jobs) are in the 65th percentile of their range since 1998 close to the 68.8 percentile for the nonmanufacturing ISM job diffusion reading. We appear to be getting consistent signals about the growing strength and firmness of the economy. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
ISM Non Manufacturing Statistics from Jan 1998 to Date
<th scope="col">&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">ISM-Non MFG</td>
<td>Current</td>
<td>Last Mo</td>
<td>Std Dev</td>
<td>Average</td>
<td>SD% Avg</td>
<td>MAX</td>
<td>MIN</td>
<td>Range</td>
<td>Percentile</td>
<td>% of AVG</td>
</tr>
<tr>
<td class="firstcol">PM Activity</td>
<td>59.7</td>
<td>56.0</td>
<td>4.7</td>
<td>57.6</td>
<td>8.2</td>
<td>67.9</td>
<td>40.5</td>
<td>27.4</td>
<td>70.1</td>
<td>104</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>57.4</td>
<td>55.5</td>
<td>4.7</td>
<td>57.2</td>
<td>8.2</td>
<td>66.9</td>
<td>41.3</td>
<td>25.6</td>
<td>62.9</td>
<td>100</td>
</tr>
<tr>
<td class="firstcol">Backlogs</td>
<td>48.0</td>
<td>50.0</td>
<td>3.7</td>
<td>51.0</td>
<td>7.2</td>
<td>57.0</td>
<td>40.5</td>
<td>16.5</td>
<td>45.5</td>
<td>94</td>
</tr>
<tr>
<td class="firstcol">Supplier Deliveries</td>
<td>49.5</td>
<td>51.0</td>
<td>2.2</td>
<td>53.6</td>
<td>4.1</td>
<td>60.5</td>
<td>48.0</td>
<td>12.5</td>
<td>12.0</td>
<td>92</td>
</tr>
<tr>
<td class="firstcol">Inventory Sentiment*</td>
<td>61.0</td>
<td>60.5</td>
<td>2.7</td>
<td>63.0</td>
<td>4.3</td>
<td>69.0</td>
<td>55.0</td>
<td>14.0</td>
<td>42.9</td>
<td>97</td>
</tr>
<tr>
<td class="firstcol">Inventories</td>
<td>61.0</td>
<td>52.0</td>
<td>3.3</td>
<td>50.6</td>
<td>6.6</td>
<td>61.0</td>
<td>43.5</td>
<td>17.5</td>
<td>100.0</td>
<td>121</td>
</tr>
<tr>
<td class="firstcol">Prices</td>
<td>66.4</td>
<td>63.5</td>
<td>8.2</td>
<td>60.1</td>
<td>13.6</td>
<td>80.5</td>
<td>41.3</td>
<td>39.2</td>
<td>64.0</td>
<td>110</td>
</tr>
<tr>
<td class="firstcol">Employment</td>
<td>54.9</td>
<td>51.9</td>
<td>3.7</td>
<td>51.7</td>
<td>7.1</td>
<td>59.9</td>
<td>43.9</td>
<td>16.0</td>
<td>68.8</td>
<td>106</td>
</tr>
<tr>
<td class="firstcol">Export Orders</td>
<td>66.0</td>
<td>55.5</td>
<td>4.6</td>
<td>55.0</td>
<td>8.4</td>
<td>66.0</td>
<td>44.5</td>
<td>21.5</td>
<td>100.0</td>
<td>120</td>
</tr>
<tr>
<td class="firstcol">Import Orders</td>
<td>55.5</td>
<td>52.5</td>
<td>4.0</td>
<td>54.8</td>
<td>7.3</td>
<td>63.5</td>
<td>45.5</td>
<td>18.0</td>
<td>55.6</td>
<td>101</td>
</tr>
<tr>
<td class="firstcol">Private Non MFG jobs</td>
<td>154.0</td>
<td>98.0</td>
<td>112.5</td>
<td>99.6</td>
<td>113.0</td>
<td>346.0</td>
<td>-202.0</td>
<td>548.0</td>
<td>65.0</td>
<td>155</td>
</tr>
</tbody>
</table>
April Retail Trade in the Euro Area Picks Up, Trade in Other EU Countries Slows  
by <a href="/comment/Curley.html">Louise Curley</a> June 5, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070605c.jpg" width="353">
Eurostat released preliminary data for April retail trade today for the aggregates of the 13 countries in the Euro Area and the 27 countries in the European Union. The preliminary data are based on reports by countries representing at least 60% of the weight of the total. As a result data for all countries are not available at this time.
Eurostat does not publish, nor is it possible to derive, an index for total retail trade of the &quot;Fourteen&quot; non Euro Area countries included in the total. However, the fact that retail trade in the Euro Area increased 0.18% in April from March while trade in the entire Union declined, albeit slightly, 0.05%, suggests that retail trade in the &quot;Fourteen&quot; declined in April. The first chart shows the indexes of retail trade in the Euro Area and the European Union. The widening gap between the two series suggests that the greater growth in the retail trade of the European Union has been due largely to the &quot;Fourteen&quot;.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070605d.jpg" width="353">
The &quot;Fourteen&quot; non Euro Area countries includes three developed countries--the United Kingdom, Sweden and Denmark and eleven emerging countries of central and eastern Europe. Retail trade in the three developed countries has shown more strength than the total of the Euro Area as can be seen in the second chart. This growth, however, falls short of the dramatic growth of retail trade in the central and eastern European countries, as shown in the third chart where the paths of retail trade in Latvia, Estonia and Bulgaria are taken as illustrative of the group of emerging countries. It should however be kept in mind that these countries began to grow only after the fall of the Berlin Wall hence their growth has been from a very low base compared with that of the developed countries.
Growth of retail trade within the Euro Area has varied widely with Germany being the laggard. The fourth chart compares retail trade in Germany with that of France, Finland, and Spain among those with good growth. It appears that retail trade in Germany may finally be showing signs of growth.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070605e.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070605f.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">VOLUME OF RETAIL TRADE EX AUTOS&nbsp; (SA, 2000=100)&nbsp;</th>
<th scope="col">Apr&nbsp;&nbsp; 07</th>
<th scope="col">Mar&nbsp; 07&nbsp;</th>
<th scope="col">Apr&nbsp;&nbsp; 06</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">European Area 13</td>
<td>110.22</td>
<td>110.02</td>
<td>108.41</td>
<td>0.18</td>
<td>1.67</td>
<td>108.84</td>
<td>106.72</td>
<td>105.32</td>
</tr>
<tr>
<td class="firstcol">European Union 27</td>
<td>118.01</td>
<td>118.07</td>
<td>114.84</td>
<td>-0.05</td>
<td>2.76</td>
<td>115.46</td>
<td>112.14</td>
<td>109.97</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>120.6</td>
<td>119.5</td>
<td>116.1</td>
<td>0.92</td>
<td>3.88</td>
<td>116.9</td>
<td>114.7</td>
<td>113.2</td>
</tr>
<tr>
<td class="firstcol"> Germany </td>
<td>104.0</td>
<td>101.3</td>
<td>103.3</td>
<td>2.67</td>
<td>0.68</td>
<td>103.5</td>
<td>101.7</td>
<td>100.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>122.22</td>
<td>124.40</td>
<td>119.69</td>
<td>-1.75</td>
<td>2.11</td>
<td>120.38</td>
<td>118.02</td>
<td>116.27</td>
</tr>
<tr>
<td class="firstcol">Finland</td>
<td>132.0</td>
<td>136.1</td>
<td>128.7</td>
<td>-3.01</td>
<td>2.56</td>
<td>129.0</td>
<td>122.2</td>
<td>116.5</td>
</tr>
<tr class="odd">
<td class="firstcol">United Kingdom</td>
<td>133.14</td>
<td>133.09</td>
<td>127.45</td>
<td>0.04</td>
<td>4.46</td>
<td>128.65</td>
<td>124.65</td>
<td>122.28</td>
</tr>
<tr>
<td class="firstcol">Sweden</td>
<td>145.6</td>
<td>145.5</td>
<td>136.6</td>
<td>0.07</td>
<td>6.59</td>
<td>138.3</td>
<td>126.7</td>
<td>118.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Denmark</td>
<td>132.0</td>
<td>134.0</td>
<td>130.0</td>
<td>-1.49</td>
<td>1.54</td>
<td>130.7</td>
<td>126.4</td>
<td>116.8</td>
</tr>
<tr>
<td class="firstcol">Latvia</td>
<td>249.98</td>
<td>251.69</td>
<td>202.48</td>
<td>-0.68</td>
<td>23.46</td>
<td>213.49</td>
<td>178.03</td>
<td>146.91</td>
</tr>
<tr class="odd">
<td class="firstcol">Bulgaria</td>
<td>232.14</td>
<td>232.71</td>
<td>210.84</td>
<td>-0.24</td>
<td>10.10</td>
<td>215.48</td>
<td>190.29</td>
<td>102.49</td>
</tr>
<tr>
<td class="firstcol">Estonia</td>
<td>233.51</td>
<td>242.72</td>
<td>205.19</td>
<td>-3.79</td>
<td>13.80</td>
<td>211.88</td>
<td>181.86</td>
<td>158.98</td>
</tr>
</tbody>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070604a.jpg" width="353">
Indonesia and Malaysia reported today data on trade in goods for April. Because of the volatility in the month to month data we have used a three month moving average in the discussion that follows and in the charts. Indonesia reports its trade date in U. S. dollars while Malaysia reports its data in Malayasian ringgits. To facilitate comparison between the two countries we have used trade figures for Malaysia expressed in U.S. dollars that Haver has calculated. All these data are found in Indonesia and Malaysia in the EMERGEPR data base<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070604b.jpg" width="353">
In the first four months of this year, the three month moving average of Indonesia&#39;s trade balance has risen steadily while that of Malaysia has steadily declined as can be seen in the first chart. The composition of exports, which is very different in the two countries, accounts, in large part, for the divergent trends. Indonesia&#39;s main exports are oil and gas, agricultural products, mineral, rubber and wood products, which are in demand world wide. Malay&#39;s exports, on the other hand, are largely manufactured goods. For the last several years, manufactured goods accounted for roughly 80% of total exports. And of the manufactured goods exports, electronics and electrical products accounted for some 60-65%. The demand for electronic and electrical products has fallen off recently, particularly in the United States, Malaysia&#39;s largest export market.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070604c.jpg" width="353">
Indonesia&#39; trade balance has increased not only due to a rise in exports, but also a decline in imports as shown in the second chart. Imports into Malaysia have also declined, but the greater decline in exports has resulted in a narrowing of its trade balance as shown in the third chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Trade in Goods:&nbsp; Indonesia &amp; Malaysia &nbsp;(3 mo moving avg.&nbsp; Mil US$)</th>
<th scope="col">Apr&nbsp; 07</th>
<th scope="col">Mar 07&nbsp;</th>
<th scope="col">Feb&nbsp; 07</th>
<th scope="col">Jan&nbsp; 07</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Indonesia&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports</td>
<td>9,156.9</td>
<td>8,968.0</td>
<td>8,833.5</td>
<td>9,109.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>5,182.1</td>
<td>5,200.6</td>
<td>5,093.6</td>
<td>5,609.3</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;&nbsp; Balance </td>
<td>3,944.8</td>
<td>3,767.9</td>
<td>3,739.9</td>
<td>3,500.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Malaysia</td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports</td>
<td>13,370</td>
<td>13,814</td>
<td>14,099</td>
<td>14,587</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Imports</td>
<td>11,518</td>
<td>11,814</td>
<td>11,596</td>
<td>11,897</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Balance</td>
<td>1,852.6</td>
<td>2,000.4</td>
<td>2,502.9</td>
<td>2,689.8</td>
</tr>
</tbody>
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Indonesia and Malaysia reported today data on trade in goods for April. Because of the volatility in the month to month data we have used a three month moving average in the discussion that follows and in the charts. Indonesia reports [...]

Indonesia's Trade Balance Rises: Malaysia's Declines Reflecting Composition of Exports

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070530c.jpg" width="353">
Which data are telling the better story in Japan? Production or the labor market?
Today&#39;s industrial production report continues the theme of &quot;relapse&quot; that Bob Brusca was talking about here on May 15. Total industrial production fell 0.1% in April, a small decline to be sure, but the second in a row. Production in two key sources of prior strength, &quot;producer goods&quot; and the vehicle industry, contributed to the decline, the latter also for a second month. The peak in total output was actually back in December, at 109.6, just over 2 points above the April amount.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070530d.jpg" width="353">
In sharp contrast, the labor market looks good: employment has risen and unemployment declined. According to the April labor force survey, which was published May 29 in Japan, the number of people employed increased 23,000 in the month, a third consecutive rise, reaching 64,390,000, the highest since March 2001. In the Haver database &quot;G10+&quot;, we include seasonally adjusted data for a number of industry sectors. Manufacturing contributed 220,000 to the latest monthly increase.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070530e.jpg" width="353"> Construction also gained, and miscellaneous services rebounded from a sudden drop in March. The numbers employed in trade and finance decreased, however.
The unemployment rate went down in April to 3.8% from 4.0%, where it had been since November. The number unemployed fell to 2,560,000 in April from 2,690,000 in March. Importantly, this decline accompanied a small increase in labor force participation. As seen in the last graph, the participation rate edged up to 60.66% from 60.57% in March. This is the highest ratio of labor force or economically active to the population over age 15 since the summer of 2003. Sometimes, as we remind frequently here, the unemployment rate falls because discouraged workers back away from the labor force. But in this case, more Japanese people are actually working or are seeking work.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070530f.jpg" width="353"> This pattern suggests some confidence in the economy. Indeed, it goes along with an entirely separate gauge, the &quot;Living Anxiety&quot; survey, which fell 5 points from February to April. Measured bi-monthly, this private research index goes down when people feel less bad. That strikes us as an appropriate approach presently, when there are many questions about the economies of Japan and its neighbors: less emphasis on ebullience and more on being cautious. Employment goes up as production goes down: which force will prevail?

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">JAPAN</th>
<th scope="col">Apr 2007*</th>
<th scope="col">Mar 2007*</th>
<th scope="col">Feb 2007*</th>
<th scope="col">Year Ago*</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Production (2000=100)</td>
<td>107.5</td>
<td>107.6</td>
<td>107.9</td>
<td>104.9</td>
<td>106.2</td>
<td>101.3</td>
<td>100.2</td>
</tr>
<tr>
<td class="firstcol">Producer Goods</td>
<td>115.9</td>
<td>116.3</td>
<td>115.2</td>
<td>111.2</td>
<td>113.3</td>
<td>106.2</td>
<td>104.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Transport Goods**</td>
<td>127.9</td>
<td>130.9</td>
<td>132.7</td>
<td>125.8</td>
<td>127.6</td>
<td>118.2</td>
<td>113.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment (10,000 people)</td>
<td>64.39</td>
<td>64.16</td>
<td>64.15</td>
<td>63.64</td>
<td>63.82</td>
<td>63.56</td>
<td>63.29</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>11.84</td>
<td>11.52</td>
<td>11.59</td>
<td>11.74</td>
<td>11.61</td>
<td>11.42</td>
<td>11.50</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate (%)</td>
<td>3.8</td>
<td>4.0</td>
<td>4.0</td>
<td>4.1</td>
<td>4.1</td>
<td>4.4</td>
<td>4.7</td>
</tr>
<tr>
<td class="firstcol">Participation Rate (%)</td>
<td>60.7</td>
<td>60.6</td>
<td>60.6</td>
<td>60.3</td>
<td>60.1</td>
<td>60.4</td>
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Which data are telling the better story in Japan? Production or the labor market? Today's industrial production report continues the theme of "relapse" that Bob Brusca was talking about here on May 15. Total industrial production fell [...]

Japan's Labor Market Looks Its Best in Several Years, but Industry May Have Lost Steam

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.

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