Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040120b.jpg" width="353">
Business confidence is beginning to falter in Germany and in other countries of the Euro-zone. Earlier this month, it was reported that business confidence in December, while it improved slightly in the construction sector, declined in the industrial and retail sectors of the Euro-zone, as a whole.
The latest indicator of confidence is the ZEW measure of sentiment among German investors and analysts, just released. The measure shows a drop to 72.9 in January from 73.4 in December. The ZEW measure frequently foreshadows movements in the broader business measure of business expectations published by the IFO (Institute for Economic Research, Munich).
The rise in the Euro has, to date, not had much impact on actual economic activity, but it has raised fears of future damage to exports and the recovery itself. It may be these fears that are beginning to erode confidence. It should be noted, however, that business confidence remains strong and is near historical highs.

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<tr>
<th scope="col" class="firstcol">Measures of Confidence in Germany and the Euro-zone</th>
<th scope="col">Jan 04&nbsp;</th>
<th scope="col">Dec 03</th>
<th scope="col">Nov 03</th>
<th scope="col">Dec 02/ Jan 03</th>
<th scope="col">M/M&nbsp; %</th>
<th scope="col"> Y/Y&nbsp; %</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
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<tr class="odd">
<td class="firstcol">Germany</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ZEW</td>
<td>72.9</td>
<td>73.4</td>
<td>67.2</td>
<td>14.0</td>
<td>-0.5</td>
<td>58.9</td>
<td>38.4</td>
<td>45.3</td>
<td>2.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; IFO Business&nbsp;expectations</td>
<td>&nbsp;</td>
<td>111.0</td>
<td>108.7</td>
<td>97.7</td>
<td>2.12</td>
<td>13.61</td>
<td>101.7</td>
<td>101.0</td>
<td>94.7</td>
</tr>
<tr>
<td class="firstcol">Euro-zone&nbsp;</td>
<td>&nbsp;</td>
<td>&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">&nbsp; Industrial business</td>
<td>&nbsp;</td>
<td>-8</td>
<td>-6</td>
<td>-10</td>
<td>-2</td>
<td>+2</td>
<td>-10</td>
<td>-11</td>
<td>-9</td>
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<td class="firstcol">&nbsp; Retail business</td>
<td>&nbsp;</td>
<td>-13</td>
<td>-10</td>
<td>-16</td>
<td>-3</td>
<td>+3</td>
<td>-14</td>
<td>-16</td>
<td>-7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Construction business</td>
<td>&nbsp;</td>
<td>-19</td>
<td>-20</td>
<td>-21</td>
<td>+1</td>
<td>+2</td>
<td>-21</td>
<td>-14</td>
<td>-11</td>
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Business confidence is beginning to falter in Germany and in other countries of the Euro-zone. Earlier this month, it was reported that business confidence in December, while it improved slightly in the construction sector, declined [...]

Business Sentiment in Germany Falls: Euro the Culprit?

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040120a.jpg" width="353">
The Empire State Index of General Business Conditions for January rose three points to 39.22, a record high, and confirmed the indication of strength in the factory sector from the Philadelphia Fed&#39;s Business Outlook Survey.
The new orders index rose modestly to 36.13, continuing an uptrend. The shipments index soared five points to 41.73, another record level. The employment index slipped from December to 24.71 but remained near the series&#39; record level.
The index of prices paid more than doubled versus December, rising to 28.16.
The survey includes measures of expectations for business conditions six months ahead. The January index slipped to 62.16, the lowest level since September. Expectations for capital expenditures also fell sharply.
The Empire State Manufacturing Survey is a monthly survey of manufacturers in New York State conducted by the Federal Reserve Bank of New York. Participants from across the state in a variety of industries respond to a questionnaire and report the change in a variety of indicators from the previous month. Respondents also state the likely direction of these same indicators six months ahead. April 2002 is the first report, although survey data date back to July 2001.
Like the Philadelphia Fed Index of General Business Conditions, the Empire State Business Conditions Index reflects answers to an independent survey question, not the components.
For more on the Empire State Manufacturing Survey, including methodologies and the latest report, click <a href="http://www.newyorkfed.org/research/regional_economy/empiresurvey_overview.html"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S511/@S511.HTM"> Empire State Manufacturing Survey</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Y/Y (1/03)</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col"> 2001</th>
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<td class="firstcol">General Business Conditions (diffusion index)</td>
<td>39.22</td>
<td>36.16</td>
<td>14.56</td>
<td>16.30</td>
<td>7.02</td>
<td>-13.57</td>
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The Empire State Index of General Business Conditions for January rose three points to 39.22, a record high, and confirmed the indication of strength in the factory sector from the Philadelphia Fed's Business Outlook Survey. The new [...]

Empire State Index At A New High

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040119a.jpg" width="353">
Exports from the Euro-zone declined 0.77% in November, bringing the level of exports 4.48% below a year ago. The trend in exports has been negative since early 2002 when the euro began its rise but the extent of the decline has so far been moderate. It was not until November 18th, that euro exceeded 1.1812 to the dollar, the value at which it was launched on January 4, 1999. Through November, increased demand for Euro-zone goods from the U. S. and Japan has overcome some of the price effects of the higher Euro.
However, the euro has continued its climb and in December alone, increased 5%. When the euro reached 1.2853 vs. the dollar on January 9, 2004, the president of the ECB (European Central Bank), Jean-Claude Trichet, and Chief Economist, Otmar Issing, issued warnings that the continued rise in the exchange rate could sabotage the incipient economic recovery. A week later, the euro was down to 1.2395 vs. the dollar.
Any further significant declines in the euro are dependent not only on actions the ECB might take, but also on the willingness of China and other Pacific Rim countries to appreciate their currencies.The Japanese Yen has appreciated 12% since June 30, 2003, but most other Pacific Rim countries have kept their currencies pegged to the dollar.

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<th scope="col" class="firstcol">Euro-Zone</th>
<th scope="col">Nov 03</th>
<th scope="col">Oct 03</th>
<th scope="col">Nov02</th>
<th scope="col">M/M&nbsp; %</th>
<th scope="col">Y/Y&nbsp; %</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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</thead>
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<tr class="odd">
<td class="firstcol">Exports (Bils of euros)</td>
<td>87.4</td>
<td>88.03</td>
<td>91.5</td>
<td>-0.77</td>
<td>-4.48</td>
<td>1,085..6</td>
<td>1,063.7</td>
<td>1,001.2</td>
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<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>
<td>&nbsp;</td>
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<td class="firstcol">Euro/ US$ (average)</td>
<td>1.0171</td>
<td>1.1714</td>
<td>1.001</td>
<td>-0.03</td>
<td>16.95</td>
<td>0.9453</td>
<td>0.8953</td>
<td>0.9234</td>
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<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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<td>&nbsp;</td>
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Exports from the Euro-zone declined 0.77% in November, bringing the level of exports 4.48% below a year ago. The trend in exports has been negative since early 2002 when the euro began its rise but the extent of the decline has so far [...]

November Exports in the Euro-zone Falter: Will the Euro Continue to rise?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040116b.jpg" width="353">
Industrial production edged up 0.1% in December, quite a bit less than Consensus expectations for a 0.7% rise.
Utility output fell 1.3% (-0.7% y/y).
The factory sector faired better last month and added 0.3% to the upwardly revised 1.1% surge in November (2.9% y/y).
Output in selected high-technology industries again led output higher in December and jumped 1.9% (24.5% y/y). Prior months&#39; gains were revised lower. Output of computers and peripheral equipment rose 2.6%, about the average monthly gain during the last six months (15.5% y/y). Output of semiconductors &amp; related equipment jumped 3.6% (41.8% y/y) though prior months&#39; strength was lessened. Output of communications equipment fell 2.2% (+4.2% y/y).
Excluding high-tech, factory output inched 0.1% higher (1.6% y/y) but the 0.7% increase originally reported for November was revised to a 1.1% jump. The revision stemmed from a raised estimate of motor vehicle output (+5.1% y/y). Electrical equipment &amp; appliance outputrose 0.8% (0.4% y/y) but the originally reported 1.1% November increase was revised to 0.1%. Furniture output fell 0.1% (-1.1% y/y) and November was revised to 0.7% from 1.7%.
Total capacity utilization held steady at 75.8%.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EA/@EA.HTM"> Production &amp; Capacity</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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<td class="firstcol">Industrial Production</td>
<td>0.1%</td>
<td>1.1%</td>
<td>2.4%</td>
<td>0.4%</td>
<td>-0.6%</td>
<td>-3.4%</td>
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<td class="firstcol">Capacity Utilization</td>
<td>75.8%</td>
<td>75.8%</td>
<td>74.9%(12/02)</td>
<td>74.9%</td>
<td>75.6%</td>
<td>77.4%</td>
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U.S. Business Inventories Accumulate 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 16, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040116a.jpg" width="353">
Total business inventories, up 0.3% in November, rose for the third consecutive month. The rise was in line with Consensus expectations for a 0.2% increase.
Retail inventories rose 0.7% in November for the second consecutive month. Higher inventories of motor vehicles &amp; parts, up 1.2%, again led the gain.
Excluding autos, retail inventories rose 0.5%, the third firm increase in as many months. Inventories of furniture again rose strongly, up 0.9% (7.9% y/y). In addition, inventories of apparel rose for only the second month in the last eight (+3.0% y/y). Inventories at general merchandise stores fell 0.3% (+0.9% y/y).
Overall business sales rose 0.5% (5.4% y/y). Factory shipments and wholesale sales were modest in both months.
The inventory-to-sales ratio was stable at the record low 1.35.
&quot;Has Inventory Volatility Returned? A Look at the Current Cycle&quot; from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci8-5.html"> here</a>.

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/USECON/@ED/@ED06/@ED0601/@ED0601.HTM"> Business Inventories</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Total</td>
<td>0.3%</td>
<td>0.4%</td>
<td>2.1%</td>
<td>2.1%</td>
<td>-4.7%</td>
<td>5.1%</td>
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<tr>
<td class="firstcol">&nbsp; Retail</td>
<td>0.7%</td>
<td>0.7%</td>
<td>5.1%</td>
<td>7.6%</td>
<td>-2.9%</td>
<td>6.0%</td>
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<td class="firstcol">&nbsp;&nbsp;&nbsp; Retail excl. Autos</td>
<td>0.5%</td>
<td>0.3%</td>
<td>3.5%</td>
<td>2.5%</td>
<td>-1.2%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wholesale</td>
<td>0.5%</td>
<td>0.5%</td>
<td>2.2%</td>
<td>0.4%</td>
<td>-4.9%</td>
<td>6.1%</td>
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<td class="firstcol">&nbsp; Manufacturing</td>
<td>-0.2%</td>
<td>0.1%</td>
<td>-1.0%</td>
<td>-1.8%</td>
<td>-6.1%</td>
<td>3.8%</td>
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</table>
U.S. Consumer Sentiment Spiked Higher 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 16, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040116c.jpg" width="353">
The University of Michigan&#146;s consumer sentiment index spiked 11.4% higher m/m to 103.2, the highest level since December 2000. That was considerably better than Consensus expectations for a slight rise to 94.0.
During the last ten years there has been an 75% correlation between the level of consumer sentiment and the y/y change in real PCE. That correlation has risen to 84% during the last five years.
The current conditions index jumped 12.3% m/m to 108.9 and the expectations index added 10.8% m/m to 99.5.
The University of Michigan survey is not seasonally adjusted.It is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM"> University of Michigan</a></th>
<th scope="col"> Mid-Jan</th>
<th scope="col"> Dec</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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<td class="firstcol">Consumer Sentiment</td>
<td>103.2</td>
<td>92.6</td>
<td>25.2%</td>
<td>87.6</td>
<td>89.6</td>
<td>89.2</td>
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<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>108.9</td>
<td>97.0</td>
<td>12.0%</td>
<td>97.2</td>
<td>97.5</td>
<td>100.1</td>
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<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>99.5</td>
<td>89.8</td>
<td>36.7%</td>
<td>81.4</td>
<td>84.6</td>
<td>82.3</td>
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Industrial production edged up 0.1% in December, quite a bit less than Consensus expectations for a 0.7% rise. Utility output fell 1.3% (-0.7% y/y). The factory sector faired better last month and added 0.3% to the upwardly revised [...]

U.S. Industrial Production Edged Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040115b.jpg" width="353">
Retail sales rose 0.5% last month, somewhat less than the 0.8% Consensus expectation. The previously reported 0.9% gain in November sales was revised up to a 1.2% increase.
Sales of nonstore retailers surged 2.1% (9.1% y/y).
Motor vehicle dealers&#39; sales rose 1.6% m/m. Unit sales of light vehicles rose 6.9% m/m to 17.9M. Sales at gasoline service stations fell 0.4% (4.8% y/y).
Excluding motor vehicles &amp; parts dealers retail sales rose 0.1% last month but the previously reported 0.4% November increase was nearly doubled to 0.7%. Consensus expectations were for a 0.4% rise December rise.
Clothing and accessory store sales rose 0.1% (5.3% y/y) following a 1.0% November gain. Sales of furniture/home furnishings &amp; electronics/appliances rose 0.2% (9.3% y/y) but the previously reported 1.0% November jump was revised to 0.6%. Sales at general merchandise stores rose 0.3% (5.4% y/y).
Sales of building materials fell 0.3% (11.9% y/y) following a 0.4% November gain.
Sales at food services &amp; drinking places rose 0.4% (8.9% y/y) but the previously reported 0.3% November gain was revised to 1.2%.
A report from the Federal Reserve Bank of New York titled &quot;A Nation of Spendthrifts? An Analysis of Trends in Personal and Gross Saving&quot; from 2000 is available <a href="http://www.newyorkfed.org/research/current_issues/ci6-10.html"> here</a>.

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<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
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</thead>
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<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM"> Retail Sales &amp; Food Services</a></td>
<td>0.5%</td>
<td>1.2%</td>
<td>6.7%</td>
<td>5.6%</td>
<td>3.0%</td>
<td>2.9%</td>
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<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.1%</td>
<td>0.7%</td>
<td>6.7%</td>
<td>5.4%</td>
<td>3.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Consumer Prices Tame, Core Weakest Since 1965 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 15, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040115c.jpg" width="353">
The Consumer Price Index (CPI-U) rose an expected 0.2% (+1.9% y/y) in December, reversing the deflation of the prior month.
Less food &amp; energy prices rose an expected 0.1% and reversed the prior month&#39;s decline. The full-year increase in core prices of 1.5% was the weakest gain since 1965.
Deflation in the prices of core consumer goods continued and they fell 0.1% (-2.5% y/y). Apparel prices fell 0.4% (-2.0% y/y). New &amp; used motor vehicle prices fell 0.4% (-4.4% y/y). Prices for household furnishings &amp; operation ticked up 0.2% (-1.8% y/y).
Core services prices edged up 0.2% on the strength of a 0.3% (2.2% y/y) gain in shelter prices. Medical care services prices also were strong, up 0.6% m/m (4.2% y/y). Public transportation prices fell 1.1% for the fourth down month in the last five (1.3% y/y).
Food prices again were firm again, up 0.6% (3.6%). Meat prices jumped another 1.1% (11.5% y/y).
Energy prices rose a modest 0.2% as piped gas prices rose for the first month in three (+6.6% y/y). Gasoline prices fell for the third straight month (+6.8% y/y) and fuel oil prices also fell (9.1% y/y).
The chained CPI which adjusts for shifts in consumer buying behavior fell 0.2% for the second monthly decline. It is similar to the PCE price deflator. The core price measure also fell for the second month. For the year the measure rose 1.0%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80101/@E80101.HTM"> Consumer Price Index</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total&nbsp;</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>1.9%</td>
<td>2.3%</td>
<td>1.6%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>0.1%</td>
<td>-0.1%</td>
<td>1.1%</td>
<td>1.5%</td>
<td>2.3%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Goods less Food &amp; Energy</td>
<td>-0.1%</td>
<td>-0.4%</td>
<td>-2.5%</td>
<td>-2.0%</td>
<td>-1.1%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services less Energy</td>
<td>0.2%</td>
<td>0.0%</td>
<td>2.6%</td>
<td>2.9%</td>
<td>3.8%</td>
<td>3.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Energy</td>
<td>0.2%</td>
<td>-3.0%</td>
<td>6.7%</td>
<td>12.2%</td>
<td>-5.8%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Food &amp; Beverages</td>
<td>0.6%</td>
<td>0.4%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>1.8%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E801/@E80113/@E80113.HTM"> Chained CPI: Total (NSA)</a></td>
<td>-0.2%</td>
<td>-0.4%</td>
<td>1.4%</td>
<td>1.8%</td>
<td>1.3%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Total less Food &amp; Energy</td>
<td>-0.3%</td>
<td>-0.3%</td>
<td>0.6%</td>
<td>1.0%</td>
<td>1.8%</td>
<td>&nbsp;2.0%</td>
</tr>
</tbody>
</table>
Jobless Insurance Claims Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 15, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040115a.jpg" width="353">
Initial claims for jobless insurance fell 11,000 last week to 343,000 and reversed virtually all of the prior week&#39;s rise which was little revised. Consensus expectations had been for claims of 350,000.
The four-week moving average of initial claims fell to 347,500 (-10.7% y/y).
Continuing claims for unemployment insurance fell 128,000 and the prior week&#39;s decline was about doubled to 27,000.
The insured rate of unemployment fell to 2.5%, the lowest level since September 2001.
Analysis from the Federal Reserve Bank of Boston on the Philips Curve is available <a href="http://www.bos.frb.org/economic/neer/neer2003/neer03a.pdf"> here</a>.

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<thead>
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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM"> Unemployment Insurance (000s)</a></th>
<th scope="col">01/10/04</th>
<th scope="col">01/03/04</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>343.0</td>
<td>354.0</td>
<td>-6.8%</td>
<td>403</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,139</td>
<td>-7.0%</td>
<td>3,535</td>
<td>3,575</td>
<td>3,022</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Up Further 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 15, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040115e.jpg" width="353">
The Philadelphia Fed&#146;s January index of general business conditions in the manufacturing sector rose to 38.8 from 30.3 in December. Consensus expectations were for an unchanged reading at 30.0.
The latest reading is the highest since December 1993.
During the last twenty years there has been a 62% correlation between the level of the Philadelphia Fed Business Conditions Index and quarterly growth in real GDP. The correlation with quarterly growth in factory sector industrial production has been 76%.
Amongst the sub indexes, new orders dipped slightly to 36.5 from a revised 37.9 in December. Shipments fell to 33.1 from a downwardly revised 39.6 in December. The employment index held a firm level with only a slight dip to 17.5.
The business conditions index reflects a separate survey question, not the sub indexes.
A separate survey of expected business conditions in six months fell to 53.9, the lowest level since June.
The prices paid index surged to the highest level since February 2000.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0104.html">here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM"> Philadelphia Fed Business Outlook</a></th>
<th scope="col">Jan</th>
<th scope="col">Dec</th>
<th scope="col">Jan &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>38.8</td>
<td>30.3</td>
<td>7.2</td>
<td>10.6</td>
<td>7.7</td>
<td>-17.2</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>35.3</td>
<td>30.9</td>
<td>14.5</td>
<td>16.7</td>
<td>12.2</td>
<td>-0.9</td>
</tr>
</tbody>
</table>
Small Business Optimism Up Further 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 15, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040115d.jpg" width="353">
The Small Business Optimism Index for December published by the National Federation of Independent Business rose 1.5% m/m to 106.9, a near record level.
The increase reflected a surge to 20% in the percent of small business owners planning to increase employment. Capital spending plans were raised by 38% of respondents, the highest since early 2001.
The percent of owners raising average selling prices dipped to 6% versus a high of 8% in October.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S7/@S7.HTM"> Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col"> Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>106.9</td>
<td>105.3</td>
<td>8.5%</td>
<td>101.3</td>
<td>101.2</td>
<td>98.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Retail sales rose 0.5% last month, somewhat less than the 0.8% Consensus expectation. The previously reported 0.9% gain in November sales was revised up to a 1.2% increase. Sales of nonstore retailers surged 2.1% (9.1% y/y). Motor [...]

U.S. Retail Sales Disappoint

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040114a.jpg" width="353">
Finished producer prices rose 0.3% in December and reversed the prior month&#39;s 0.3% decline. Consensus expectations had been for a 0.2% gain. For 2003 the PPI rose 3.2%, the largest increase since 2000.
Core producer prices fell 0.1% in December for the second consecutive month versus expectations for a 0.1% rise. The 0.2% gain in core prices during all of 2003 barely outpaced the prior year&#39;s gain of 0.1%.
Finished consumer goods prices rose 0.4% in December (5.1% y/y) and reversed the 0.4% November drop. Less food &amp; energy finished consumer goods prices fell 0.1% (+1.0% Y/Y).
Finished capital goods prices fell by 0.1% for the second consecutive month (+0.9% y/y).
Finished energy prices rose 1.8% (11.4% y/y). Gasoline prices (14.9% y/y) and fuel oil prices (13.9% y/y) were strong. These energy product price series are NSA.
Intermediate goods prices rose 0.5% as energy prices rose. Core intermediate prices rose just 0.1%, but the annual gain of 2.0% reversed the deflation of the prior two years. 
Crude goods prices surged 2.0%. Energy prices jumped 4.3% (44.5% for the full year). Core crude prices also were strong, up 3.4%. Iron &amp; steel scrap prices jumped 10.2% (62.5% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E802/@E80201/@E80201.HTM"> Producer Price Index</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Finished Goods</td>
<td>0.3%</td>
<td>-0.3%</td>
<td>4.0%</td>
<td>3.2%</td>
<td>-1.3%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>-0.1%</td>
<td>-0.1%</td>
<td>0.9%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>0.5%</td>
<td>-0.2%</td>
<td>3.8%</td>
<td>4.7%</td>
<td>-1.5%</td>
<td>0.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>-0.5%</td>
<td>-0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Crude Goods</td>
<td>2.0%</td>
<td>0.2%</td>
<td>18.6%</td>
<td>25.1%</td>
<td>-10.6%</td>
<td>0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Core</td>
<td>3.4%</td>
<td>4.3%</td>
<td>21.1%</td>
<td>12.2%</td>
<td>3.8%</td>
<td>-10.0%</td>
</tr>
</tbody>
</table>
U.S. Trade Deficit Narrowed Unexpectedly 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 14, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040114b.jpg" width="353">
The U.S. foreign trade deficit narrowed unexpectedly in November to $38.0B, the smallest deficit in over a year.
Exports surged 2.9% (9.3% y/y) for the sixth strong gain in seven months. Exports of capital goods jumped 6.5% (12.0% y/y) and nonauto consumer goods exports surged 7.3% (12.7% Y/Y).
Imports fell unexpectedly the value of petroleum imports dropped 8.3% (+8.5% y/y) on lower volumes. Capital goods imports rose 0.8% (5.3% y/y) but nonauto consumer goods imports fell 0.8% (4.8% y/y).
By country, the US trade deficit with China narrowed sharply to $10.8B as exports surged 53.8% y/y). The US trade deficit with the European Union also narrowed to $7.4B.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE03/@EE03.HTM"> Foreign Trade</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Trade Deficit</td>
<td>$38.0B</td>
<td>$41.6B</td>
<td>$38.6B(11/02)</td>
<td>$418.0B</td>
<td>$357.8B</td>
<td>$375.4B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports - Goods &amp; Services</td>
<td>2.9%</td>
<td>2.8%</td>
<td>9.3%</td>
<td>-3.3%</td>
<td>-5.8%</td>
<td>10.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports - Goods &amp; Services</td>
<td>-0.8%</td>
<td>2.1%</td>
<td>5.8%</td>
<td>2.0%</td>
<td>-5.5%</td>
<td>17.8%</td>
</tr>
</tbody>
</table>
Mortgage Applications Jumped as Interest Rates Slid 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 14, 2004


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040114c.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association jumped 17.1% last week (-39.1% y/y) to the highest level in over a month.
The effective interest rate on a conventional 30-Year mortgage slid to 5.84% from 6.10% the prior week and versus 5.97% averaged last year. The effective rate on a 15-year mortgage also fell to 5.19% from 5.38% averaged during 2003.
Applications to refinance surged 25.1% w/w but were well off last year&#39;s level (-62.1% y/y).
Analysis titled &quot;After the Refinancing Boom: Will Consumers Scale Back Their Spending?&quot; from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci9-12.html"> here</a>.
Purchase applications also surged, by 11.1% w/w (+24.6% y/y).
During the last ten years there has been a 54% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM"> MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">1/09/04</th>
<th scope="col">1/02/03</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>702.6</td>
<td>599.9</td>
<td>1,067.9</td>
<td>799.7</td>
<td>625.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>445.9</td>
<td>401.3</td>
<td>395.1</td>
<td>354.7</td>
<td>304.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,195.7</td>
<td>1,755.4</td>
<td>4,981.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
</tr>
</tbody>
</table>
</body>
</html>

Finished producer prices rose 0.3% in December and reversed the prior month's 0.3% decline. Consensus expectations had been for a 0.2% gain. For 2003 the PPI rose 3.2%, the largest increase since 2000. Core producer prices fell 0.1% [...]

Producer Prices Rose, Core Index Fell

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/050113c.jpg" width="353">
Some months ago in this space, Louise Curley explained how the large Japanese current account was bringing Japan a strong influx of foreign exchange reserves. However, this situation shifted soon after that report appeared. The current account surplus has tapered a bit in the most recent months, although it has still been large enough that the average for the 11 months of 2004 indicates a continuing uptrend over the last several years.
But the financial account has turned around. Net inflows of funds through the financial accounts averaged &yen;683 billion in 2003, when the influx of FX reserves was largest. Now, the financial account is negative: Japanese assets abroad are increasing, sending capital out of the country. As seen in the accompanying graph, this has been going on persistently since April. As a result, the rise in FX reserves has slowed dramatically: the last three months have averaged just &yen;173 billion, compared with &yen;1.561 trillion for the year through November. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050113d.jpg" width="353">
So far this change in financial flows has meant little to the value of the yen. It continues to rise against the dollar, which today is running about &yen;102.50. The pace of increase has slowed very recently from the sharp move in November, which is evident from the table below. But it remains on an upward path, illustrating that sometimes, currency trends respond to factors other than trade flows and even other than capital flows. Political, cultural and even weather factors can impact traders&#39; assessments of a nation&#39;s standard of value.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Trillions of Yen</th>
<th scope="col">Nov 2004</th>
<th scope="col">Oct 2004</th>
<th scope="col">Sept 2004</th>
<th scope="col">Nov 2003</th>
Monthly Average
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004*</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Current Account, SA</td>
<td>+1.386</td>
<td>+1.362</td>
<td>+1.495</td>
<td>+1.453</td>
<td>+1.546</td>
<td>+1.330</td>
<td>+1.184</td>
</tr>
<tr class="odd">
<td class="firstcol">Financial Account, NSA</td>
<td>-1.389</td>
<td>-0.632</td>
<td>-0.864</td>
<td>+0.706</td>
<td>+0.173</td>
<td>+0.683</td>
<td>-0.671</td>
</tr>
<tr>
<td class="firstcol">Change in Reserves, NSA</td>
<td>+0.298</td>
<td>+0.109</td>
<td>+0.112</td>
<td>+1.752</td>
<td>+1.561</td>
<td>+1.794</td>
<td>+0.483</td>
</tr>
<tr class="odd">
<td class="firstcol">Exchange Rate: Yen/$</td>
<td>104.70</td>
<td>108.78</td>
<td>110.09</td>
<td>109.18</td>
<td>108.55</td>
<td>115.92</td>
<td>125.27</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Trillions of Yen</th>
<th scope="col">Nov 2004</th>
<th scope="col">Oct 2004</th>
<th scope="col">Sept 2004</th>
<th scope="col">Nov 2003</th>
Monthly Average
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004*</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">Current Account, SA</td>
<td>+1.386</td>
<td>+1.362</td>
<td>+1.495</td>
<td>+1.453</td>
<td>+1.546</td>
<td>+1.330</td>
<td>+1.184</td>
</tr>
<tr class="odd">
<td class="firstcol">Financial Account, NSA</td>
<td>-1.389</td>
<td>-0.632</td>
<td>-0.864</td>
<td>+0.706</td>
<td>+0.173</td>
<td>+0.683</td>
<td>-0.671</td>
</tr>
<tr>
<td class="firstcol">Change in Reserves, NSA</td>
<td>+0.298</td>
<td>+0.109</td>
<td>+0.112</td>
<td>+1.752</td>
<td>+1.561</td>
<td>+1.794</td>
<td>+0.483</td>
</tr>
<tr class="odd">
<td class="firstcol">Exchange Rate: Yen/$</td>
<td>104.70</td>
<td>108.78</td>
<td>110.09</td>
<td>109.18</td>
<td>108.55</td>
<td>115.92</td>
<td>125.27</td>
</tr>
</tbody>
</table>
</body>
</html>

Some months ago in this space, Louise Curley explained how the large Japanese current account was bringing Japan a strong influx of foreign exchange reserves. However, this situation shifted soon after that report appeared. The [...]

Japan Current Account Surplus Sustained, as Financial Accounts Show Capital Outflow

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050113a.jpg" width="353">
US retail sales surged 1.2% in December on the strength of a 4.3% (8.9% y/y) jump in spending on motor vehicles. Consensus expectations had been for a 1.0% gain following the 0.1% rise in November sales which was unrevised.
Sales excluding motor vehicles rose 0.3% but the 0.4% gain in November sales was slightly lower than initially reported. Consensus expectations had been for a 0.4% increase.
Lower prices for gasoline dropped sales at gasoline service stations 2.0% (+21.8% y/y). Nonauto retail sales less gasoline jumped 0.6% (7.2% y/y). After a 7.0% decline in December, gasoline prices are 3.0% lower in January.
Gains in discretionary spending centered on a 1.0% (4.9%) rise in sales of furniture/home furnishings &amp; electronics/appliances that was driven by a 2.2% (6.4% y/y) jump in spending on furniture. Sales at general merchandise stores also rose a firm 0.7% (7.0% y/y). Clothing &amp; accessory store sales slipped for the second month, by 0.6% (3.3% y/y) following a revised 0.8% decline in November that was much deeper than initially estimated.
Building materials, garden equipment &amp; supply dealers&#39; sales jumped 1.2% (13.2% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/usecon/@ED/@ED04/@ED0401/@ED0401.HTM">Retail Sales &amp; Food Services</a></td>
<td>1.2%</td>
<td>0.1%</td>
<td>8.7%</td>
<td>7.6%</td>
<td>5.3%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Excluding Autos</td>
<td>0.3%</td>
<td>0.4%</td>
<td>8.6%</td>
<td>8.5%</td>
<td>5.2%</td>
<td>3.2%</td>
</tr>
</tbody>
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</body>
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US retail sales surged 1.2% in December on the strength of a 4.3% (8.9% y/y) jump in spending on motor vehicles. Consensus expectations had been for a 1.0% gain following the 0.1% rise in November sales which was unrevised. Sales [...]

U.S. Retail Spending Boosted By Vehicle Sales

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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Robert Brusca

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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

Andrew Cates

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

260205Z1.jpg

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

260205Z2.jpg

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

260205Z3.jpg

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

260205Z4.jpg

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

260205Z5.jpg

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

260205Z6.jpg

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

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

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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260205D2.jpg

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

U.S. Initial Unemployment Claims Surged in Latest Week

260205E.jpg

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

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

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

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

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

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

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

Economy in Brief: 2004

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