Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040107b.jpg" width="353">
The Russian economy continues to show good growth. Although slightly below the pace of the first two quarters, gross domestic product in the third quarter of last year was 6.2% above the third quarter of 2002. Moreover, current indicators in October and November suggest the fourth quarter will be strong.
Russia publishes the monthly changes and the year over year changes in the output of five basic indicators: Agriculture, Construction, Industry, Retail Trade and Transportation Services. These indicators and industrial production frequently foreshadow changes in GDP. The sharp turn around in the increase in agriculture output, which went to positive changes in October and November from negative ones in two of the months of the third quarter, is significant. 

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<tr>
<th scope="col" class="firstcol">Year over Year % Change</th>
<th scope="col">Nov 03&nbsp;</th>
<th scope="col">Oct 03</th>
<th scope="col">Sep 03</th>
<th scope="col">Aug 03</th>
<th scope="col"> July 03 </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Production</td>
<td>7.08</td>
<td>7.09</td>
<td>7.75</td>
<td>5.19</td>
<td>6.87</td>
</tr>
<tr>
<td class="firstcol">Agriculture</td>
<td>8.0</td>
<td>13.1</td>
<td>7.9</td>
<td>-16.2</td>
<td>-11.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>11.6</td>
<td>14.6</td>
<td>14.7</td>
<td>14.3</td>
<td>15.0</td>
</tr>
<tr>
<td class="firstcol">Industry</td>
<td>7.1</td>
<td>7.2</td>
<td>8.0</td>
<td>5.5</td>
<td>7.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Sales</td>
<td>7.0</td>
<td>7.1</td>
<td>7.0</td>
<td>6.1</td>
<td>7.9</td>
</tr>
<tr>
<td class="firstcol">Transportation Services</td>
<td>7.0</td>
<td>7.0</td>
<td>6.0</td>
<td>8.3</td>
<td>7.6</td>
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The Russian economy continues to show good growth. Although slightly below the pace of the first two quarters, gross domestic product in the third quarter of last year was 6.2% above the third quarter of 2002. Moreover, current [...]

Russian Third Quarter 2003 Gross Domestic Product Is Up 6.2% 0ver a Year Ago

Tom Moeller

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040106a.jpg">
Light vehicle sales added 7.2% in December to the 7.7% November gain and rose to 18.06M, the second highest monthly selling rate for the year. Consensus expectations had been for sales of 17.0M.
For the year, light vehicle sales fell 0.6% versus 2002 to 16.71M. The peak for annual sales was in 2000 at 17.40M.
Cash rebates of up to $5,000 were successful in lifting sales of light trucks to 10.24M, up 12.9% m/m.
Car sales rose slightly in December to 7.82M. For 2003, sales fell for the third straight year to 7.64M. The peak for car sales was in 1986 at 11.41M.
Domestic light vehicle sales rose 10.3% m/m to 14.89M as truck sales jumped 15.4% m/m (3.8% y/y).
Imported vehicle sales fell 5.3% m/m to 3.16M (-6.4% y/y). Imports captured 17.5% of the US market for new vehicles in December and 19.8% for the year.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM"> Light Vehicle Sales (SAAR, Mil.Units)</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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</thead>
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<td class="firstcol">Total</td>
<td>18.06</td>
<td>16.84</td>
<td>-1.4%</td>
<td>16.71</td>
<td>16.81</td>
<td>17.26</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.82</td>
<td>7.77</td>
<td>-7.1%</td>
<td>7.64</td>
<td>8.07</td>
<td>8.48</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Light Trucks</td>
<td>10.24</td>
<td>9.07</td>
<td>3.4%</td>
<td>9.07</td>
<td>8.74</td>
<td>8.78</td>
</tr>
</tbody>
</table>
ISM Non-Manufacturing Index Fell Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 6, 2004


<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040106c.jpg">
The Business Activity Index for the non-manufacturing sector, reported by the Institute for Supply Management, fell in December to 58.6 versus 60.1 in November and 64.7 in October. Consensus expectations had been for little change at 60.5.
Since the series&#39; inception in 1997 there has been a 58% correlation between the level of the ISM non-manufacturing business activity index and the quarterly change in real GDP for services plus construction.
The employment index dipped modestly to 54.0 versus the strong reading of 54.9 in November.
Since the series&#39; inception in 1997 there has been a 64% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing and construction industries.
New orders improved to a reading of 61.2 versus 60.1 the prior month.
Business activity for the non-manufacturing sector is a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index weights the components.
The seasonally adjusted prices index rose to 60.0 in December and for the year stood at the highest level since 2000.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively. 

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<th scope="col" class="firstcol"> <a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</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">Business Activity Index</td>
<td>58.6</td>
<td>60.1</td>
<td>54.2</td>
<td>58.3</td>
<td>55.1</td>
<td>49.0</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>60.0</td>
<td>58.0</td>
<td>55.3</td>
<td>56.7</td>
<td>53.9</td>
<td>51.6</td>
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</tbody>
</table>
Challenger Layoffs Lower 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 6, 2004


<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040106d.jpg">
Announced job cuts in December fell 6.5% m/m and pulled the full year figure down 13.6% versus 2003 according to Challenger, Gray &amp; Christmas.
The three month moving average of job cut announcements again rose (-14.6% y/y) due to a spike in layoffs in October.
Announced layoffs fell the services (-16.0% in 2003), electronics (-18.5% in 2003), telecommunications (-58.6% in 2003) and transportation (-32.2% in 2003) industries. Job cut announcements rose m/m in the aerospace (-36.1% in 2003), apparel (+69.6% in 2003), automotive (-33.1% in 2003), chemical (+1.5% in 2003), computer (-52.6% in 2003), financial (-42.0% in 2003) and pharmaceutical (+148.3% in 2003) industries.
Job cut announcements differ from layoffs in that many are achieved through attrition or just never occur.
During the last ten years there has been an 83% (inverse) correlation between the three month average level of announced job cuts and the y/y percent change payroll employment.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM"> Challenger, Gray &amp; Christmas</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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</thead>
<tbody>
<tr>
<td class="firstcol">Announced Job Cuts</td>
<td>93,020</td>
<td>99,452</td>
<td>0.1%</td>
<td>1,236,426</td>
<td>1,431,052</td>
<td>1,956,876</td>
</tr>
</tbody>
</table>
Chain Store Sales Slip 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 6, 2004


<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040106b.jpg">
Chain store sales slipped 0.1% the opening week of the New Year, according to the ICSC-UBS survey. The dip followed strong gains in the prior three weeks. For the year, weak pricing power pulled the rise in sales down to 2.9% versus a 3.6% gain in 2002.
December sales fell 0.3% versus the November average. In November, sales rose 0.5% versus the prior month.
During the last five years there has been a 61% correlation between the year-to-year percent change in the ICSC-UBS measure of chain store sales and the change in non-auto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM"> ICSC-UBS</a><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM"> (SA, 1977=100)</a></th>
<th scope="col">01/03/04</th>
<th scope="col">12/27/03</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">Total Weekly Retail Chain Store Sales</td>
<td>430.9</td>
<td>431.4</td>
<td>5.6%</td>
<td>2.9%</td>
<td>3.6%</td>
<td>2.1%</td>
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</tbody>
</table>
Factory Orders and Inventories Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 6, 2004


<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040106e.jpg">
Factory orders fell an expected 1.4% in November. The advance report of a 3.1% drop in durable goods orders was revised shallower to a 2.5% decline. Orders for computers fell 1.2% (+31.0% y/y) Non-durable goods orders fell 0.2% (+4.5% y/y).
A report titled &quot;Computer Use and Productivity Growth&quot; from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20031201/cover.pdf"> here</a>.
Manufacturing inventories fell 0.2% following the slight increase in October. Excluding the defense industry inventories fell 0.2% (-1.7% y/y) and have fallen in each of the last nine months.
Factory shipments were unchanged. Shipments excluding transportation fell 0.3% (4.2% y/y).

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM"> Factory Survey</a> (NAICS)</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">Inventories</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>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>-1.4%</td>
<td>2.4%</td>
<td>6.0%</td>
<td>-1.9%</td>
<td>-6.7%</td>
<td>5.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>0.0%</td>
<td>0.7%</td>
<td>4.1%</td>
<td>-2.0%</td>
<td>-5.4%</td>
<td>4.2%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.7%</td>
<td>1.7%</td>
<td>3.4%</td>
<td>-6.1%</td>
<td>-5.9%</td>
<td>8.7%</td>
</tr>
</tbody>
</table>


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Light vehicle sales added 7.2% in December to the 7.7% November gain and rose to 18.06M, the second highest monthly selling rate for the year. Consensus expectations had been for sales of 17.0M. For the year, light vehicle sales fell [...]

Incentives Spur U.S. Light Vehicle Sales

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040105b.jpg" width="353">
Activity in German manufacturing showed a surprisingly large month-to-month increase in December according to the NTC Research Purchasing Managers Survey. ( NTC publishes diffusion indexes for purchasing managers surveys of manufacturing, service industries and construction for a number of countries. These diffusion indexes represent a balance that ranges from 0% to 100%, with numbers above 50 representing expansion and those below, representing contraction.)
The 3.58% rise in the German manufacturing index in December brought the index to 52.97, marking the fourth month the index was above the 50 mark and its highest level since early 2001. The level of the German index is now above those of the other major economies - France, Italy and Spain - economies that had preceded Germany into the expansionary phase.
Because of decline in the indexes for these three countries, the overall index for the Eurozone rose less than one-half of one percent in December.

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<th scope="col" class="firstcol">Manufacturing PMI</th>
<th scope="col">Dec 03</th>
<th scope="col">Nov 03</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Eurozone</td>
<td>52.40</td>
<td>52.15</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>52.97</td>
<td>51.14</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>51.90</td>
<td>52.70</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>51.88</td>
<td>52.34</td>
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<td class="firstcol">Spain</td>
<td>51.83</td>
<td>52.63</td>
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Activity in German manufacturing showed a surprisingly large month-to-month increase in December according to the NTC Research Purchasing Managers Survey. ( NTC publishes diffusion indexes for purchasing managers surveys of [...]

Activity in German Manufacturing Shows Strength

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040105a.jpg" width="353">
The value of total construction put in place jumped 1.2% (7.4% y/y) in November. A 0.5% rise was expected. On average, construction spending has risen 1.2% in each of the last six months.
Private residential building activity surged 2.0%. Single family home building spurted 2.9% in November (20.0% y/y).
Commercial construction managed a 0.4% gain following two months of sharp decline (+1.4% y/y but education spending fell 0.8% (-2.1% y/y). Office construction, up 1.3%, posted the fourth strong consecutive monthly gain (-4.2% y/y).
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E90701/@E90701.HTM"> Construction Put-in-place</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>
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<td class="firstcol">Total</td>
<td>1.2%</td>
<td>1.1%</td>
<td>7.4%</td>
<td>1.1%</td>
<td>2.7%</td>
<td>8.3%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>1.2%</td>
<td>1.4%</td>
<td>8.3%</td>
<td>-0.2%</td>
<td>1.4%</td>
<td>8.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>2.0%</td>
<td>2.2%</td>
<td>14.1%</td>
<td>8.6%</td>
<td>3.3%</td>
<td>7.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-2.1%</td>
<td>1.6%</td>
<td>-3.6%</td>
<td>-13.0%</td>
<td>-1.3%</td>
<td>8.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>1.2%</td>
<td>0.8%</td>
<td>6.6%</td>
<td>5.3%</td>
<td>7.4%</td>
<td>9.5%</td>
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The value of total construction put in place jumped 1.2% (7.4% y/y) in November. A 0.5% rise was expected. On average, construction spending has risen 1.2% in each of the last six months. Private residential building activity surged [...]

U.S. Construction Spending Strong

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/040102a.jpg" width="353">
The Purchasing Managers&#146; Composite Index (PMI) released by the Institute of Supply Management rose to 66.2 in December from 62.8 in November. It was the highest level for the Composite Index since December 1983. Consensus expectations were for a reading of 61.0.
During the last twenty years there has been a 72% correlation between the level of the PMI index and the three month growth in factory sector industrial production. There has been a 58% correlation between the level of the PMI Composite Index and quarterly growth in real GDP.
The new orders index rose to 77.6, the highest level since July 1950. The production index also jumped to 73.0, the highest level since December 1983.
The employment index at 55.5 has risen nearly 10 points during the last three months. There has been a 72% correlation during the last ten years between the ISM employment index and the one-month change in factory sector payrolls.
The inventory index fell to 47.3 and reversed half of the prior month&#39;s gain.
The prices paid index rose last month to 66.0, the highest level since May 2000. There has been a 28% correlation between the prices paid index and the y/y change in the finished goods PPI over the last ten years. The correlation with the intermediate materials PPI has been a higher 63%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF02/@EF02.HTM"> ISM Manufacturing Survey</a></th>
<th scope="col"> Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec &#39;02</th>
<th scope="col"> 2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
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<td class="firstcol">Composite Index</td>
<td>66.2</td>
<td>62.8</td>
<td>55.2</td>
<td>53.5</td>
<td>52.4</td>
<td>44.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>77.6</td>
<td>73.7</td>
<td>62.9</td>
<td>58.3</td>
<td>56.7</td>
<td>46.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>66.0</td>
<td>64.0</td>
<td>55.0</td>
<td>59.6</td>
<td>57.6</td>
<td>42.9</td>
</tr>
</tbody>
</table>
</body>
</html>

The Purchasing Managers Composite Index (PMI) released by the Institute of Supply Management rose to 66.2 in December from 62.8 in November. It was the highest level for the Composite Index since December 1983. Consensus expectations [...]

ISM Factory Index Up Further

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.

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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

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.

Economy in Brief: 2004

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