Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070426e.jpg" width="353">
Germany has long been a bastion of inflation fighting. Ever since the post war hyperinflation raged, sapping German spending power, Germans have been alert and vigilant against the rise of inflation. The Bundesbank long was charged with that job. But when the monetary union was formed in Europe a central bank of central banks was to take control and the question was raised as to who would run it...and how. 
Early conflict on the issue was decided by the two largest Euro members. The Germans, wanting to root the ECB and the euro in the same stability as the Bundesbank and the Deutschemark, pushed for an ECB located in Frankfurt with a research head drawn from the staff of the Bundesbank. France wanted the honor of having the first central bank head. But France&#146;s pick, Jean-Claude Trichet, was embroiled in a controversy stemming from his tenure as head of the Bank of France and was still under investigation at the time the ECB was formed. Europeans were adamant that someone under a cloud like that could not head the ECB. So it fell to a Dutchman, Wim Duisenberg, to head the first European Central bank. Eventually Trichet was cleared and he took his place as the ECB&#146;s second head. 
It is important to bear in mind the nationalistic themes that underlay everything in Europe. It is not a united states of Europe. It is a federation of independent nations with a common currency and some common trade rules amid some varied domestic regulations that conflict with the confederation rules from time to time. While the EU makes some political decisions, each nation runs its own foreign policy. The rules in Europe, at least to this American, seem sometimes to be a smorgasbord where they pick and choose which will apply and when. 
So it is against this back ground that we wonder about European inflation trends. 
Germany is typically is not the country with a burgeoning inflation problem inside the e-zone. The table below identifies those that are persistent violators of the supposed 2% cap imposed by the ECB on inflation. Note that the cap is a zone-wide cap &#150; not country by country- but it still is interesting to see where inflation is stubborn- even in a common currency area. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
E-zone &amp; Friends: Core Inflation Yr/Yr
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Core HICP</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>Jan-07</td>
<td>Dec-06</td>
<td>Nov-06</td>
<td>Oct-06</td>
<td>Sep-06</td>
</tr>
<tr>
<td class="firstcol">Austria</td>
<td>1.8%</td>
<td>1.7%</td>
<td>1.6%</td>
<td>1.5%</td>
<td>1.5%</td>
<td>1.5%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Belgium</td>
<td>2.0%</td>
<td>1.7%</td>
<td>1.6%</td>
<td>1.6%</td>
<td>1.5%</td>
<td>1.6%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Finland</td>
<td>1.4%</td>
<td>1.3%</td>
<td>1.2%</td>
<td>1.0%</td>
<td>1.0%</td>
<td>1.2%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>1.3%</td>
<td>1.4%</td>
<td>1.4%</td>
<td>1.5%</td>
<td>1.4%</td>
<td>1.3%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>1.7%</td>
<td>1.8%</td>
<td>1.7%</td>
<td>1.0%</td>
<td>1.1%</td>
<td>0.9%</td>
<td>0.8%</td>
</tr>
<tr>
<td class="firstcol">Greece</td>
<td>3.5%</td>
<td>4.0%</td>
<td>3.6%</td>
<td>3.4%</td>
<td>3.3%</td>
<td>3.3%</td>
<td>3.0%</td>
</tr>
<tr>
<td class="firstcol">Ireland</td>
<td>3.0%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>2.8%</td>
<td>2.4%</td>
<td>2.5%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>2.0%</td>
<td>2.1%</td>
<td>1.7%</td>
<td>1.9%</td>
<td>1.8%</td>
<td>2.0%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">Luxembourg</td>
<td>2.4%</td>
<td>2.4%</td>
<td>2.4%</td>
<td>2.3%</td>
<td>2.2%</td>
<td>2.2%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">The Netherlands</td>
<td>1.6%</td>
<td>1.0%</td>
<td>1.0%</td>
<td>1.1%</td>
<td>1.0%</td>
<td>1.0%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Portugal</td>
<td>2.0%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>2.1%</td>
<td>2.2%</td>
<td>2.7%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>2.5%</td>
<td>2.8%</td>
<td>2.8%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>2.8%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core HICP/CPI</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">UK (HICP)</td>
<td>#N/A</td>
<td>1.9%</td>
<td>1.8%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.6%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">US</td>
<td>2.5%</td>
<td>2.7%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>2.6%</td>
<td>2.8%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">Japan</td>
<td>#N/A</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>-0.3%</td>
<td>-0.2%</td>
<td>-0.4%</td>
<td>-0.5%</td>
</tr>
</tbody>
</table>
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<thead>
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<th scope="col" class="firstcol"> &middot; With energy prices having jumped and with Germany doing a good deal of trade with these high inflation countries inside the E-zone it is useful to look at German export and import prices to see if Germany is importing any of this inflation . &middot; German trends typically are an example of the best of the best&#133;But are they good enough? German domestic price and export and import trends &middot; Trends in German inflation show that Ex petrol and mineral imports, prices surged last year around September, as knock-on effects from high energy prices were passed on. Non Petroleum and non-mineral export prices also were elevated at that time and have since receded but by less than import prices. Producer non-energy prices went up in Germany around midyear and have continued to hover at a 3% pace Yr/Yr. The German CPI excluding energy has also ratcheted up but on a minor scale. The index hit its local low below 1% early in 2006 and has steadily risen moving &#145;sharply higher&#146; in early 2007 to a Yr/yr pace that peaked at 1.9%. Since then it has deflated slightly, moving lower with a current pace of 1.7%. &nbsp; &nbsp; &middot; While Germany is not a problem inflation country, it is one of those countries that tends to have a low rate of inflation and provides a counter-weight to e-zone high inflation countries. So the concern going ahead is that with EIGHT of TWLEVE (excluding Slovenia for this discussion) E-zone members having inflation at or above 2% are there enough countries or enough LARGE countries with inflation low enough below 2% to keep EMU inflation in check? More broadly, there is the question of whether the trend rise we see in German ex-petroleum inflation is still in force, if inflation has played out its bubble already, or if the push in prices has more to come. This next time will it come from wage inflation and tight domestic labor markets? &middot; The perusal of Germany&#146;s trends and those from the E-zone members give us reason to be wary. Not only have recent European data particularly from Germany and France looked firm-to-strong but we do have this inflation effect percolating in the background. &nbsp;With eight EMU countries on inflation levels that are too strong or with borderline trends there are still the low but rising inflation countries to worry about&#133; and that includes about everyone else. &middot; For the ECB, 2% inflation is a ceiling rate, not a target rate. The ECB surely wants to stop inflation short of that mark. The trend from exported inflation, based on German data, is going in the &#145;right direction.&#146; But the pace of even German export and import price inflation while &#145;locked&#146; in a downtrend (excl petrol) is still near to or over the ECB&#146;s preferred pace for overall inflation. It will take some time &#150; and only if that down-trend continues -- before export and import prices will be of some help to fighting inflation.&nbsp; In these circumstances it would be a surprise to see the ECB hold off on a rate hike, although the strength in the Euro is one thing that could make it somewhat gun shy when it comes to pulling the policy tightening trigger. All we can say so far is that if the high euro is an adverse issue for Euro-growth it has not made its mark yet on activity trends nor has it made its mark on restraining export and import prices in Germany. &middot; European growth is not so strong nor is inflation so wrong that ECB action is called for at this very moment. But this, we know, is how inflation often starts. &middot; There can be little doubt that if these trends stemmed from Germany alone and were the Bundesbank making policy what it would do. Will the ECB find its backbone or will it play the same waiting game that the Fed seems to have lost with inflation? &nbsp; &middot; I am reminded of a old Three Stooges comedy routine in which one of the &#145;Stooges&#146; dares a bully to step over this line, then he draws another and dares him to step over the next and the next&#133;before he turns tail to run. Better to act than to draw meaningless lines in the sand. The ECB has drawn a line. The Fed has created a zone of discomfort. The Fed has decided to reside in its discomfort zone instead of taking steps to exit it. Only time can tell what is next. But waiting doesn&#146;t always make it better. What choice will the ECB make? Will it take the policy course of discomfort or like the Fed tolerate inflation discomfort? &nbsp; &nbsp;</th>
</tr>
</thead>

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
German International and Domestic Inflation Trends
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% m/m</td>
<td colspan="4">% SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">SA</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>Jan-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Export Products</td>
<td>0.0%</td>
<td>0.1%</td>
<td>0.2%</td>
<td>1.1%</td>
<td>1.9%</td>
<td>2.1%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Import Products</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>-0.9%</td>
<td>-2.6%</td>
<td>-1.1%</td>
<td>0.8%</td>
<td>5.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">NSA</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">Exports excl Petroleum</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.4%</td>
<td>2.3%</td>
<td>1.9%</td>
<td>2.2%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">Imports excl Petroleum</td>
<td>0.1%</td>
<td>0.0%</td>
<td>0.3%</td>
<td>1.6%</td>
<td>0.4%</td>
<td>1.9%</td>
<td>3.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: SA</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">CPI</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.5%</td>
<td>3.3%</td>
<td>2.0%</td>
<td>1.9%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">CPI excl Energy</td>
<td>0.1%</td>
<td>0.0%</td>
<td>0.4%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.7%</td>
<td>0.8%</td>
</tr>
<tr>
<td class="firstcol">PPI</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.7%</td>
<td>1.4%</td>
<td>2.5%</td>
<td>5.9%</td>
</tr>
<tr>
<td class="firstcol">PPI excl Energy</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>1.8%</td>
<td>2.2%</td>
<td>3.0%</td>
<td>1.2%</td>
</tr>
</tbody>
</table>
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Germany has long been a bastion of inflation fighting. Ever since the post war hyperinflation raged, sapping German spending power, Germans have been alert and vigilant against the rise of inflation. The Bundesbank long was charged [...]

German Export and Import Prices Show Relief

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070426a.jpg" width="353">
The tunnel chart on KC production says it all in a nutshell. The index has been weak. In July 2006 the production index sank below its 12-mont moving average and has more or less stayed there. It has been fluctuating sharply in early 2007 but in April it has made a sharp break higher. The production reading that has jumped to +25 for production is in the top 25 percentile of all readings for production for this index and that is a fairly strong showing. The jump is out of character with the small rises we saw in NY and in Philadelphia and weaker reading in Richmond. But as the regional Consumer Confidence readings showed us, the strength in the economy is really OUT WEST. So KC is strong and getting stronger. This is one time I hope to root for the West Coast&#133; or at least things the other side of the Continental Divide (which the KC district bridges). 
Unfortunately, one message in the chart above is that spikes in the production index tend to give way - to back off -- so while we can be encouraged by the KC reading it is only one month, after all.
The KC Fed has three different sorts of surveys. We reported at the top on the m/m survey. That is akin to most MFG surveys we see. It also has a more unusual year/year diffusion survey and a somewhat more common 6-month outlook survey. We have combined all these results into one table across the various components, provided the raw months scores as well as a second panel that expresses them as a percentile in their own respective ranges of values so they can be more directly compared. On that basis we find a number of high 60-percentiles and 70 percentiles, a few that are higher, and not many that are lower. 
As to those that are lower, they are mostly good news. The recent price showing is only in about the 50Th percentile of values, a position that is neutral with respect to inflation pressures. The two inventory components show some weak readings indicating that stocks have been cut - a good thing for future production prospects. Export orders are and have been strong but prospects (oddly, given the weak dollar) are somewhat lower as a percentile reading&#133; 
As for the key readings&#133;we find production is strong in the current month in the 77th percentile - a bit higher than its outlook, which is only in the 60th percentile. Shipments are firm in the high 70th percentile across categories. The volume of news orders is only in the mid 60th percentile as are new and past order trends &#150; that&#146;s only 10 percentage points above what has been average. Order backlogs are moderate, in their mid 60th percentile. 
ON BALANCE&#133; The KC survey looks much better than those from &#145;out East.&#146; The various readings look firm to strong with most key readings above their respective mid point readings. The outlook index is quite solid. The one thing I wonder about is the weaker export readings. The world economy is supposed to be doing better. Why is the export outlook below the 50Th percentile? 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Kansas City Fed Diffusion Components and their Properties
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Current Readings</td>
<td colspan="3">Percent of Own Range</td>
</tr>
<tr class="odd">
<td class="firstcol">Kansas City Component</td>
<td>M/M</td>
<td>6-Mo Outlook</td>
<td>Yr/Yr</td>
<td>M/M</td>
<td>6-Mo Outlook</td>
<td>Yr/Yr</td>
</tr>
<tr>
<td class="firstcol">FAO Indices for Kansas City</td>
<td>15</td>
<td>29</td>
<td>27</td>
<td>79.6%</td>
<td>71.5%</td>
<td>81.5%</td>
</tr>
<tr>
<td class="firstcol">Production</td>
<td>26</td>
<td>41</td>
<td>28</td>
<td>77.1%</td>
<td>60.5%</td>
<td>70.3%</td>
</tr>
<tr>
<td class="firstcol">Volume of shipments</td>
<td>25</td>
<td>42</td>
<td>33</td>
<td>78.1%</td>
<td>78.1%</td>
<td>76.7%</td>
</tr>
<tr>
<td class="firstcol">Volume of new orders</td>
<td>23</td>
<td>40</td>
<td>33</td>
<td>59.5%</td>
<td>77.5%</td>
<td>76.4%</td>
</tr>
<tr>
<td class="firstcol">Backlog of orders</td>
<td>10</td>
<td>19</td>
<td>16</td>
<td>65.9%</td>
<td>63.3%</td>
<td>65.6%</td>
</tr>
<tr>
<td class="firstcol">Number of employees</td>
<td>11</td>
<td>22</td>
<td>27</td>
<td>70.5%</td>
<td>66.7%</td>
<td>90.0%</td>
</tr>
<tr>
<td class="firstcol">Average employee workweek</td>
<td>3</td>
<td>13</td>
<td>14</td>
<td>36.7%</td>
<td>68.4%</td>
<td>67.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices received</td>
<td>6</td>
<td>33</td>
<td>60</td>
<td>50.0%</td>
<td>84.4%</td>
<td>93.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices paid for raw goods</td>
<td>36</td>
<td>54</td>
<td>81</td>
<td>51.7%</td>
<td>72.2%</td>
<td>94.7%</td>
</tr>
<tr>
<td class="firstcol">Capital expenditures</td>
<td>--</td>
<td>22</td>
<td>27</td>
<td>--</td>
<td>68.6%</td>
<td>89.0%</td>
</tr>
<tr>
<td class="firstcol">New orders for exports</td>
<td>6</td>
<td>7</td>
<td>13</td>
<td>80.0%</td>
<td>40.9%</td>
<td>85.2%</td>
</tr>
<tr>
<td class="firstcol">Supplier delivery time</td>
<td>5</td>
<td>2</td>
<td>5</td>
<td>25.0%</td>
<td>29.2%</td>
<td>33.3%</td>
</tr>
<tr>
<td class="firstcol">Inventories: Materials</td>
<td>3</td>
<td>-15</td>
<td>4</td>
<td>68.1%</td>
<td>3.2%</td>
<td>50.8%</td>
</tr>
<tr>
<td class="firstcol">Inventories: Finished goods</td>
<td>-1</td>
<td>-5</td>
<td>0</td>
<td>39.3%</td>
<td>32.0%</td>
<td>40.0%</td>
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The tunnel chart on KC production says it all in a nutshell. The index has been weak. In July 2006 the production index sank below its 12-mont moving average and has more or less stayed there. It has been fluctuating sharply in early [...]

Kansas City Fed Index Jumps

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070426a.jpg" width="353">
The tunnel chart on KC production says it all in a nutshell. The index has been weak. In July 2006 the production index sank below its 12-mont moving average and has more or less stayed there. It has been fluctuating sharply in early 2007 but in April it has made a sharp break higher. The production reading that has jumped to +25 for production is in the top 25 percentile of all readings for production for this index and that is a fairly strong showing. The jump is out of character with the small rises we saw in NY and in Philadelphia and weaker reading in Richmond. But as the regional Consumer Confidence readings showed us, the strength in the economy is really OUT WEST. So KC is strong and getting stronger. This is one time I hope to root for the West Coast&#133; or at least things the other side of the Continental Divide (which the KC district bridges). 
Unfortunately, one message in the chart above is that spikes in the production index tend to give way - to back off -- so while we can be encouraged by the KC reading it is only one month, after all.
The KC Fed has three different sorts of surveys. We reported at the top on the m/m survey. That is akin to most MFG surveys we see. It also has a more unusual year/year diffusion survey and a somewhat more common 6-month outlook survey. We have combined all these results into one table across the various components, provided the raw months scores as well as a second panel that expresses them as a percentile in their own respective ranges of values so they can be more directly compared. On that basis we find a number of high 60-percentiles and 70 percentiles, a few that are higher, and not many that are lower. 
As to those that are lower, they are mostly good news. The recent price showing is only in about the 50Th percentile of values, a position that is neutral with respect to inflation pressures. The two inventory components show some weak readings indicating that stocks have been cut - a good thing for future production prospects. Export orders are and have been strong but prospects (oddly, given the weak dollar) are somewhat lower as a percentile reading&#133; 
As for the key readings&#133;we find production is strong in the current month in the 77th percentile - a bit higher than its outlook, which is only in the 60th percentile. Shipments are firm in the high 70th percentile across categories. The volume of news orders is only in the mid 60th percentile as are new and past order trends &#150; that&#146;s only 10 percentage points above what has been average. Order backlogs are moderate, in their mid 60th percentile. 
ON BALANCE&#133; The KC survey looks much better than those from &#145;out East.&#146; The various readings look firm to strong with most key readings above their respective mid point readings. The outlook index is quite solid. The one thing I wonder about is the weaker export readings. The world economy is supposed to be doing better. Why is the export outlook below the 50Th percentile? 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Kansas City Fed Diffusion Components and their Properties
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Current Readings</td>
<td colspan="3">Percent of Own Range</td>
</tr>
<tr class="odd">
<td class="firstcol">Kansas City Component</td>
<td>M/M</td>
<td>6-Mo Outlook</td>
<td>Yr/Yr</td>
<td>M/M</td>
<td>6-Mo Outlook</td>
<td>Yr/Yr</td>
</tr>
<tr>
<td class="firstcol">FAO Indices for Kansas City</td>
<td>15</td>
<td>29</td>
<td>27</td>
<td>79.6%</td>
<td>71.5%</td>
<td>81.5%</td>
</tr>
<tr>
<td class="firstcol">Production</td>
<td>26</td>
<td>41</td>
<td>28</td>
<td>77.1%</td>
<td>60.5%</td>
<td>70.3%</td>
</tr>
<tr>
<td class="firstcol">Volume of shipments</td>
<td>25</td>
<td>42</td>
<td>33</td>
<td>78.1%</td>
<td>78.1%</td>
<td>76.7%</td>
</tr>
<tr>
<td class="firstcol">Volume of new orders</td>
<td>23</td>
<td>40</td>
<td>33</td>
<td>59.5%</td>
<td>77.5%</td>
<td>76.4%</td>
</tr>
<tr>
<td class="firstcol">Backlog of orders</td>
<td>10</td>
<td>19</td>
<td>16</td>
<td>65.9%</td>
<td>63.3%</td>
<td>65.6%</td>
</tr>
<tr>
<td class="firstcol">Number of employees</td>
<td>11</td>
<td>22</td>
<td>27</td>
<td>70.5%</td>
<td>66.7%</td>
<td>90.0%</td>
</tr>
<tr>
<td class="firstcol">Average employee workweek</td>
<td>3</td>
<td>13</td>
<td>14</td>
<td>36.7%</td>
<td>68.4%</td>
<td>67.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices received</td>
<td>6</td>
<td>33</td>
<td>60</td>
<td>50.0%</td>
<td>84.4%</td>
<td>93.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices paid for raw goods</td>
<td>36</td>
<td>54</td>
<td>81</td>
<td>51.7%</td>
<td>72.2%</td>
<td>94.7%</td>
</tr>
<tr>
<td class="firstcol">Capital expenditures</td>
<td>--</td>
<td>22</td>
<td>27</td>
<td>--</td>
<td>68.6%</td>
<td>89.0%</td>
</tr>
<tr>
<td class="firstcol">New orders for exports</td>
<td>6</td>
<td>7</td>
<td>13</td>
<td>80.0%</td>
<td>40.9%</td>
<td>85.2%</td>
</tr>
<tr>
<td class="firstcol">Supplier delivery time</td>
<td>5</td>
<td>2</td>
<td>5</td>
<td>25.0%</td>
<td>29.2%</td>
<td>33.3%</td>
</tr>
<tr>
<td class="firstcol">Inventories: Materials</td>
<td>3</td>
<td>-15</td>
<td>4</td>
<td>68.1%</td>
<td>3.2%</td>
<td>50.8%</td>
</tr>
<tr>
<td class="firstcol">Inventories: Finished goods</td>
<td>-1</td>
<td>-5</td>
<td>0</td>
<td>39.3%</td>
<td>32.0%</td>
<td>40.0%</td>
</tr>
</tbody>
</table>
French Business Climate Improves for Manufacturers this Month; Service Companies Experience Slight Updrift 
by <a href="/comment/Stone.html">Carol Stone</a> April 26, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070426c.jpg" width="353">
French industry perceives its business climate as the best in over six years, according to the monthly survey by the French government statistics office INSEE. The &quot;business climate index&quot; stands at 111 this month, that is, 11% above companies&#39; long-run average. It rose 2 points from March and is 4 points ahead of 2006 as a whole. Among major factors, the trend in industrial production swung from a net balance of -2 in February and March to +9 this month, the first positive reading since last November. That is, the proportion of companies seeing an uptrend in production outnumbered those seeing a decline by 9 percentage points. Order books in particular are seen at +5 this month, a third consecutive positive count and the highest since April 2001. Foreign orders have had a positive balance for over a year, but until recently that has been more than offset by domestic weakness. So finally, domestic markets are improving enough to permit overall growth, rather than completely offsetting the foreign component.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070426d.jpg" width="353">
Apparently growth in output is not expected to produce an acceleration in sales prices. Instead, perhaps, companies view stronger output as accompanying restraint in price increases. The &quot;likely sales price development&quot; among manufacturers moderated back to +4 for April from +10 in March. In Q1, this measure averaged +10, the highest quarterly figure since Q2 1995, but if April&#39;s reading is sustained, it would suggest a recognition by business that the generally tenuous environment necessitates holding the line on price increases.
Among French service industries, the business climate has eased a bit this month to 108 from 110 in March. This sector has experienced a remarkably steady climate for just about three years, with a tight range of 104 to 111. Similarly, the companion measure of the &quot;overall outlook&quot; has ranged from -2 to +7 in the same time span, although the last 15 months or so give a hint of uptrend. This is reflected in &quot;sales expected over next 3 months&quot;, which has averaged +14 in February, March and April, up from 12 in 2006 and 11 in 2005.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070426b.jpg" width="353">
These firms do not generally expect to raise their prices. Their expectations for sales price increases have a balance of -2 for this month, and while there have not been any large negative readings, the only positive reading in the last year-and-a-half was a +1 in December. This mildly negative trend results from a mildly increasing trend for consumers and a declining path for business services. There is certainly little thought that demand will be strong enough to allow rising cost increases to be blithely passed on to customers.
&quot;Services&quot; in this survey have a more restricted definition than in most other data collections; here, they include real estate activities, business operations services and services for individuals. This last consists of travel agencies, hotels, restaurants, recreation, domestic services and the like. Notably, the category excludes transportation, finance and wholesale and retail trade.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/FRANCE/@F09/@F09.HTM">FRANCE</a><a href="http://www.haverselect.com/dlx/FRANCE/@F09/@F09.HTM">, </a> SA, %-Balance,&nbsp; except as noted*</th>
<th scope="col">Apr 2007</th>
<th scope="col">Mar 2007</th>
<th scope="col">Feb 2007</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industry Business Climate Indicator*</td>
<td>111</td>
<td>109</td>
<td>108</td>
<td>109</td>
<td>107</td>
<td>101</td>
<td>104</td>
</tr>
<tr>
<td class="firstcol">Industrial Production Trend Outlook</td>
<td>9</td>
<td>-2</td>
<td>-2</td>
<td>3</td>
<td>5</td>
<td>-12</td>
<td>5</td>
</tr>
<tr class="odd">
<td class="firstcol">Order Books</td>
<td>5</td>
<td>4</td>
<td>1</td>
<td>-5</td>
<td>-6</td>
<td>-17</td>
<td>-14</td>
</tr>
<tr>
<td class="firstcol">Sales Prices Next 3 Mos.</td>
<td>4</td>
<td>10</td>
<td>8</td>
<td>1</td>
<td>6</td>
<td>0</td>
<td>1</td>
</tr>
<tr class="odd">
<td class="firstcol">Services Business Climate Indicator*</td>
<td>108</td>
<td>110</td>
<td>108</td>
<td>105</td>
<td>108</td>
<td>106</td>
<td>105</td>
</tr>
<tr>
<td class="firstcol">Overall Outlook</td>
<td>7</td>
<td>6</td>
<td>6</td>
<td>2</td>
<td>4</td>
<td>-0</td>
<td>-0</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales Next 3 Mos.</td>
<td>14</td>
<td>15</td>
<td>13</td>
<td>12</td>
<td>12</td>
<td>11</td>
<td>8</td>
</tr>
<tr>
<td class="firstcol">Prices Next 3 Mos.</td>
<td>-2</td>
<td>-1</td>
<td>-1</td>
<td>-3</td>
<td>-2</td>
<td>1</td>
<td>2</td>
</tr>
</tbody>
</table>
</body>
</html>

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/070425d.jpg" width="353">
GDP expanded 0.7% in the UK in Q1 2007, the same as in Q4 and a bit better than forecasters&#39; estimate of 0.6%. The year-on-year gain was 2.8%. At first glance, the most notable aspect of this Office for National Statistics &quot;preliminary&quot; GDP report is a decline in manufacturing. That sector&#39;s value added declined by 0.3% from Q4. It was up just 1.4% from a year ago. However, this is not seen as a sign of weakness; most segments of this sector, according to ONS&#39;s &quot;Briefing Notes&quot; held basically flat.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070425e.jpg" width="353">
The main story in the UK data, at least for this quarter, is the upturn in the mining sector. The opening of the new Buzzard oil field in the North Sea yielded a 1.4% quarterly advance in the mining sector following almost five years of decline. Utility output also gained 1.4%. The services sector remained the mainstay of growth, up 0.8% and 3.5% year-to-year. Transportation and business services both had expansions of more than 1%.
The other main economy to publish Q1 GDP today is South Korea. Its growth was 0.9%, also the same as in Q4, with 3.9% growth year-on-year. Unexpectedly for an Asian country, manufacturing output declined here as well, by 0.8%. Consumer electronics and <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070425f.jpg" width="353"> electrical equipment were the main sources of the decrease, according to industrial production data through February. Again, as with the UK, analysts seem unconcerned. Korea publishes its entire array of GDP, including the expenditure side, in this initial quarterly report, and observers took note of a good gain in exports, up 3.2%, following just 0.5% in Q4. In volume terms, exports constitute almost 60% of Korea&#39;s total GDP. So the implication is that, in the absence of evidence of a demand slowdown in China or the US, Korea&#39;s manufacturing sector can remain in an overall expansion, if not every single quarter.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070425c.jpg" width="353">
The Korean services sector is also expanding. It grew 1.2% in Q1, also duplicating the Q4 gain. Transportation, finance and health care had the biggest increases. Among other demand components, household consumption gained 1.3%, and capital investment was up 2.0%, mostly in equipment.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">GDP (SA, % Chg)</th>
<th scope="col">Q1 2007</th>
<th scope="col">Q4 2006</th>
<th scope="col">Q3 2006</th>
<th scope="col">Year/Year</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">UK Total</td>
<td>0.7</td>
<td>0.7</td>
<td>0.7</td>
<td>2.8</td>
<td>2.8</td>
<td>2.0</td>
<td>3.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ex Oil &amp; Gas</td>
<td>0.7</td>
<td>0.7</td>
<td>0.6</td>
<td>3.0</td>
<td>2.9</td>
<td>2.2</td>
<td>3.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mining</td>
<td>1.4</td>
<td>-0.6</td>
<td>-3.5</td>
<td>-6.3</td>
<td>-7.9</td>
<td>-9.5</td>
<td>-7.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-0.3</td>
<td>0.1</td>
<td>0.7</td>
<td>1.4</td>
<td>1.5</td>
<td>-1.0</td>
<td>2.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Services</td>
<td>0.8</td>
<td>0.9</td>
<td>0.8</td>
<td>3.5</td>
<td>3.6</td>
<td>2.9</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol">South Korea</td>
<td>0.9</td>
<td>0.9</td>
<td>1.2</td>
<td>3.9</td>
<td>5.0</td>
<td>4.2</td>
<td>4.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-0.8</td>
<td>1.0</td>
<td>2.2</td>
<td>4.0</td>
<td>8.4</td>
<td>7.1</td>
<td>11.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services</td>
<td>1.2</td>
<td>1.2</td>
<td>0.9</td>
<td>4.1</td>
<td>4.2</td>
<td>3.4</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body>
</html>

GDP expanded 0.7% in the UK in Q1 2007, the same as in Q4 and a bit better than forecasters' estimate of 0.6%. The year-on-year gain was 2.8%. At first glance, the most notable aspect of this Office for National Statistics [...]

On-Trend GDP Growth for Q1 in UK and South Korea

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070425a.jpg" width="353">
Durable goods orders are up by 3.4% after a rise of 2.4% in February. In most cases this sort of back-to-back gain would set a strong chain of growth in place. Instead, orders are still in a hole following a plunge of 8.8% in January. On balance the durable goods report shows some progress &#150; better than expected progress -- after a very weak start in 2007. To be sure this month&#146;s improvement does not wash out the weakness from earlier in the year. But it goes a long way to putting the MFG sector on firmer ground. Unfilled orders continue to look very strong in this report. One interesting feature of this report is the high degree of volatility it has showed. Volatility is up by 2 &frac12; times compared to early 2005 making it difficult to discern trend. Within the last seven months there have been THREE monthly changes in orders of 8% or more. 
Three month trends are lower because in January orders were off by 8.8% and that is driving the last three month trend calculation. Next month that will fall out of the calculation and we have two quite firm months to add to whatever result April brings. On balance while we cannot say the current trends are good or solid, we can say that these lumpy data make us unsure of exactly which trend to trust. IF the data turn positive in April, we will be left with nice up trends instead of what we have now for three months. 
Diffusion calculations that count the ups and downs of sector growth rates instead by overall weighted magnitudes of growth also show weakness. That&#146;s over three months the weakness has not just been &#145;severe&#146; but also broad-based.&#146; Three months shipments&#146; diffusion shows a value of 42 implying that over three months more sectors showed shipments decelerating compared to their six month behavior. Orders diffusion for three months was worse, too, at 28 showing orders increased in three months compared to six months in under 30% of the industries. But unfilled orders continue to mount up with 87% of the sectors showing that unfilled orders rose faster in three months than they did over six. Sales growth outpaced inventory growth in a small minority of sectors over three months. The weakness that the 8.8% drop in orders created seems to have permeated most measures and sectors for industry. Fortunately in the past two months MFG sectors show signs of breaking out of it. 
The chart above plots the volatility of orders. It is quite clear that orders have had some voracious ups and downs. The past three months mimic a pattern from the previous three moths of showing a huge decline in orders followed by two quite robust monthly gains. 
If we look at the major seven sectors (primary metals, fabricated metals, machinery, computers &amp; electronics, electrical equipment, transportation equipment, and all other durables) we find that until six months ago the trends were declining and seemed to bottom. That is true of trends for both shipments and orders. But over the recent three months trends splayed in all directions, with most turning lower. Over the backward looking periods of three months, six months, and one year, order backlogs continue to show that they are rising and doing so fairly steadily. Work is piling up but increasingly it is not getting done. One singularly common feature is that these stepwise growth rates show across almost all sectors that inventory growth has been slowing. The sole exception is primary metals where prices have begun to flare once again. For computers &amp; electronics, as well as for electrical equipment, stocks of inventories have actually been reduced. 
It seems that inventory liquidation is in progress or at least that balance is being restored. After the sharp drop in orders, the desire to control stocks is understandable. We continue to see MFG as a sector that has undergone adjustment. 
The MFG surveys for April (so far) continue to be uneven. It is not clear when they will light up MFG output again. For now it is a curiosity that the consumer has held up but that US business investment has been so lean. US investment and capital goods weakness is particularly surprising with the release of new German GDP data today and all the commentary there about how capital goods investment is driving German growth. Especially with the euro at these levels how could German firms benefit so much and US firms so little? What are US firms doing so badly that they are getting none of this business and investing nothing (or less) at home to boot?

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Durable Goods Orders
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods</td>
<td>1Mo:m/m</td>
<td>3Mo</td>
<td>6Mo</td>
<td>9Mo</td>
<td>12Mo</td>
<td>Year Ago</td>
</tr>
<tr>
<td class="firstcol">Shipments</td>
<td>0.8%</td>
<td>-8.1%</td>
<td>-0.9%</td>
<td>-3.2%</td>
<td>-0.6%</td>
<td>7.6%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>3.4%</td>
<td>-13.1%</td>
<td>-12.0%</td>
<td>-1.1%</td>
<td>-2.1%</td>
<td>17.5%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>1.8%</td>
<td>13.6%</td>
<td>18.6%</td>
<td>20.9%</td>
<td>19.8%</td>
<td>20.9%</td>
</tr>
<tr>
<td class="firstcol">Inventories</td>
<td>0.3%</td>
<td>3.2%</td>
<td>5.0%</td>
<td>7.4%</td>
<td>8.4%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">I:S Ratio</td>
<td>143.8%</td>
<td>139.6%</td>
<td>139.7%</td>
<td>133.0%</td>
<td>131.9%</td>
<td>138.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Excl Transportation</td>
<td>1Mo:m/m</td>
<td>3Mo</td>
<td>6Mo</td>
<td>9Mo</td>
<td>12Mo</td>
<td>Year Ago</td>
</tr>
<tr>
<td class="firstcol">Shipments</td>
<td>0.3%</td>
<td>-3.7%</td>
<td>-2.5%</td>
<td>-3.0%</td>
<td>0.1%</td>
<td>8.4%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>1.5%</td>
<td>-8.7%</td>
<td>-3.6%</td>
<td>-3.6%</td>
<td>-0.5%</td>
<td>10.5%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.9%</td>
<td>10.1%</td>
<td>11.5%</td>
<td>12.2%</td>
<td>13.5%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">Inventories</td>
<td>0.1%</td>
<td>1.6%</td>
<td>4.3%</td>
<td>7.5%</td>
<td>8.3%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">I:S Ratio</td>
<td>150.2%</td>
<td>148.2%</td>
<td>145.2%</td>
<td>139.1%</td>
<td>138.8%</td>
<td>146.3%</td>
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Durable goods orders are up by 3.4% after a rise of 2.4% in February. In most cases this sort of back-to-back gain would set a strong chain of growth in place. Instead, orders are still in a hole following a plunge of 8.8% in January. [...]

U.S. Durable Goods Orders Rise by 3.4% in March

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070425a.jpg" width="353">
Durable goods orders are up by 3.4% after a rise of 2.4% in February. In most cases this sort of back-to-back gain would set a strong chain of growth in place. Instead, orders are still in a hole following a plunge of 8.8% in January. On balance the durable goods report shows some progress &#150; better than expected progress -- after a very weak start in 2007. To be sure this month&#146;s improvement does not wash out the weakness from earlier in the year. But it goes a long way to putting the MFG sector on firmer ground. Unfilled orders continue to look very strong in this report. One interesting feature of this report is the high degree of volatility it has showed. Volatility is up by 2 &frac12; times compared to early 2005 making it difficult to discern trend. Within the last seven months there have been THREE monthly changes in orders of 8% or more. 
Three month trends are lower because in January orders were off by 8.8% and that is driving the last three month trend calculation. Next month that will fall out of the calculation and we have two quite firm months to add to whatever result April brings. On balance while we cannot say the current trends are good or solid, we can say that these lumpy data make us unsure of exactly which trend to trust. IF the data turn positive in April, we will be left with nice up trends instead of what we have now for three months. 
Diffusion calculations that count the ups and downs of sector growth rates instead by overall weighted magnitudes of growth also show weakness. That&#146;s over three months the weakness has not just been &#145;severe&#146; but also broad-based.&#146; Three months shipments&#146; diffusion shows a value of 42 implying that over three months more sectors showed shipments decelerating compared to their six month behavior. Orders diffusion for three months was worse, too, at 28 showing orders increased in three months compared to six months in under 30% of the industries. But unfilled orders continue to mount up with 87% of the sectors showing that unfilled orders rose faster in three months than they did over six. Sales growth outpaced inventory growth in a small minority of sectors over three months. The weakness that the 8.8% drop in orders created seems to have permeated most measures and sectors for industry. Fortunately in the past two months MFG sectors show signs of breaking out of it. 
The chart above plots the volatility of orders. It is quite clear that orders have had some voracious ups and downs. The past three months mimic a pattern from the previous three moths of showing a huge decline in orders followed by two quite robust monthly gains. 
If we look at the major seven sectors (primary metals, fabricated metals, machinery, computers &amp; electronics, electrical equipment, transportation equipment, and all other durables) we find that until six months ago the trends were declining and seemed to bottom. That is true of trends for both shipments and orders. But over the recent three months trends splayed in all directions, with most turning lower. Over the backward looking periods of three months, six months, and one year, order backlogs continue to show that they are rising and doing so fairly steadily. Work is piling up but increasingly it is not getting done. One singularly common feature is that these stepwise growth rates show across almost all sectors that inventory growth has been slowing. The sole exception is primary metals where prices have begun to flare once again. For computers &amp; electronics, as well as for electrical equipment, stocks of inventories have actually been reduced. 
It seems that inventory liquidation is in progress or at least that balance is being restored. After the sharp drop in orders, the desire to control stocks is understandable. We continue to see MFG as a sector that has undergone adjustment. 
The MFG surveys for April (so far) continue to be uneven. It is not clear when they will light up MFG output again. For now it is a curiosity that the consumer has held up but that US business investment has been so lean. US investment and capital goods weakness is particularly surprising with the release of new German GDP data today and all the commentary there about how capital goods investment is driving German growth. Especially with the euro at these levels how could German firms benefit so much and US firms so little? What are US firms doing so badly that they are getting none of this business and investing nothing (or less) at home to boot?

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Durable Goods Orders
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods</td>
<td>1Mo:m/m</td>
<td>3Mo</td>
<td>6Mo</td>
<td>9Mo</td>
<td>12Mo</td>
<td>Year Ago</td>
</tr>
<tr>
<td class="firstcol">Shipments</td>
<td>0.8%</td>
<td>-8.1%</td>
<td>-0.9%</td>
<td>-3.2%</td>
<td>-0.6%</td>
<td>7.6%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>3.4%</td>
<td>-13.1%</td>
<td>-12.0%</td>
<td>-1.1%</td>
<td>-2.1%</td>
<td>17.5%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>1.8%</td>
<td>13.6%</td>
<td>18.6%</td>
<td>20.9%</td>
<td>19.8%</td>
<td>20.9%</td>
</tr>
<tr>
<td class="firstcol">Inventories</td>
<td>0.3%</td>
<td>3.2%</td>
<td>5.0%</td>
<td>7.4%</td>
<td>8.4%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">I:S Ratio</td>
<td>143.8%</td>
<td>139.6%</td>
<td>139.7%</td>
<td>133.0%</td>
<td>131.9%</td>
<td>138.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Excl Transportation</td>
<td>1Mo:m/m</td>
<td>3Mo</td>
<td>6Mo</td>
<td>9Mo</td>
<td>12Mo</td>
<td>Year Ago</td>
</tr>
<tr>
<td class="firstcol">Shipments</td>
<td>0.3%</td>
<td>-3.7%</td>
<td>-2.5%</td>
<td>-3.0%</td>
<td>0.1%</td>
<td>8.4%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>1.5%</td>
<td>-8.7%</td>
<td>-3.6%</td>
<td>-3.6%</td>
<td>-0.5%</td>
<td>10.5%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.9%</td>
<td>10.1%</td>
<td>11.5%</td>
<td>12.2%</td>
<td>13.5%</td>
<td>12.8%</td>
</tr>
<tr>
<td class="firstcol">Inventories</td>
<td>0.1%</td>
<td>1.6%</td>
<td>4.3%</td>
<td>7.5%</td>
<td>8.3%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">I:S Ratio</td>
<td>150.2%</td>
<td>148.2%</td>
<td>145.2%</td>
<td>139.1%</td>
<td>138.8%</td>
<td>146.3%</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">
<tr>
<td><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070425b.jpg" width="353">New home sales take a breather in March but still ride a strong and unrelenting DOWN-trend.&nbsp; New home sales continue to plunge despite the tiny bounce in sales in March. The number of homes for sale has surged in terms of the number of months of supply. That has worsened in part because of the slower selling pace. By comparison, existing home sales are doing a lot better with the stock of homes there contracting and the pace of sales decline muted. For new home sales - even the regional data - by and large- show that the pace is WORSENING. We might even be persuaded to call the pace of decline catastrophic if it were not for one thing: That is that home prices are rising in the month and are up solidly Y/Y. Median prices are up by 6.4% Y/Y and average prices are up a staggering 10.4% Y/Y. What? YES! Do prices tell us a different story or lie? This is partly because prices in March a year ago fell sharply. If we re-cast the Y/Y calculation to take the average of February and April prices as the base for the Y/Y calculations (skipping March and effectively interpolating a different number) median prices are flat but average home prices still rise by 7.1%. This is evidence that the worst of it is in the moderately priced homes, although we know that the earning of high end builders are being hit as well. Builders appear to be using their capital to support prices or cut deals where they do not show up in the data as price declines. This sort of tool is more likely available for enticing high-end home-buyers with houses filled with lots of goodies than for low end home buyers where the new buyer wants most of all a house at the lowest price possible.The regional data show us that the pace of the sales decline is not slowing except in the Northeast (NE) where the winter months sales are always suspect. They are more suspect since the NE is the only region to show Y/Y gains is new home sales&#133; Across the rest of the country, annual regional declines are on the order of 20% to 30%. The recent three month growth rates for new home sales in those remaining three regions range from minus 50 percent to minus 107 percent. So while this is a weak report and it will feed weakness into GDP it is also is a report where the housing sector appears to be somewhat at least in strong hands; hands that are able to control prices and keep them from spiraling lower in the face of a very weak pace of sales. This phenomenon will be very interesting to watch in the coming months.&nbsp;&nbsp; </td>
</tr>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
New Single Family Home Sales
</tr>
</thead>
<tbody>
<tr class="odd">
<td colspan="6">Momentum: Annualized Rates of Change</td>
<td colspan="2">Prices</td>
</tr>
<tr class="odd">
<td class="firstcol">As of:</td>
<td>Total</td>
<td>North East</td>
<td>Mid West</td>
<td>South</td>
<td>West</td>
<td>Median</td>
<td>Average</td>
</tr>
<tr class="odd">
<td class="firstcol">Mar.07</td>
<td colspan="7">Month-to-month percent change</td>
</tr>
<tr>
<td class="firstcol">Mar.07</td>
<td>2.6%</td>
<td>50.0%</td>
<td>9.8%</td>
<td>-2.7%</td>
<td>-0.9%</td>
<td>0.9%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">Feb.07</td>
<td>-4.2%</td>
<td>-21.3%</td>
<td>-22.8%</td>
<td>-5.7%</td>
<td>21.8%</td>
<td>1.0%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">Jan.07</td>
<td>-14.4%</td>
<td>-16.4%</td>
<td>-13.7%</td>
<td>-8.1%</td>
<td>-27.5%</td>
<td>1.9%</td>
<td>3.2%</td>
</tr>
<tr class="odd">
<td colspan="8">Annualized Rates</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Total</td>
<td>North East</td>
<td>Mid West</td>
<td>South</td>
<td>West</td>
<td>Median</td>
<td>Average</td>
</tr>
<tr>
<td class="firstcol">3-Mo</td>
<td>-63.5%</td>
<td>-5.5%</td>
<td>-107.1%</td>
<td>-62.7%</td>
<td>-50.2%</td>
<td>16.1%</td>
<td>44.3%</td>
</tr>
<tr>
<td class="firstcol">6-Mo</td>
<td>-32.1%</td>
<td>32.3%</td>
<td>-8.6%</td>
<td>-45.7%</td>
<td>-30.6%</td>
<td>25.5%</td>
<td>24.8%</td>
</tr>
<tr>
<td class="firstcol">1-Yr</td>
<td>-23.5%</td>
<td>18.0%</td>
<td>-19.3%</td>
<td>-25.7%</td>
<td>-29.6%</td>
<td>6.4%</td>
<td>10.7%</td>
</tr>
</tbody>
</table>
U.S. New Home Sales Rise But After Downward Revisions... 
by <a href="/comment/Brusca.html">Robert Brusca</a> April 25, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070425d.jpg" width="353">
GDP expanded 0.7% in the UK in Q1 2007, the same as in Q4 and a bit better than forecasters&#39; estimate of 0.6%. The year-on-year gain was 2.8%. At first glance, the most notable aspect of this Office for National Statistics &quot;preliminary&quot; GDP report is a decline in manufacturing. That sector&#39;s value added declined by 0.3% from Q4. It was up just 1.4% from a year ago. However, this is not seen as a sign of weakness; most segments of this sector, according to ONS&#39;s &quot;Briefing Notes&quot; held basically flat.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070425e.jpg" width="353">
The main story in the UK data, at least for this quarter, is the upturn in the mining sector. The opening of the new Buzzard oil field in the North Sea yielded a 1.4% quarterly advance in the mining sector following almost five years of decline. Utility output also gained 1.4%. The services sector remained the mainstay of growth, up 0.8% and 3.5% year-to-year. Transportation and business services both had expansions of more than 1%.
The other main economy to publish Q1 GDP today is South Korea. Its growth was 0.9%, also the same as in Q4, with 3.9% growth year-on-year. Unexpectedly for an Asian country, manufacturing output declined here as well, by 0.8%. Consumer electronics and <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070425f.jpg" width="353"> electrical equipment were the main sources of the decrease, according to industrial production data through February. Again, as with the UK, analysts seem unconcerned. Korea publishes its entire array of GDP, including the expenditure side, in this initial quarterly report, and observers took note of a good gain in exports, up 3.2%, following just 0.5% in Q4. In volume terms, exports constitute almost 60% of Korea&#39;s total GDP. So the implication is that, in the absence of evidence of a demand slowdown in China or the US, Korea&#39;s manufacturing sector can remain in an overall expansion, if not every single quarter.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070425c.jpg" width="353">
The Korean services sector is also expanding. It grew 1.2% in Q1, also duplicating the Q4 gain. Transportation, finance and health care had the biggest increases. Among other demand components, household consumption gained 1.3%, and capital investment was up 2.0%, mostly in equipment.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">GDP (SA, % Chg)</th>
<th scope="col">Q1 2007</th>
<th scope="col">Q4 2006</th>
<th scope="col">Q3 2006</th>
<th scope="col">Year/Year</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">UK Total</td>
<td>0.7</td>
<td>0.7</td>
<td>0.7</td>
<td>2.8</td>
<td>2.8</td>
<td>2.0</td>
<td>3.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ex Oil &amp; Gas</td>
<td>0.7</td>
<td>0.7</td>
<td>0.6</td>
<td>3.0</td>
<td>2.9</td>
<td>2.2</td>
<td>3.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mining</td>
<td>1.4</td>
<td>-0.6</td>
<td>-3.5</td>
<td>-6.3</td>
<td>-7.9</td>
<td>-9.5</td>
<td>-7.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-0.3</td>
<td>0.1</td>
<td>0.7</td>
<td>1.4</td>
<td>1.5</td>
<td>-1.0</td>
<td>2.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Services</td>
<td>0.8</td>
<td>0.9</td>
<td>0.8</td>
<td>3.5</td>
<td>3.6</td>
<td>2.9</td>
<td>3.9</td>
</tr>
<tr>
<td class="firstcol">South Korea</td>
<td>0.9</td>
<td>0.9</td>
<td>1.2</td>
<td>3.9</td>
<td>5.0</td>
<td>4.2</td>
<td>4.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-0.8</td>
<td>1.0</td>
<td>2.2</td>
<td>4.0</td>
<td>8.4</td>
<td>7.1</td>
<td>11.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Services</td>
<td>1.2</td>
<td>1.2</td>
<td>0.9</td>
<td>4.1</td>
<td>4.2</td>
<td>3.4</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070424a.jpg" width="353">
Italian consumers have turned sharply negative according to the April ISAE survey of consumer confidence*.The overall index declined 4.3% from March. Consumers&#39; confidence in the general economic situation declined 4.0% and confidence in their personal situation declined 4.3%. Underlying the decline in confidence in their personal situation was a sharp decline in confidence regarding the future, which declined 6.3%. Confidence in their current personal situation was down only 1.2%. The first chart shows the ISAE consumer confidence indicator, the indicator for the general economic situation and the indicator for the household&#39;s personal situation.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070424b.jpg" width="353">
A part of the drop in confidence in April may be explained by the sluggish performance of the Italian economy in recent years. Although the economy grew slightly above expectations in 2006, it was still only 1.9%, compared with 2.1% in France and 2.89% in Germany. Industrial production has declined in January and February of this year. In addition, the government raised taxes on incomes above 40,000 euros ($54,000 at euro=1.35 dollars) earlier this year.
In a somewhat longer perspective the picture is not so bleak. In spite of the April decline, overall confidence was 1.6% above April, 2006 and the appraisal of the general economic condition was 2.8% above April, 2006. Consumers were 3.9% more confident of their personal current condition, but were 2.3% less confident about the future than in April, 2006. The upward trend in Italian Consumer confidence that began in mid 2004 has not been without its sharp ups and downs. The trend adjusted series has weathered monthly declines almost as large as the of April 2007, as can be seen in the second chart that shows the trend adjusted confidence indicator and its month to month changes.*The survey, conducted by the Institute for Studies and Economic Analysis in Rome, interviews some 2000 households. The April survey was carried out between April 1 and April 14.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;ITALIAN CONSUMER CONFIDENCE</th>
<th scope="col">Apr 07</th>
<th scope="col">Mar 07</th>
<th scope="col">Apr 06</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">ISAE Consumer Confidence Indicator (1980=100)</td>
<td>107.8</td>
<td>112.6</td>
<td>106.1</td>
<td>-4.26</td>
<td>1.60</td>
<td>108.7</td>
<td>104.2</td>
<td>101.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; General Economic Situation</td>
<td>97.6</td>
<td>101.7</td>
<td>94.9</td>
<td>-4.03</td>
<td>2.85</td>
<td>95.6</td>
<td>85.4</td>
<td>88.6</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp;&nbsp; Personal Economic Situation </td>
<td>112.5</td>
<td>117.5</td>
<td>111.4</td>
<td>-4.26</td>
<td>0.99</td>
<td>115.3</td>
<td>113.7</td>
<td>107.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Situation&nbsp;</td>
<td>114.0</td>
<td>115.4</td>
<td>109.7</td>
<td>-1.21</td>
<td>3.92</td>
<td>112.2</td>
<td>106.8</td>
<td>102.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Future Situation&nbsp;</td>
<td>100.6</td>
<td>107.4</td>
<td>102.9</td>
<td>-6.33</td>
<td>-2.29</td>
<td>104.4</td>
<td>101.1</td>
<td>100.8</td>
</tr>
</tbody>
</table>
</body>
</html>

Italian consumers have turned sharply negative according to the April ISAE survey of consumer confidence*.The overall index declined 4.3% from March. Consumers' confidence in the general economic situation declined 4.0% and confidence [...]

Italian Consumer Confidence Down Sharply in April: A Portent for the Future or a One Time Blip?

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070424e.jpg" width="353">
The story of consumer confidence is that the index is now just one month off its peak reading for this expansion cycle&#151;not exactly the kind of thing to get worried about. The present situation sub-index is also one-month off its peak of the cycle. The expectations sub-index is sliding more persistently. That index reached its peak back in late 2003. Weakness in this series as the expansion grinds on is to be expected. Sharp drops in expectations are to be worried about. What we have here is a steady erosion in expectations. 
The table below presents the various components of the present situation and expectations indexess showing them as DIFFUSION values. Present situation readings for businesses and for employment are solid with diffusion readings at 55.8 for business and 53.7 for employment. For expectations things get a bit more frayed. Business conditions are still expected to be positive as the diffusion reading for 6-months ahead is 51.7. The employment outlook, however, is a contractionary 48.6. Income expectations at 54.1 are still solid. However, in looking at the responses we find that the prevalent expectation is for NO CHANGE. Since late 2003 we have the greatest number of respondents saying &#145;no change&#146; for business conditions that we have seen in this period. For employment and income expectations we are also looking at near record &#145;no change&#146; readings for the period. Economic agents seem to be confused about what to expect. 
Buying plans are weak. Although plans to buy a new car are still above what has been normal. Plans to buy a house are very low. I&#146;m just guessing here but I&#146;ll bet that plans to buy a new home with a sub-prime mortgage are even lower&#133;

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Consumer Confidence - Conference Board
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Raw Indices</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>Jan-07</td>
<td>Dec-06</td>
<td>Nov-06</td>
<td>Oct-06</td>
</tr>
<tr class="odd">
<td class="firstcol">Confidence Index</td>
<td>104.0</td>
<td>108.2</td>
<td>111.2</td>
<td>110.2</td>
<td>110.0</td>
<td>105.3</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Present Situation:</td>
<td>131.3</td>
<td>138.5</td>
<td>137.1</td>
<td>133.9</td>
<td>130.5</td>
<td>125.4</td>
<td>125.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>85.8</td>
<td>87.9</td>
<td>93.8</td>
<td>94.4</td>
<td>96.3</td>
<td>91.9</td>
<td>91.9</td>
</tr>
<tr>
<td colspan="8">Present Situation Responses: Diffusion Indices</td>
</tr>
<tr class="odd">
<td class="firstcol">Business Conditions</td>
<td>55.8</td>
<td>57.1</td>
<td>57.0</td>
<td>55.9</td>
<td>56.3</td>
<td>55.7</td>
<td>55.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>53.7</td>
<td>55.7</td>
<td>55.0</td>
<td>55.0</td>
<td>53.2</td>
<td>51.8</td>
<td>51.9</td>
</tr>
<tr>
<td colspan="8">Expectations(6-mo): Diffusion Indices</td>
</tr>
<tr class="odd">
<td class="firstcol">Business Conditions</td>
<td>51.7</td>
<td>52.4</td>
<td>53.9</td>
<td>54.2</td>
<td>54.5</td>
<td>53.8</td>
<td>54.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment</td>
<td>48.6</td>
<td>48.4</td>
<td>49.6</td>
<td>49.1</td>
<td>49.2</td>
<td>48.6</td>
<td>48.6 </td>
</tr>
<tr class="odd">
<td class="firstcol">Income</td>
<td>54.1</td>
<td>55.0</td>
<td>55.5</td>
<td>56.2</td>
<td>57.1</td>
<td>56.5</td>
<td>55.8</td>
</tr>
<tr>
<td colspan="8">Buying Plans: Raw Responses and Weighted Indices</td>
</tr>
<tr class="odd">
<td class="firstcol">Automobile</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>Jan-07</td>
<td>Dec-06</td>
<td>Nov-06</td>
<td>Oct-06</td>
</tr>
<tr class="odd">
<td class="firstcol">Yes: Auto</td>
<td>6</td>
<td>5.4</td>
<td>5.5</td>
<td>6.3</td>
<td>5.4</td>
<td>5.2</td>
<td>6.2</td>
</tr>
<tr class="odd">
<td class="firstcol">New: Auto</td>
<td>3.2</td>
<td>2.7</td>
<td>2.4</td>
<td>3</td>
<td>2.6</td>
<td>2.3</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">House</td>
<td>Apr-07</td>
<td>Mar-07</td>
<td>Feb-07</td>
<td>Jan-07</td>
<td>Dec-06</td>
<td>Nov-06</td>
<td>Oct-06</td>
</tr>
<tr class="odd">
<td class="firstcol">Yes: House</td>
<td>2.7</td>
<td>3.2</td>
<td>3.4</td>
<td>3.3</td>
<td>2.9</td>
<td>3.2</td>
<td>3.1</td>
</tr>
<tr class="odd">
<td class="firstcol">New: House</td>
<td>0.7</td>
<td>0.8</td>
<td>1.1</td>
<td>1.2</td>
<td>0.5</td>
<td>1.1</td>
<td>0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Major Appliance</td>
<td>30.3</td>
<td>32.7</td>
<td>32.1</td>
<td>29.6</td>
<td>27.8</td>
<td>29.8</td>
<td>28.5</td>
</tr>
</tbody>
</table>


Current conditions are very erratic across the country. The charts below the spotty and irregular performance in Yr/Yr current conditions across regions. Only three are lower Yr/Yr but the E. North Central region is down hard and both the New England and South Atlantic regions are off significantly. On the upside the Pacific region is up strongly but most of the other regions are up only modestly. 
Placed in the perspective of the recent economic recovery since late 2003, the NE Central is not just weak but on a new low for this part of the cycle while its current conditions reading stands only in its 12th percentile, the bottom 12% of all readings. Generally the regions out West are going better. 
<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070424c.jpg" width="353"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070424d.jpg" width="353">

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<th scope="col" class="firstcol">&middot; On balance, we find there is still exists a lot of uneven conditions around the nation. This month, consumer confidence and the present situation eroded in each major region month to month except for a sizeable increase in the present conditions index in the Pacific region. While the overall index of consumer confidence is not far off peak we must wonder if this sort of broad-based weakness is a new feeling of malaise or actual encroaching weakness or simply the result of pretty odd weather/calendar patterns. This is another of the indexes we will want to keep close tabs on (actually the whole family of consumer attitude indexes). There is no sense of there being any fluke in this survey since both the weekly ABC/Washington Post index and the monthly U of M index of consumer sentiment have been weakening. In this month&#146;s report we also saw inflation expectations rise. &middot; It was not an upbeat report for April. But then again, based on where the various indexes stand in historic context, it was not too bad either. It&#146;s about the way things have been going.&nbsp; There is no evidence of a break out here in either direction.</th>
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The story of consumer confidence is that the index is now just one month off its peak reading for this expansion cyclenot exactly the kind of thing to get worried about. The present situation sub-index is also one-month off its peak [...]

U.S. Consumer Confidence, Present Situation Drop Off Peak

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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260206E.jpg

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

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

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

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

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

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

260206.jpg

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

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

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

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

Germany

German IP Reveals Chaotic Trends

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

260205X15.jpg

260205Y15.jpg

**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.

260205C15.jpg

260205D15.jpg

- 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

260205A2.jpg

260205B2.jpg

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.

260205C2.jpg

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: 2007

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German Export and Import Prices Show Relief

Kansas City Fed Index Jumps

Kansas City Fed Index Jumps

On-Trend GDP Growth for Q1 in UK and South Korea

U.S. Durable Goods Orders Rise by 3.4% in March

U.S. Durable Goods Orders Rise by 3.4% in March

Italian Consumer Confidence Down Sharply in April: A Portent for the Future or a One Time Blip?

U.S. Consumer Confidence, Present Situation Drop Off Peak