Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070417a.jpg" width="353">
The 0.1% increase in the CPI in March (annual rate of 0.7%) is just what the CPI needed after back to back monthly increases of 0.23% but, after two such bad reports, this good one can only take the edge off bad trends; it can&#146;t by itself make CPI trends good. For the month, inflation was not widespread; our monthly diffusion counter was at 42.9 for the headline and 42.9 for the core. Both signal that month-to-month inflation fell in more CPI categories than it rose. But both core and headline inflation now show an accelerating three-month pace compared to six months ago.
In the guts of this month&#146;s report we find core goods prices were weak as in the PPI, falling at a 0.9% annual rate in the month. But services prices were moderate too, cutting their pace of increase to a pace of +1.4%. Still over three months core goods prices are rising by 0.4% and core services are at 2.9%. (the service sector is 71% of the core). So while the inflation game is still a tug of war between goods deflation and services inflation, both sectors say inflation pressures eased in the month. Services inflation has seen sequentially lower from 1-year to 6-months and from 6-months to 3-months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070417b.jpg" width="353">
While still high, core service sector inflation trends are cooling across horizons. However, look at the graph and realize how much this has to do with just this last month&#146;s result. Inflation had started another minor uptrend. So while the chart looks benign, the result is still quite reversible. 
Core goods prices are showing persisting declines in year/year and six-month rates of change. However, at the three-month horizon goods prices have reversed to show some inflation. So the anti-inflation trend is no longer as uniformly solid as it was.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Consumer Prices: 2007 March Report Overview: Moderation is Back in Play&#133;&#133;
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">5COLSPAN</td>
<td colspan="2">Year-To-Date</td>
<td>1- Mo</td>
<td>--</td>
</tr>
<tr class="even">
<td class="firstcol">Quick Summary</td>
<td>Yr/Yr</td>
<td>6-Mo AR</td>
<td>3-Mo AR</td>
<td>--</td>
<td>2007</td>
<td>2006</td>
<td>Diffusion</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI</td>
<td>2.8%</td>
<td>2.4%</td>
<td>4.7%</td>
<td>--</td>
<td>4.7%</td>
<td>3.7%</td>
<td>42.9</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Core CPI</td>
<td>2.5%</td>
<td>1.9%</td>
<td>2.3%</td>
<td>--</td>
<td>2.3%</td>
<td>2.6%</td>
<td>42.9</td>
<td>--</td>
</tr>
<tr>
<td colspan="9">Commodity Category</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Mo Annualized Rate</td>
<td colspan="6">Annualized Inflation Rate For Last</td>
<td>Mo/Mo Not Annualized</td>
</tr>
<tr class="even">
<td class="firstcol">By Expenditure Category</td>
<td>Mar 2007</td>
<td>% Weight</td>
<td>3-Mo</td>
<td>--</td>
<td>6-Mo</td>
<td>--</td>
<td>Year</td>
<td>Mar 2007</td>
</tr>
<tr class="odd">
<td class="firstcol">All Items</td>
<td>7.5%</td>
<td>100.00</td>
<td>4.7%</td>
<td>--</td>
<td>2.4%</td>
<td>--</td>
<td>2.8%</td>
<td>0.6%</td>
</tr>
<tr>
<td colspan="9">By Economic Group</td>
</tr>
<tr class="odd">
<td class="firstcol">All: Excl Food &amp; Energy</td>
<td>0.7%</td>
<td>77.10</td>
<td>2.3%</td>
<td>--</td>
<td>1.9%</td>
<td>--</td>
<td>2.5%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">(Median Increase)</td>
<td>3.1%</td>
<td>100.00</td>
<td>4.4%</td>
<td>--</td>
<td>2.8%</td>
<td>--</td>
<td>2.7%</td>
<td>0.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Excl. Energy</td>
<td>1.1%</td>
<td>92.32</td>
<td>2.9%</td>
<td>--</td>
<td>2.2%</td>
<td>--</td>
<td>2.6%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Commodities Excl Food &amp; Energy</td>
<td>-0.9%</td>
<td>22.77</td>
<td>0.4%</td>
<td>(29% of core)</td>
<td>-1.1%</td>
<td>--</td>
<td>-0.3%</td>
<td>-0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services Excl Energy</td>
<td>1.4%</td>
<td>54.33</td>
<td>2.9%</td>
<td>(71% of core)</td>
<td>3.1%</td>
<td>--</td>
<td>3.6%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core CPI less Tobacco</td>
<td>0.7%</td>
<td>--</td>
<td>2.1%</td>
<td>--</td>
<td>1.8%</td>
<td>--</td>
<td>2.4%</td>
<td>0.1%</td>
</tr>
<tr>
<td colspan="9">Food &amp; Energy</td>
</tr>
<tr class="odd">
<td class="firstcol">Energy</td>
<td>216.3%</td>
<td>7.68</td>
<td>30.9%</td>
<td>--</td>
<td>1.7%</td>
<td>--</td>
<td>6.9%</td>
<td>10.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food</td>
<td>3.4%</td>
<td>15.22</td>
<td>7.3%</td>
<td>--</td>
<td>3.9%</td>
<td>--</td>
<td>3.3%</td>
<td>0.3%</td>
</tr>
</tbody>
</table>
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The 0.1% increase in the CPI in March (annual rate of 0.7%) is just what the CPI needed after back to back monthly increases of 0.23% but, after two such bad reports, this good one can only take the edge off bad trends; it cant by [...]

U.S. CPI Gives Markets a Breath of Pretty Fresh Air

The 0.1% increase in the CPI in March (annual rate of 0.7%) is just what the CPI needed after back-to-back monthly increases of 0.3% and 0.2%, but after two such bad reports, this good one can only take the edge off bad trends; it [...]

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070416d.jpg" width="353">
The results of the Quarterly Survey undertaken by the Regional offices of the Bank of Canada were released today. The Survey is based on the opinions of senior management of 100 firms across Canada. The Bank cautions that while the method of selection ensures a good cross section of opinion, the statistical reliability of the survey is limited, given its small size. Given that caveat some of the results are listed below.
The difference between those senior managers who believe sales will improve and those who believe they will decline increased in the latest survey to 14.00% in the latest Survey, from 6.93% in the Winter Survey and 2.97% in the Spring Survey of 2006. Nevertheless, the conviction that sales will continue to improve appears to be lessening as trend in the balance of opinion on future sales has been down since the end of 2003. In spite of declining trend in the balance of opinion on the future of sales, there is a rising trend in balance of those managers expecting employment to increase and those expecting it to decline. In the latest Survey, there were 45% more managers who expected employment to increase than those who expected employment to decline. The contrast between the trends in Sales and Employment outlooks are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070416e.jpg" width="353">
The increased balance of those managers experiencing significant difficulty in meeting demand is consistent with the rising trend in balance of those expecting to increase expenditures on plant and equipment, as shown in the second chart.
The percentage of the managers who expect inflation to be within the 1-3% range that the Bank of Canada considers its control range increased to 88% from 86.1% in the last survey and 78.2% in the Spring Survey of 2006. The third chart shows the percentage of respondents who expected inflation to be under 1% or above 3% and those who expected it to be between 1 and 3%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070416c.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">BUSINESS OUTLOOK SURVEY, BY THE REGIONAL OFFICES OF THE BANK OF CANADA&nbsp; (Percent Balances)</th>
<th scope="col">Mar 07</th>
<th scope="col">Feb 07</th>
<th scope="col">Mar 06</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</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">Future Sales Outlook</td>
<td>14.00</td>
<td>6.93</td>
<td>2.97</td>
<td>7.07</td>
<td>11.03</td>
<td>7.18</td>
<td>17.43</td>
<td>17.91</td>
</tr>
<tr>
<td class="firstcol">Future Employment Level</td>
<td>45.00</td>
<td>39.60</td>
<td>42.57</td>
<td>5.40</td>
<td>2.73</td>
<td>39.35</td>
<td>42.75</td>
<td>33.42</td>
</tr>
<tr class="odd">
<td class="firstcol">Investment in Plant and Equipment</td>
<td>29.00</td>
<td>19.80</td>
<td>34.65</td>
<td>9.20</td>
<td>-5.65</td>
<td>24.01</td>
<td>19.20</td>
<td>16.95</td>
</tr>
<tr>
<td class="firstcol">Significant Difficulty in Meeting Demand (%)</td>
<td>18.00</td>
<td>13.90</td>
<td>11.90</td>
<td>4.10</td>
<td>6.10</td>
<td>13.65</td>
<td>11.20</td>
<td>7.25</td>
</tr>
<tr class="odd">
<td class="firstcol"> Inflation Expectations (%)* </td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Under 1% or Over 3%</td>
<td>11.0</td>
<td>11.9</td>
<td>19.8</td>
<td>-0.9</td>
<td>-8.8</td>
<td>18.32</td>
<td>14.37</td>
<td>10.75</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Between 1% and 3%.</td>
<td>88.0</td>
<td>86.1</td>
<td>78.2</td>
<td>1.1</td>
<td>9.8</td>
<td>79.72</td>
<td>81.15</td>
<td>85.25</td>
</tr>
</tbody>
</table>
</body>
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The results of the Quarterly Survey undertaken by the Regional offices of the Bank of Canada were released today. The Survey is based on the opinions of senior management of 100 firms across Canada. The Bank cautions that while the [...]

Senior Canadian Managers Positive on Outlook for Production and Inflation

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070416f.jpg" width="353">
The EU-13 headline HICP rose sharply and so did the core measure in March. Goods prices had all of the momentum, as services prices were dead flat in the month.
As for broad trends, the HICP and the HICP Core for the EU-13 shows pressure in both measures. The year-over-year growth rate for the core had dropped to a low of 1.2% in early 2006. But since then the Core has been in the grip of a steady upward trend for the year-over-year rate. It now stands at 1.9%, a bit higher that it was in 2003 and 2004 before the drop in the core set in. And there is still the question about upward momentum.
However the sequential growth rates are in better shape, in the sense that their signal is not as clearly bad as the year-over-year pattern for the core (see the table). They show an acceleration in goods prices from 1-year to 6-months to 3-months, but Service sector inflation does not have a real definable trend. It is growing at a 1.8% pace over three months, however. Despite the break in services inflation for the month of March the trend has not broken lower in terms of sequential growth rates. 
Sequential trends for Core rates across Main EMU countries show mixed patterns. For all the main EMU countries 3-month inflation pressure has been alleviated in the recent period compared to earlier in the year. In the case of Spain inflation has been steadily decelerating from the year/year pace of one year ago (2.8%) to -1.8% over the recent three months. Italy also shows deceleration within the current year.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Trends in HICP
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% Mo/Mo</td>
<td colspan="4">% SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</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">EU-13</td>
<td>0.7%</td>
<td>0.3%</td>
<td>-0.5%</td>
<td>1.8%</td>
<td>1.9%</td>
<td>1.9%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Core</td>
<td>0.7%</td>
<td>0.4%</td>
<td>-0.9%</td>
<td>0.7%</td>
<td>2.1%</td>
<td>1.9%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Goods</td>
<td>1.1%</td>
<td>0.1%</td>
<td>-0.8%</td>
<td>1.8%</td>
<td>1.6%</td>
<td>1.7%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>0.0%</td>
<td>0.5%</td>
<td>-0.1%</td>
<td>1.8%</td>
<td>2.4%</td>
<td>2.4%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">HICP</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">Germany</td>
<td>0.2%</td>
<td>0.5%</td>
<td>-0.2%</td>
<td>2.0%</td>
<td>2.8%</td>
<td>2.0%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.5%</td>
<td>0.2%</td>
<td>-0.4%</td>
<td>1.2%</td>
<td>0.8%</td>
<td>1.2%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>1.2%</td>
<td>0.1%</td>
<td>-1.1%</td>
<td>0.8%</td>
<td>1.2%</td>
<td>2.1%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>#N/A</td>
<td>0.5%</td>
<td>-0.8%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.8%</td>
<td>0.1%</td>
<td>-0.7%</td>
<td>0.5%</td>
<td>2.1%</td>
<td>2.5%</td>
<td>3.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core excl Food Energy and Alcohol</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">Germany</td>
<td>0.0%</td>
<td>0.5%</td>
<td>-0.6%</td>
<td>-0.4%</td>
<td>2.2%</td>
<td>1.6%</td>
<td>0.5%</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.5%</td>
<td>0.4%</td>
<td>-0.5%</td>
<td>1.3%</td>
<td>1.7%</td>
<td>1.5%</td>
<td>1.3%</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>1.5%</td>
<td>0.1%</td>
<td>-1.6%</td>
<td>0.0%</td>
<td>1.4%</td>
<td>2.0%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>#N/A</td>
<td>0.4%</td>
<td>-1.0%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>0.7%</td>
<td>0.1%</td>
<td>-1.3%</td>
<td>-1.8%</td>
<td>2.6%</td>
<td>2.6%</td>
<td>2.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

The EU-13 headline HICP rose sharply and so did the core measure in March. Goods prices had all of the momentum, as services prices were dead flat in the month. As for broad trends, the HICP and the HICP Core for the EU-13 shows [...]

Euro Area Inflation Shows a Prickly Side in March

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070416b.jpg" width="353">
For business overall, the Inventory/Sales ratio (I/S ratio) has roughly stabilized above its recent low and slightly off peak. This has been achieved by reductions in the pace of sales and in the pace of inventory accumulation. The recent fall off has been about the same for inventories and sales but has not been the same for all sectors, and that&#146;s where we find some lingering problems. There is some complication in discussing the I/S ratio since the ratio has been in a long secular decline. But with the low hit in January 2006 that trend seems to have been set aside. As a result we need to pick a recent horizon to assess I/S ratios. I choose a time frame of three years for that purpose. 
Table 1 below shows the inventory/sales ratios across the major business groups, manufacturing, retailing and wholesaling. We also look at max and min statistics over the past three years in this table. To the right in that table you will find a column labeled &#147;%-Tile&#148;. That column puts each sector&#146;s I/S ratio in the percentile of the range it has occupied over the past three years. There we find retailer inventories are low by this standard, as they reside in the bottom 20th percentile of their range. Wholesalers are perhaps about right with the ratio in the middle of its range. Manufacturing is in trouble for even as sales have softened and inventory growth has been reduced, the ratio of inventories to sales is still the highest it has been over the past three years in that sector. That is to say that manufactures have not yet adjusted output to the weaker pace of sales. And of course, we have no indications that the pace of sales is picking up either. 
Table 2 below shows the paired growth rates across sectors and through time. These trends underlie the shifts in I/S ratios. You can view the S to I growth rate relationship in each period directly or peruse the time series of growth rates for say sales as its changes from a year ago to the current yr/yr pace to six months to three months. Two out of three is not bad, but not good enough&#133; 
Of the three business sectors, two seem to be turning the corner and the other seems mired in a business quicksand of sorts. For overall business, sales rates have declined but they have not declined monotonically across the time groupings in the table, having rebounded in the recent three months. 
Manufacturing: For manufactures the current three-month sales growth rate is still negative and the associated inventory growth rate is still positive, thus I/S problems are clearly still being exacerbated there. That&#146;s bad news. 
Retail: In retailing the recent 3-month sales bounce is strong in that there is barely any degradation when compared to the Yr/Yr pace. And the Yr/Yr pace for inventories is only slightly stronger for 3-month than over the past year. Moreover since sales are growing faster &#150; much faster - than inventories, that sector seems OK. 
Wholesaling: For wholesaling, the recent three-month sales growth rate is up strongly as well but it is noticeably weaker than its Yr/Yr rate of growth. But this sector is also quite healthy since sales are growing at about twice the pace of inventories, showing us that inventory adjustment seems to have been made smoothly. 
Indeed if growth gaps like those between I and S persist inventory building will be in order for both wholesalers and retailers. Manufacturing is another sad story. 
For now the inventory report paints a promising picture in wholesaling and retailing but continues to paint a bleak one in manufacturing where PMI surveys and orders data also show that other troubles lurk.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
Table 1. Inventory-to-Sales Ratios In Perspective
Over three Years
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2007 February</td>
<td>Current</td>
<td>3-Mo Ago</td>
<td>6-Mo Ago</td>
<td>Year Ago</td>
<td>2 Years Ago</td>
<td>3 Years Ago</td>
<td>%-tile</td>
<td>Max</td>
<td>Min</td>
</tr>
<tr>
<td class="firstcol">Total Business</td>
<td>1.29</td>
<td>1.29</td>
<td>1.26</td>
<td>1.25</td>
<td>1.30</td>
<td>1.31</td>
<td>71.4%</td>
<td>1.31</td>
<td>1.24</td>
</tr>
<tr>
<td class="firstcol">Manufacturers</td>
<td>1.25</td>
<td>1.23</td>
<td>1.17</td>
<td>1.16</td>
<td>1.21</td>
<td>1.22</td>
<td>100.0%</td>
<td>1.25</td>
<td>1.15</td>
</tr>
<tr>
<td class="firstcol">Retailers</td>
<td>1.48</td>
<td>1.50</td>
<td>1.50</td>
<td>1.48</td>
<td>1.55</td>
<td>1.55</td>
<td>20.0%</td>
<td>1.6</td>
<td>1.45</td>
</tr>
<tr>
<td class="firstcol">Wholesalers</td>
<td>1.15</td>
<td>1.16</td>
<td>1.13</td>
<td>1.14</td>
<td>1.17</td>
<td>1.17</td>
<td>50.0%</td>
<td>1.18</td>
<td>1.12</td>
</tr>
</tbody>
</table>
<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Table 2. Inventory and Sales Paired Growth Rates by Major Divisions
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2007 February</td>
<td colspan="2">3-Mo Growth</td>
<td colspan="2">6-Mo Growth</td>
<td colspan="2">12-Mo Growth</td>
<td colspan="2">Year Ago Growth</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Sales</td>
<td>Inventory</td>
<td>Sales</td>
<td>Inventory</td>
<td>Sales</td>
<td>Inventory</td>
<td>Sales</td>
<td>Inventory</td>
</tr>
<tr>
<td class="firstcol">Total Business</td>
<td>3.3%</td>
<td>2.3%</td>
<td>-2.3%</td>
<td>2.6%</td>
<td>2.9%</td>
<td>5.9%</td>
<td>7.9%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">Manufacturers</td>
<td>-3.5%</td>
<td>1.0%</td>
<td>-9.4%</td>
<td>2.8%</td>
<td>-1.0%</td>
<td>6.4%</td>
<td>6.6%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Retailers</td>
<td>7.0%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>0.0%</td>
<td>3.4%</td>
<td>3.5%</td>
<td>7.2%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Wholesalers</td>
<td>8.0%</td>
<td>3.4%</td>
<td>1.6%</td>
<td>5.7%</td>
<td>7.1%</td>
<td>8.3%</td>
<td>10.2%</td>
<td>6.8%</td>
</tr>
</tbody>
</table>
</body>
</html>

For business overall, the Inventory/Sales ratio (I/S ratio) has roughly stabilized above its recent low and slightly off peak. This has been achieved by reductions in the pace of sales and in the pace of inventory accumulation. The [...]

U.S. Inventory Growth Stays Low as Sales Pick Up -- But Not Everywhere

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070416a.jpg" width="353">
The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for March, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, showed an increase of 0.7 percent from the previous month. It is also up 3.8 percent from March 2006. Total sales for the January through March 2007 period were up 3.2 percent from the same period a year ago. The January 2007 to February 2007 percent change was revised from 0.1 percent to 0.5 percent. As result, spending in the first quarter is looking more solid. 
Bolstered by Easter shopping, retail trade sales alone were up 0.6 percent from February 2007 and were 3.6 percent above last year. Clothing and clothing accessories stores were up 8.0 percent from March 2006 and sales of general merchandise stores were up by a solid 5.8 percent from last year. 
The table below tells the story&#133;. Service station sales we up strongly based on the sharp rise in gasoline prices in the month (+3.1% and +13.9% SAARr over three months). The strength in the spring clothing sales are apparent in clothing and general merchandise selling strength in March. Of the main retail categories, only nonstore shopping (catalogue, mail order and internet) was negative. 
Good weather may have helped to boost building materials spending but spending on furniture and electronics, another category that is solely linked to home sales (that have been weak), continued to stagger in the month. 
In quarterly terms, retail sales are up at a nominal pace of 5.7%. Excluding motor vehicles and gasoline sales, the quarterly rise drops to a pace of 4.6%, but that is quite a respectable gain with oil taken out of the equation. Still, the core CPI is rising at a 3% pace over the first two months of the year. There is some considerable inflation gnawing away at these gains reducing the impact in real terms. But for total consumer spending we have to factor in services spending that has been pretty firm. Consumer spending probably made a real gain in Q1 of between 2% and 2.5% and could be closer to the top of that range. 
Meanwhile some hopeful trends are in place. Building materials trend is showing some gains and overall sales trends have stabilized. The two weakest broad retail categories are medical care expenditures where the three month growth rate is down to 1.9% and nonstore retailers where the three month sales change is negative. Also, eating and drinking places expenditures is a discretionary type of spending where sales have contracted by 2.8% over the most recent three months. 
We are left with a good monthly report and stabilized trends. However, the report remains a patchwork of mixed trends with sectors still in a state of flux. In the April report we will see how much the shift in Easter affected sales (despite seasonal adjustments that try to account for this shift). 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Retail Sales Trends
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Mo/Mo</td>
<td colspan="4">Seasonally Adjusted Annual Rate</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail Aggregates</td>
<td>2007 Mar</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>Yr/Yr</td>
<td>Year Ago Y/Y</td>
</tr>
<tr>
<td class="firstcol">Retail &amp; Food Service</td>
<td>0.7%</td>
<td>4.7%</td>
<td>5.4%</td>
<td>3.8%</td>
<td>7.6%</td>
</tr>
<tr>
<td class="firstcol">Retail excl Motor Vehicles &amp; Parts</td>
<td>0.8%</td>
<td>5.5%</td>
<td>5.6%</td>
<td>3.9%</td>
<td>9.2%</td>
</tr>
<tr>
<td class="firstcol">Retail excl Motor Vehicles &amp; Parts &amp; Gas</td>
<td>0.4%</td>
<td>3.7%</td>
<td>4.5%</td>
<td>3.8%</td>
<td>9.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Durables</td>
<td>2007 Mar</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>Yr/Yr</td>
<td>Year Ago Y/Y</td>
</tr>
<tr>
<td class="firstcol">Totals</td>
<td>0.5%</td>
<td>2.2%</td>
<td>3.7%</td>
<td>1.2%</td>
<td>6.6%</td>
</tr>
<tr>
<td class="firstcol">Building Materials</td>
<td>1.4%</td>
<td>6.3%</td>
<td>3.0%</td>
<td>-4.4%</td>
<td>17.8%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles &amp; Parts</td>
<td>0.4%</td>
<td>1.8%</td>
<td>4.6%</td>
<td>3.2%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicles Dealers</td>
<td>0.3%</td>
<td>1.6%</td>
<td>5.0%</td>
<td>3.4%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Furniture, electronics</td>
<td>-0.6%</td>
<td>-2.5%</td>
<td>1.3%</td>
<td>2.4%</td>
<td>8.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Non durables</td>
<td>2007 Mar</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>Yr/Yr</td>
<td>Year Ago Y/Y</td>
</tr>
<tr>
<td class="firstcol">Totals</td>
<td>0.8%</td>
<td>6.0%</td>
<td>6.2%</td>
<td>5.2%</td>
<td>8.1%</td>
</tr>
<tr>
<td class="firstcol">Food &amp; Beverages</td>
<td>0.2%</td>
<td>4.7%</td>
<td>7.5%</td>
<td>5.7%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">Health</td>
<td>0.1%</td>
<td>1.9%</td>
<td>4.8%</td>
<td>5.1%</td>
<td>8.4%</td>
</tr>
<tr>
<td class="firstcol">Gasoline</td>
<td>3.1%</td>
<td>19.9%</td>
<td>14.1%</td>
<td>5.2%</td>
<td>10.7%</td>
</tr>
<tr>
<td class="firstcol">Clothing</td>
<td>2.4%</td>
<td>13.9%</td>
<td>5.0%</td>
<td>8.0%</td>
<td>7.3%</td>
</tr>
<tr>
<td class="firstcol">Sport Goods</td>
<td>1.1%</td>
<td>8.9%</td>
<td>-0.6%</td>
<td>-1.0%</td>
<td>6.8%</td>
</tr>
<tr>
<td class="firstcol">General Merchandise</td>
<td>1.1%</td>
<td>6.2%</td>
<td>5.6%</td>
<td>5.8%</td>
<td>5.6%</td>
</tr>
<tr>
<td class="firstcol">Nonstore Retailers</td>
<td>-3.3%</td>
<td>7.9%</td>
<td>4.3%</td>
<td>4.4%</td>
<td>15.2%</td>
</tr>
<tr>
<td class="firstcol">Miscellaneous Retail</td>
<td>0.6%</td>
<td>1.9%</td>
<td>4.8%</td>
<td>5.1%</td>
<td>8.4%</td>
</tr>
<tr>
<td class="firstcol">Non Durables excl Gas</td>
<td>0.4%</td>
<td>3.9%</td>
<td>5.0%</td>
<td>5.2%</td>
<td>7.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Food Service &amp; Drinking</td>
<td>1.2%</td>
<td>-2.8%</td>
<td>4.8%</td>
<td>5.3%</td>
<td>9.6%</td>
</tr>
</tbody>
</table>
</body>
</html>

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for March, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, showed an increase of [...]

U.S. Retail Sales Show Unexpected True Strength for March and in Q1

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/070413d.jpg" width="353">
The University of Michigan&#39;s consumer sentiment index has lost 11.6 points through mid-April to 85.3 from its January peak of 96.9 (Q1 1966 = 100). The reading of current conditions stands at 102.4, down from 111.3 in January, while expectations are at 74.3 from January&#39;s 87.6. These declines have come in roughly equal installments in February, March and early April.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070413e.jpg" width="353">
Consumers&#39; reading of personal finances has fallen to 112 in early April from 123 in January, but is actually up from 111 in March. A few more people have rising incomes and a few less have lower incomes, both helping this component. But a growing number of respondents are saying their purchasing power is suffering from higher prices, even though their income position looks better. Survey participants see buying conditions deteriorate for &quot;large household goods&quot;; even among those who say this is a &quot;good time to buy&quot; a rising number give the reason that prices will go up, so buy now before that happens.
The fall in the expectations component results from concern over general business conditions. Fewer people look for &quot;good times&quot; and more people look for &quot;bad times&quot;. However, they remained generally positive about their own personal finances: those looking to be &quot;better off&quot; did edge down by 1 percentage point from January but those expecting to be &quot;worse off&quot; fell by 2 points.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070413f.jpg" width="353">
Inflation and unemployment expectations both contributed to the deterioration in sentiment. Median inflation expectations rose to 3.3% from 3% in January, February and March; the mean is 4.1%. Both figures are the highs since the high energy price period last summer. The unemployment outlook worsened as the smallest number of people since the 2001 recession expect &quot;less unemployment&quot; while the number expecting &quot;more unemployment&quot; returned to 40%, a kind of threshold of concern that has recently coincided with high energy price periods and was last breached in August.
The University of Michigan survey is not seasonally adjusted.This mid-month survey was based on telephone interviews with about 304 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month-end.

<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/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">April (Prelim)</th>
<th scope="col">March</th>
<th scope="col">February</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">Consumer Sentiment</td>
<td>85.3</td>
<td>88.4</td>
<td>91.3</td>
<td>-2.4%</td>
<td>87.3</td>
<td>88.5</td>
<td>95.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>102.4</td>
<td>103.5</td>
<td>106.7</td>
<td>-6.2%</td>
<td>105.1</td>
<td>105.9</td>
<td>105.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>74.3</td>
<td>78.7</td>
<td>81.5</td>
<td>+1.2%</td>
<td>75.9</td>
<td>77.4</td>
<td>88.5</td>
</tr>
</tbody>
</table>
</body>
</html>

The University of Michigan's consumer sentiment index has lost 11.6 points through mid-April to 85.3 from its January peak of 96.9 (Q1 1966 = 100). The reading of current conditions stands at 102.4, down from 111.3 in January, while [...]

Michigan Consumer Sentiment Sags as Inflation Concern Rises

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.

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

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

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

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

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

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

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

Winnie Tapasanun

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

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

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

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

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

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

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

Sandy Batten

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

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

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

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

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

U.S. Initial Unemployment Claims Surged in Latest Week

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

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

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

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

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

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

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

Economy in Brief: 2007

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