Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081215i.jpg" align="left" border="0" height="265" width="353">
Chinese industrial production increased 5.4% in November, the
smallest increase since 2002. Growth in industrial production declined
intermittently for a year after reaching a monthly year to year peak of
19.5% in June, 2007, but in the last five months it has been in a free
fall, from 16.0% to 5.4%. The year to year changes in the growth of
industrial production are shown in the first chart.
Some of the components of industrial production are showing
declines of more than a month for first time. Production of electricity
has been down for the last two months, that of steel for the last three
months and the of pig iron for the last four months as shown in the
second chart.
China's National Bureau of Statistics measures industrial
production in terms of gross value added in 1990 prices. It is
therefore a much broader measure than the indexes of industrial
production of most other countries and is a good proxy for Real Gross
Domestic Product. The similarity between the trends of the GDP and GVA
, shown in the third chart, is apparent. The slow down in industrial
production growth in October and November, suggest that the growth in
the fourth quarter of GDP will be well below the 9% of the third
quarter.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081215h.jpg" border="0" height="265" width="312"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081215j.jpg" border="0" height="265" width="312">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">CHINA
INDUSTRIAL PRODUCTION (GROSS VALUE ADDED) 
&nbsp;Y/Y PERCENT CHANGE&nbsp;</th>
<th scope="col">Nov 08</th>
<th scope="col">Oct 08&nbsp;</th>
<th scope="col">Sep 08&nbsp;</th>
<th scope="col">Aug 08&nbsp;</th>
<th scope="col">Jul&nbsp; 08&nbsp;
&nbsp;</th>
<th scope="col">Jun&nbsp; 08</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Industrial Production</td>
<td>5.4</td>
<td>8.2</td>
<td>11.4</td>
<td>12.8</td>
<td>14.7</td>
<td>16.0</td>
</tr>
<tr>
<td class="firstcol">Output of Selected
Products</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Electricity</td>
<td>-7.79</td>
<td>-3.04</td>
<td>4.80</td>
<td>5.71</td>
<td>9.59</td>
<td>8.06</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Steel</td>
<td>-11.34</td>
<td>-16.36</td>
<td>-7.25</td>
<td>2.37</td>
<td>8.81</td>
<td>11.45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Pig Iron</td>
<td>-16.00</td>
<td>-16.36</td>
<td>-4.97</td>
<td>-1.86</td>
<td>-5.80</td>
<td>-8.38</td>
</tr>
</tbody>
</table>
</body></html>

Chinese industrial production increased 5.4% in November, the smallest increase since 2002. Growth in industrial production declined intermittently for a year after reaching a monthly year to year peak of 19.5% in June, 2007, but in [...]

Growth in Chinese Industrial Production Slows: A Proxy for GDP Growth

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Sandy Batten

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The Consumer Price Index increased 0.4% m/m in December, up from 0.3% m/m in November and 0.2% m/m in each of the four preceding months. The Action Economics Forecast Survey had looked for a 0.3% m/m gain. The December monthly increase pushed up the y/y rate to 2.9%, its highest since February, from 2.7% in November. The three-month increase in the headline CPI jumped to 3.9% at an annual rate in December from 3.0% in November. This rate had increased in each of the five previous months. The core CPI (that is, excluding food and energy prices) rose a slightly less-than-expected 0.2% m/m in December following four consecutive months in which the core index increased 0.3% m/m. The Action Economics Survey had expected a 0.3% monthly gain. The y/y rate of advance slowed to 3.2% after four months of a 3.3% annual increase.

Energy prices jumped up 2.6% m/m (-05% y/y), their largest monthly gain since August 2023, accounting for 40% of the monthly increase in the headline index. Monthly price increases were widespread across energy categories, led a 4.4% monthly advance in seasonally adjusted gasoline prices. Not seasonally adjusted gasoline prices usually decline in December. They did fall 1.1% m/m last month, but the seasonal adjustment factor looked for a significantly steeper decline. Food prices rose 0.3% m/m versus a 0.4% monthly gain in November. The y/y increased to 2.5%, the highest annual gain since January, from 2.4%. Cereal and bake goods led the monthly increase with a 1.2% monthly gain, more than offsetting the 1.1% m/m decline in November. Egg prices were up another 3.2% m/m in December, bringing their gain for the past twelve months to a staggering 36.8%.

Goods prices less food and energy edged up 0.1% m/m (-0.5% y/y) in December. Prices of used cars and trucks slowed but still advanced 1.2% m/m (-3.3% y/y) in December on top of a 2.0% m/m increase in November and a 2.7% monthly gain in November. Prices of new vehicles increased 0.5% m/m (-0.4% y/y) following a 0.6% monthly increase in November.

Services prices increased 0.3% m/m in December, the same monthly rise as in November. The y/y rate slipped to 4.4%, the lowest since December 2021 but still well above the 2.5%-2.9% range that existed prior to the pandemic. Service prices less energy services also increased 0.3% m/m in November with the y/y rate also edging down to 4.4%. Shelter prices rose 0.3% m/m in December, the same monthly increase as in November. Both rent of primary residence and owners’ equivalent rent increased 0.3% m/m. Lodging away from home fell 1.0% m/m after having jumped 3.2% m/m in November. Transportation service prices increased 0.5% m/m in December after having been unchanged in November, led by a 3.9% jump in airfares. Motor vehicle insurance prices reaccelerated in December, rising 0.4% m/m after edging up just 0.1% in November and falling 0.1% in October. Prices of medical services slowed with a 0.2% m/m increase in December, down from 0.4% in each of previous two months, bring the y/y rate of advance down to 3.4% from 3.7% in November.

CPI services prices less energy services and the two rent measures is a relatively new core measure that is watched carefully by the Federal Reserve. It increased 0.2% m/m in December, down from 0.3% m/m in November with the y/y rate edging down to 4.2% from 4.3%. While the gradual slowdown over 2024 has been encouraging, the annual rate remains well above the range in which this measure fluctuated prior to the pandemic.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- The headline CPI increased 0.4% m/m. pushing the y/y rate up to 2.9%, the highest rate since July.
- The core index rose 0.2%, pushing the y/y rate down to 3.2% after four months at 3.3%.
- Energy prices were up markedly as the normal decline in gasoline prices was much less than the seasonal factors had anticipated.
- Services prices less energy remained elevated although the y/y rate slowed to 4.4%, the lowest since February 2022.

U.S. Headline Consumer Price Inflation Edged Up in December

Kathleen Stephansen, CBE

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Mortgage applications jumped 33.3% (6.6% y/y) in the week ended January 10, after a decline of 3.7% (-11.6% y/y) in the week ended January 3, and ending a streak of four consecutive weekly declines. Applications for loans to purchase a house jumped 26.9% (-0.1% y/y) in the week ended January 10, following a drop of 6.6% (-14.1% y/y) in the week ended January 3. Applications to refinance a loan surged 43.5% (22.2% y/y) in the latest week, after a rise of 1.5% (-5.7% y/y) in the prior week. These data are from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey and the amounts quoted are seasonally adjusted.

The effective interest rate on a 30-year fixed rate loan was 7.28% in the week ended January 10, up 10bps from 7.18% in the week ended January 3. The effective rate on a 15-year fixed rate mortgage inched down 1bp to 6.61% in the week ended January 10 from 6.62% in the week ended January 3. The rate on a 30-year jumbo loan rose 2bps to 7.22% in the latest week from 7.20% in the January 3 week. The rate on a 5-year ARM rose 31bps to 6.38% from 6.07% in the week ended January 3.

The share of applications to refinance an existing mortgage was 42.7% in the week ended January 10, up from 40.8% in the week ended January 3. The share of applications for ARMs was 5.0% in the latest week, up from 4.7% in the January 3 week.

The average loan size in the January 10 week was $367,100, up 2.1% (1.7% y/y) from $359,500 in the January 3 week. The average size of an application for a loan to purchase a house was up 1.3% (1.1% y/y) to $419,600 in the week ended January 10 from $414,400 in the week ended January 3. The average size of an application to refinance an existing loan rose by 6.0% (9.6% y/y) to $296,800 in the week ended January 10 from $279,900 in the week ended January 3. 

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Applications to purchase and to refinance loans jumped.
- Rates on 30-year fixed-rate loans rose moderately.
- Average loan size rose modestly in latest week.


U.S. Mortgage Applications Surged in the January 10 Week

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The Producer Price Index for final demand rose 0.2% (3.3% y/y) in December, following an increase of 0.4% (3.0% y/y) during November, according to the Bureau of Labor Statistics (BLS). The December monthly reading compared to a 0.4% rise expected in the Action Economics Forecast Survey. Producer prices excluding food, energy & trade services edged 0.1% higher (3.3% y/y) following a similar monthly rise (3.5% y/y) in November. The PPI excluding food & energy was unchanged (3.5% y/y) in December after rising 0.2% (3.5% y/y) in November. The BLS reported that on an unadjusted basis, prices for final demand increased 3.3% in 2024 after moving up 1.1% in 2023, while prices for final demand excluding food, energy & trade services rose 3.3% in 2024 following a 2.7% advance in 2023.

Final demand food prices eased 0.1% (4.7% y/y) in December, following a rise of 2.9% (4.9% y/y) in November, revised from a rise of 3.1% (4.9% y/y). Prices for fresh and dry vegetables declined by 14.7% (+21.3% y/y), while egg prices rose 0.5% (127.9% y/y) after a surge of 55.6% over the month in November.

Energy prices increased 3.5% (-2.0% y/y) during December, after holding steady (-6.1% y/y) in November, revised from a rise of 0.2% (-6.2% y/y). Gasoline costs rose 9.7% (-2.5% y/y) while home heating oil prices rose 4.0% (-12.6% y/y). Electric power prices rose 1.0% (1.8% y/y) and natural gas costs gained 0.7% (2.2% y/y). Diesel fuel dropped 1.3% (-13.9% y/y).

Final demand goods prices excluding food & energy were unchanged over the month (2.1% y/y) during December, following a rise of 0.2% (2.2% y/y) in November. Core finished consumer goods prices increased 0.1% (2.4% y/y) after a rise of 0.3% (2.3% y/y) in November. The increase in core nondurable goods prices rose 0.1% (2.9% y/y) last month after a rise of 0.4% (2.9% y/y) in November. Durable consumer goods prices rose 0.2% (1.6% y/y) in December following a rise of 0.1% (1.3% y/y) in November. Capital equipment prices rose 0.2% (2.8% y/y) last month following a similar monthly rise (2.7% y/y) in November. Core government-purchased goods prices edged 0.1% higher (2.1% y/y) in December, after similar monthly and year-on-year rises in November.

Final demand services prices were unchanged (4.0% y/y) in December after rising 0.3% (3.9% y/y) in November. Trade services prices eased 0.1% (+4.4% y/y) last month following a rise of 0.7% (3.2% y/y). Trade of finished goods prices were unchanged (3.8% y/y) in December, after rising 0.6% (2.8% y/y) in November. Prices for final demand transportation and warehousing services rose 2.2% (2.1% y/y) last month, after falling 0.6% (-0.3% y/y) in November. Services prices less these costs fell 0.2% (+4.1% y/y) last month, after a rise of 0.2% (4.7% y/y) in November.

Construction costs rose 0.2% (1.7% y/y) in December, after holding steady (+1.6% y/y) during November.

Prices for intermediate demand of processed goods rose 0.3% (0.2% y/y) in December after holding steady (-0.6% y/y) in November. Processed energy goods prices rose 1.6% last month after easing 1.2% in November, while food prices rose 0.4% following a 0.8% advance in November.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver’s **USECON** database. Further detail is contained in **PPI** and **PPIR**. The expectations figures are available in the **AS1REPNA** database.

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- Overall index rise softer than expected.
- Advance in core goods prices is steady.
- Advance in services price is steady.

U.S. PPI and Core PPI Gains Ease in December

Winnie Tapasanun

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The NFIB Small Business Optimism Index rose to 105.1 in December, the eighth m/m rise in nine months and the highest level since October 2018, after an 8.0-point rise to 101.7 in November, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. This was the second straight month that the index was above the 51-year average of 98. The index, up from its recent low of 88.5 in March 2024 and 91.9 in December 2023, was also above a high of 102.5 in June 2021 and a high of 104.0 in October 2020. Seven of the 10 index components rose, two fell, and one was unchanged. The NFIB Small Business Uncertainty Index declined to 86 in December, the lowest level since June 2024, from 98 in November; however, it was well above its recent low of 65 in November 2023 and a low of 55 in June 2022.

The outlook for business conditions in the next six months remained positive for the second consecutive month in the latest survey. The net balance of respondents expecting the economy to improve jumped to 52% in December, the seventh m/m rise in eight months and the highest level since March 2002, on top of a 41-point surge to 36% in November; it was significantly above a record low of -61% in June 2022. Expected real sales rose to a net 22% in December after an 18-point gain to 14% in November, posting the second successive positive reading and the highest level since January 2020. The latest reading was up from a low of -21% in May 2023 and a low of -29% in July 2022. A net -13% of respondents reported higher nominal sales in the past three months, unchanged from November and registering the highest reading since June 2024. The latest result, however, was below the most recent positive reading of 1% in May 2022 and a peak of 9% in June 2021.

Plans to make capital outlays dipped to 27% in December following a six-point increase to 28% in November. These numbers were up from a low of 19% in September 2024 and a low of 19% in April 2023 but down from a high of 31% in October 2021. Plans to expand the business rose to 20% in December after an eight-point rise to 14% in November; the latest figure, up from a low of 2% in March 2023, registered the best reading since February 2020. Meanwhile, expected credit conditions increased to -2% in December, the highest reading since February 2020, from -5% in November; these readings were above a low of -11% in November 2023.

On the labor front, labor markets remained relatively tight. Forty-nine percent of respondents reported that qualified workers to fill job openings were hard to find in December, slightly up from 48% in November. These numbers were below a high of 57% in September 2023, a high of 61% in May 2022, and a peak of 62% in September 2021. A net 19% planned to increase employment in December, slightly up from 18% in November, but it was down from a high of 26% in May 2022 and a peak of 32% in August 2021. Notably, 35% reported positions not able to be filled in December, slightly down from 36% in November; these figures remained below a high of 51% in May 2022.

Overall earnings trends had remained in negative territory since December 2019. The figure was held at -26% in December and November, still a poor reading, following a one-point increase to -33% in October; these readings were below a high of -18% in March 2023 and a high of -5% in June 2021.

On the pricing front, inflation pressures, while trending down, remained at an inflationary level. The net percent raising their average selling prices held at 24% in December and November after a one-point easing to 21% in October; these numbers were slightly down from 25% in December 2023 and well below a high of 66% in March 2022. The percentage planning to raise prices registered at 28% in December and November following a one-point increase to 26% in October; these figures were below 32% in December 2023 and a high of 52% in March 2022.

Wage inflation, while relatively high, eased somewhat in the December survey. A net 29% of respondents raised compensation during the last three months, down from 32% reported in the November survey and registering the lowest reading since March 2021. It was down from a high of 46% in February 2023 and a peak of 50% in January 2022. A net 24% of firms planned to raise worker compensation in the next three months, down from an 11-month-high 28% reported in November; these numbers remained below a high of 30% in November 2023 and a high of 32% in October 2022.

Inflation continued to be an issue facing small businesses, as reported by 20% of NFIB members in December as the single most important problem. The December figure was unchanged from November and down from and a peak of 37% in July 2022. The quality of labor was the second important concern with 19% in December, unchanged from November. Other concerns (in December vs. November) included taxes (15% vs. 14%), the cost of labor (11% vs 11%), and government requirements (8% vs. 8%).

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s **SURVEYS** database.

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- December NFIB Small Business Optimism Index up 3.4 pts. to 105.1.
- Uncertainty Index down 12 pts. to a six-month-low 86.
- Expectations for economy up 16 pts. to 52%, the highest since March 2002.
- Expected real sales up 8 pts. to 22%, the highest since January 2020.
- Inflation (20%) remains top business problem, followed by Quality of Labor (19%); both unchanged from November.

U.S. NFIB Small Business Optimism Rises Again in December; Highest Level Since October 2018