Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051122e.jpg" width="353">
Final results for Germany&#39;s third quarter Gross Domestic Product were released today. In addition to revisions of the preliminary estimates of total GDP released a week ago, details of the composition of both the expenditure and income sides of the national accounts are given. Estimates of the contribution to growth of the various sectors are also available and are shown in the table below for the first three quarters of 2005.
In the first chart we show the contribution of domestic demand and net exports to total GDP growth. Over the past five years changes in both net exports and domestic demand have been erratic and have tended to offset one another. In the last quarter, a positive contribution of 1.30 percentage points from net exports was offset by a negative contribution of 0.60 percentage points from domestic demand.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051122f.jpg" width="353">
According to data on the income side of the National Accounts there has been a marked change in the distribution of income in Germany over the past five years. The share of compensation of employees in net national income has been declining over this period, as shown in the second chart. From 62.9% of net national income in the first quarter of 2001, employee compensation has declined to 58.5&amp; in the third quarter of 2005. The counterpart to the decline in the share of compensation has been the rise in the share of entrepreneurial income (shown in the third chart) from 25.1% in the first quarter of 2001 to 29.1% in the third quarter of 2005. The changing distribution of income may account for a part of the sluggish trend in private consumption over this period.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/051122g.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Germany Contribution to Growth</th>
<th scope="col">Q3 05&nbsp; % Pts</th>
<th scope="col">Q2 05 % Pts </th>
<th scope="col">Q1 05 % Pts</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Growth of Gross Domestic Product</td>
<td>0.70</td>
<td>0.0</td>
<td>0.10</td>
</tr>
<tr>
<td class="firstcol">Net Exports</td>
<td>1.30</td>
<td>-1.00</td>
<td>-0.50</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Demand</td>
<td>-0.60</td>
<td>0.90</td>
<td>-0.40</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumption</td>
<td>-0.10</td>
<td>0.30</td>
<td>-0.30</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Private</td>
<td>-0.10</td>
<td>0.00</td>
<td>-0.60</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Government</td>
<td>0.00</td>
<td>0.30</td>
<td>0.20</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Gross Fixed Investment</td>
<td>0.20</td>
<td>0.10</td>
<td>0.10</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventories</td>
<td>-0.70</td>
<td>0.50</td>
<td>-0.20</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Share of Net National Income</td>
<td>Q1 01&nbsp; %&nbsp;</td>
<td>Q3 05 %&nbsp; </td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Compensation of Employees</td>
<td>62.9</td>
<td>59.5</td>
<td></td>
</tr>
<tr>
<td class="firstcol">Entrepreneurial Income</td>
<td>25.1&nbsp;</td>
<td>&nbsp;29.1</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
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Final results for Germany's third quarter Gross Domestic Product were released today. In addition to revisions of the preliminary estimates of total GDP released a week ago, details of the composition of both the expenditure and [...]

Revisions and Additions to German National Accounts Data for Q3

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Tom Moeller

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Retail gasoline prices for all grades rose to an average $3.23 per gallon (1.5% y/y) in the week ending January 20 from $3.16 in the prior week. The all-time high of $5.11 was in the week ending June 13, 2022. The retail price for on-highway diesel fuel jumped	to $3.72 per gallon (-3.2% y/y) in the week of January 20, the highest level since early-August, from $3.60 in the prior week. The latest price was down from a high of $4.63 in the week ending September 18, 2023 and a peak of $5.81 in the week ending June 20, 2022.

The price of West Texas Intermediate crude oil rose to $78.58 per barrel (7.3% y/y) in the week ending January 17 after increasing to $74.32 in the prior week. It was the highest level in five months but still below the peak of $120.46 in the week of June 10, 2022. Yesterday, the price was $75.89 per barrel. The price of European Brent crude oil rose to $82.53 per barrel (3.0% y/y) in the week of January 17 from $78.14 in the prior week. Prices remained below a peak of $127.40 in the week of June 10, 2022. Yesterday’s price was $80.57 per barrel.

Natural gas prices surged to an average $5.47/mmbtu (87.3% y/y) in the week of January 17 from $3.93 in the prior week, posting the highest level since a high of $5.11/mmbtu in the week of January 12, 2024. Prices reached a low of $1.40/mmbtu in the week of March 15, 2024 and a peak of $9.56 in the week of August 26, 2022. Yesterday, the price was $4.40/mmbtu.

Gasoline demand rose 0.8% y/y in the four weeks ending January 10 on top of a 1.2% y/y gain in the prior four weeks. Demand for all petroleum products increased 1.1% y/y in the four weeks ending January 10. Crude oil input to refineries increased 1.2% y/y in the four weeks ending January 10 after a 1.5% y/y rise in the prior four weeks.

Gasoline inventories fell 1.8% y/y in the week ending January 10 after a 3.0% y/y decline in the prior week. In contrast, residual fuel oil inventories fell 12.1% y/y in the week of January 10 following a 5.7% y/y decrease in the prior week. Crude oil inventories rose 2.7% y/y in the week of January 10, the same as during the prior week.

Measured in days’ supply, gasoline inventories rose to 28.7 days in the week of January 10 from 27.5 days in the prior	 week, registering the highest reading since the end of February 2024. The recent low was 22.9 days in the week of November 8. The supply of crude oil was little changed at 24.6 days in the week of January 10, still near the lowest number since a low of 24.8 days in the week of September 20, 2024 and below a high of 31.9 days in the week of March 3, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** & **USENERGY** database.

- Gasoline prices reach three-month high.
- Crude oil costs surge.
- Natural gas prices strengthen to two-year high.

U.S. Energy Prices Increase Sharply

Winnie Tapasanun

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Mortgage applications edged up 0.1% w/w (2.9% y/y) in the week ending January 17 following a 33.3% rebound in the week ending January 10 and four straight weekly declines, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. The latest reading was the second successive weekly gain to the index level of 224.6, a six-week high. Applications for loans to purchase a house rose 0.6% (-6.5% y/y) in the January 17 week after a 26.9% jump in the January 10 week and three consecutive w/w decreases. Applications for loan refinancing fell 2.9% (+27.5% y/y) in the January 17 week, the first w/w fall since the December 27 week, following a 43.5% surge in the previous week.

Mortgage interest rates generally remained high; thus, having restrained mortgage applications. The effective interest rate on a 30-year fixed-rate loan dropped 8bps to a still-high 7.20% in the week ending January 17 after rising to 7.28% in the week ending January 10; it was up from a low of 6.29% in the week of September 20, 2024 but down from a high of 8.12% in the week of October 20, 2023. The rate on 15-year fixed-rate mortgages held steady at 6.61% in the January 17 week; it was down 83bps from a high of 7.44% in the week of October 27, 2023. The rate on 30-year jumbo loans declined 9bps to 7.13% in the January 17 week, the lowest since the December 13 week, from 7.22% in the prior week; it was down 86bps from a high of 7.99% in the week of October 27, 2023. By contrast, the rate on a 5-year ARM rose 24bps to 6.62% in the January 17 week from 6.38% in the previous week; it was above its recent low of 5.84% in the week of September 13, 2024 but down 69bps from a high of 7.31% in the week of October 27, 2023.

The share of applications for refinancing an existing loan fell to 40.4% of total applications in the week ending January 17 from 42.7% in the week ending January 10, registering the first w/w drop and the lowest since the December 27 week. That was down from 55.7% in the week of September 20, 2024. Meanwhile, the adjustable-rate mortgage (ARM) share of activity rose to 5.5% in the January 17 week, the highest since the December 20 week, from 5.0% in the prior week; it was slightly up from a low of 5.4% in the week of January 5, 2024 but below a high of 10.7% in the week of October 27, 2023.

The average size of a mortgage loan increased 1.8% w/w (-0.9% y/y) to $373,800 in the January 17 week, the highest since the December 13 week, after a 2.1% rebound to $367,100 in the January 10 week. The average size of a purchase loan rose 2.9% (1.5% y/y) to $431,600 in the January 17 week, the highest since the November 29 week, after a 1.3% rise to $419,600 in the prior week. In contrast, the average size of a loan to refinance a mortgage fell 2.9% (+3.6% y/y) to $288,300 in the January 17 week, the fourth w/w decline in five weeks, after a 6.0% rise to $296,800 in the previous week.

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.

- Purchase applications rise 0.6% w/w while refinancing loan applications fall 2.9% w/w.
- Effective interest rate on 30-year fixed-rate loans drops to a still-high 7.20%.
- Average loan size rises to the highest since the December 13 week.

U.S. Mortgage Applications Increase a Marginal 0.1% in the January 17 Week

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Recent strength in factory sector production generated life in pricing power. The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) rose 1.0% (2.1% y/y) during the four weeks ended January 17, 2025, reversing a 1.0% decline in the prior four weeks. The level of the index was its highest since the second week of November.

Leading the rise, Crude Oil & Benzene group prices strengthened 4.0% (-2.3% y/y) in the latest four weeks. The cost of West Texas Intermediate crude oil jumped 11.2% in four weeks to $78.33 per barrel and stood 7.4% higher y/y. It was increased from a $68.58 low in the first week of December. The cost of the petro-chemical benzene, used for making plastics & synthetic fibers, eased 0.4% (-22.8% y/y) in the last four weeks. Excluding crude oil, the industrial commodity price index edged 0.4% higher (1.7% y/y) in the latest four-week period.

Also moving higher, prices in the Miscellaneous group improved 1.9% during the last four weeks and rose 5.1% y/y. Plywood prices strengthened 8.5% over the last four-week period (7.6% y/y) while the cost of natural rubber improved 1.4% in four weeks, but jumped 32.6% y/y.

To the downside, prices in the Metals group slipped 0.6% (+5.0% y/y) over the most recent four weeks. Zinc prices fell 6.4% (+14.0 y/y) in four weeks and steel scrap prices were off 1.2% (-17.9% y/y). The cost of lead fell 1.9% in four weeks (-6.2% y/y). Offsetting these declines, aluminum prices increased 2.5% during the last four weeks (19.7% y/y). Tin costs rose 1.7% (19.3 y/y) while copper scrap prices improved 1.5% (9.5% y/y) over four weeks.

Textile prices eased 0.2% (-1.9% y/y) over the last four-week period. Cotton prices fell 1.3% (-18.8% y/y) and the cost of burlap held steady (+14.2% y/y) during the last four weeks.

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

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- Crude oil prices increase sharply.
- Lumber & rubber costs rise.
- Metals prices are mixed.

FIBER: Industrial Commodity Prices Strengthen in Latest Four Weeks

Robert Brusca

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**Assessments and expectations**
This ZEW survey for January shows mixed results. The economic situations in the euro area, Germany, and the United States, as currently perceived, improved month-to-month while expectations in the U.S. were essentially unchanged and economic expectations for Germany deteriorated. The U.S. had the largest increase in the assessment of the current economic situation. The U.S. diffusion reading rose by 9.1 points, the German situation improved by 2.7, points and in the euro area it improved by 1.2 points.

**Inflation expectations**
Inflation expectations rose in all three areas with the euro area seeing expectations rise by 9.1 points, Germany is seeing an increase of 9.7 points, and the U.S. experiencing an increase of 11.9 points. Given that, economic reports have been somewhat uneven, as you can see the assessment of the current situation has nonetheless improved. Along with that, inflation expectations are beginning to rise more or less across the board. Inflation is generally already above levels that central banks are targeting.

**Interest rates- short-term expectations**
Short-term rate expectations rose in the euro area by 12.5 diffusion points and by a whopping 32.6 diffusion points in the United States. With the election of Trump and expectations that there will be tariffs imposed, and tax cuts extended, and pro-growth policies implemented, there is a decided turn to the expectation for higher inflation and for that to create knock on effects for higher short-term interest rates. At the last policy meeting, the Federal Reserve cut its policy rate; the Federal Reserve is still looking for rate cuts sometime later in the year even though it's not looking to get back down to its inflation target this year, creating a somewhat strange perspective on Fed policy. Policy continues its inflation overshoot; yet, it continues to cut interest rates. I suspect we're on the cusp of seeing that policy change, but it has not changed yet. Here we see the ZEW experts seem to be on board for that policy undergoing some substantial changes in the months ahead.

**Long-term rate expectations**
Long-term rate expectations declined in Germany and in the U.S. and despite the outlook for somewhat higher inflation the outlook for higher short-term interest rates may be enough to mollify expectations on longer term rates and also may be a vote of confidence that central banks will do the right thing when inflation rises by raising short-term rates enough. This survey seems to conform the expectation to contain more distant inflation pressures and allow long-term rates to hold in.  

**Stock markets**
That view would be consistent with the stock market assessments that are lower in all three areas. In the euro area, the stock market assessment falls by 5.5 diffusion points; in Germany, it falls by 12.7 diffusion points; in the U.S., it falls by 1.8 diffusion points. That means that the ZEW financial experts are looking for stock market cap performance to back off despite better current economic conditions lowered expectations for Germany but not for the U.S. and in the midst of this expectation for higher inflation and substantially higher short-term interest rates as well. It's an interesting changing view from the ZEW experts and it paints a picture of the future that seems to be increasingly likely.

**Queue standings**
**U.S. queue standings-** The table also includes the queue standings for the various measures in the top part of the table. There we see only the U.S. has queue standings for some measures that are above 50% placing them above their longer-term medians (above 50% standings). Those are for the economic situation, for economic expectations and for stock market expectations. U.S. inflation expectations, however, are getting higher at 43.8%, closing in on their historic median, while short-term rate expectations are still relatively low at 13.2% and the level of long-term expectations in the U.S. is at 17.3% also relatively low.

**German queue standings-** Germany has an economic situation at its the 4.9 percentile standing - extremely weak. Expectations are better with the 35.6 percentile standing with inflation at the 22.7 percentile standing. The euro area short-term rate expectations (EC) are at 5.8% and the German long-term rate expectation is at 8.2%; both of those are low. The expectation for the German stock market is extremely poor with the 1.9 percentile standing.

**The euro area queue standings-** Compared to Germany, the euro area has a 24.9 percentile standing for the current situation. Inflation expectations are at a 20.6 percentile standing, with short-term rate expectations at a 5.8 percentile standing and stock market expectations in the eurozone around 8% still quite low.

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**Summing up**
Economic conditions continue to favor the United States in terms of current performance and expectations; along with that, U.S. inflation is expected to be higher as are U.S. interest rates compared to their historic norms. The U.S. stock market also suspected to outperform and to have above average results – yet, these are clearly still times where there's a great deal of stress. The German economy is under a great deal of pressure and the euro area is not far behind. Germany faces difficult times and political pressures internally. There are political changes going on across the spectrum with the most recent focus being on the U.S. with Donald Trump just having taken the oath of office and beginning to make significant policy changes immediately. We are likely to see further shifting in expectations as we get a chance to see what the Trump administration is going to do and as markets begin to handicap the effect they expect from those actions.

Germany

ZEW Expectations Are Mixed But Eco-conditions Still Weak