Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061121d.jpg" width="353">
The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago remained negative in October at -0.31, negative for the fifth month in the last six. The three-month moving average of the CFNAI dropped to -0.19, its lowest level since Hurricane Katrina depressed activity last year.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The complete CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_November2006.pdf">here</a>.
The latest Survey of Professional Forecasters from the Federal Reserve Bank of Philadelphia is available <a href="http://www.philadelphiafed.org/files/spf/survq406.html"> here</a>.

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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">October &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>-0.31</td>
<td>-0.38</td>
<td>1.03</td>
<td>0.20</td>
<td>0.35</td>
<td>-0.15</td>
</tr>
</tbody>
</table>
Chain Store Sales Rose 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061121e.jpg" width="353">
Chain store sales last week improved 1.2% and recovered all of the prior week&#39;s 0.8% decline, according to the International Council of Shopping Centers (ICSC)-UBS. The increase lifted sales in November 0.3% from the October average which fell 0.7% from September.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS added 0.5% (0.8% y/y) to the prior week&#39;s 0.8% jump.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">11/18/06</th>
<th scope="col">11/11/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>468.2</td>
<td>462.9</td>
<td>2.2%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Gasoline Prices Up A Bit 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061121a.jpg" width="353">
 Regular unleaded gasoline prices at the pump rose a penny last week to an average $2.24 per gallon. It was the third increase in the last four weeks since the low of $2.21. Average gas prices this month nevertheless remained down three cents from the October average of $2.25 per gallon.
This week, the spot market (NY harbor) price for a gallon of regular gasoline has risen to an average $1.60 from $1.57 last week. Fuel oil prices similarly have shown little decline ahead of the heating season. Yesterday&#39;s spot price of $1.62 per gallon compared to $1.65 during October.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061121b.jpg" width="353">
Crude oil prices, however, have moved lower. WTI crude yesterday traded for $56.46 (-1.3% y/y) per barrel versus an average $58.88 during October and $63.86 in September.
The heating season also has given some lift to natural gas prices. At $7.35 per mmbtu (-28.5% y/y) yesterday, the Henry Hub price was up from an average of $5.77 in October and $4.90 during September. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061121c.jpg" width="353">
The Department of Energy reported that gasoline demand during the latest four weeks rose 2.6% from the year earlier period. That increase, however, continued to understate the demand for gasoline according to estimated figures from the Oil &amp; Gas Journal which showed a 7.1% rise. These figures are available in the Haver OILWKLY database.
The latest Short-Term Energy Outlook from the U.S. Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.
Financial Markets and the Federal Reserve are remarks by Fed Governor Kevin M. Warsh at the New York Stock Exchange and they are available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20061121/default.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">Weekly Energy Prices</a></th>
<th scope="col">11/20/06</th>
<th scope="col">11/13/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">US Retail Gasoline Price, Regular</td>
<td>$2.24</td>
<td>$2.23</td>
<td>1.7%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
</tbody>
</table>
Migration and the New Zealand Economy 
by <a href="/comment/Curley.html">Louise Curley</a> November 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061121j.jpg" width="353">
As a small country with a population of only 4.2 million, migration in and out of New Zealand tends to amplify economic trends that would not be noticed in a larger country. The peripatetic New Zealanders frequently go to and from Australia and the UK staying a year or more. In recent years there has been an influx of students from Asia who also tend to stay for a period of years completing their education and then returning home. New Zealand tracks these movements and publishes monthly data on net permanent and long term migration. (Total net migration and net migration by country can be found in the Haver data base, ANZ.)<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061121k.jpg" width="353">
Net permanent and long-term migration is derived by subtracting permanent and long-term departures from permanent and long-term arrivals. Permanent and long- term arrivals include overseas migrants intending to stay for a period of twelve months or more or permanently, plus New Zealand residents returning after an absence of 12 months or more. Permanent and long-term departures include New Zealand residents intending to stay abroad for 12 months or more or permanently plus overseas visitors departing after a stay of 12 months or more.
As the first chart shows, year to year differences in net migration are largely responsible for the unusual ups and downs in the total population. The large influx of immigrants in 2001 and 2002 had a notable effect on the housing market as can be seen in the second chart that shows the year to year changes in housing prices and net migration. The decline in net migration has, in part, been a factor in the deceleration of GDP growth that has taken place since the end of 2004 as can be seen in the third chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061121l.jpg" width="353">
Net migration varies from quarter to quarter but the downward trend started in late 2002 seems to have abated. In the third quarter of this year, net migration was 4,965, the highest quarterly figure since the first quarter of 2004. To the extent that migration matters, economic developments in New Zealand may be looking up.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol">NEW ZEALAND&nbsp;</th>
<th scope="col">Oct 06</th>
<th scope="col">Q3 06&nbsp;</th>
<th scope="col">Q2 06&nbsp;</th>
<th scope="col">Q 1 06&nbsp;</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Net Migration (persons)</td>
<td>2352</td>
<td>4965</td>
<td>-1201</td>
<td>4772</td>
<td>6971</td>
<td>15108</td>
<td>34906</td>
<td>38198</td>
<td>9726</td>
</tr>
<tr>
<td class="firstcol">Population (000)</td>
<td></td>
<td>4152</td>
<td>4140</td>
<td>4134</td>
<td>4105</td>
<td>4065</td>
<td>4018</td>
<td>3950</td>
<td>3891</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;</td>
<td></td>
<td>Q3 06&nbsp;</td>
<td>Q2 06&nbsp;</td>
<td>Q 1 06&nbsp;</td>
<td>2005</td>
<td>2004</td>
<td>2003</td>
<td>2002</td>
<td>2001</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Real GDP (SAAR)</td>
<td></td>
<td></td>
<td>1.69</td>
<td>2.59</td>
<td>2.12</td>
<td>4.16</td>
<td>3.64</td>
<td>4.23</td>
<td>2.51</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; House Prices (% Chg)</td>
<td></td>
<td></td>
<td>3.69</td>
<td>10.31</td>
<td>14.51</td>
<td>17.97</td>
<td>19.41</td>
<td>9.51</td>
<td>1.83</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>


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The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago remained negative in October at -0.31, negative for the fifth month in the last six. The three-month moving average of the CFNAI dropped to -0.19, its lowest [...]

Chicago Fed Nat'l Activity Index Remained Negative

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061120j.jpg" width="353">
Seasonally unadjusted GDP data are available for the third quarter for Taiwan and Singapore. The year-over-year increase in real Taiwanese GDP in the third quarter was 4.4% while the nominal increase was 3.5% implying a decline in the deflator. While most other countries in the Asian Pacific region--even Japan--have seen a reversal of price trends from declines to modest increases, Taiwan is still experiencing declines. The year-over-year change in the deflator for Taiwan is compared with that of Singapore in the first chart. While both countries show considerable variation in the year-over-year changes in the deflators, there is a clear downward trend in the Taiwan data and a slight upward trend in the Singapore data.
Real growth in Taiwan increased 4.4% in the third quarter. So far this year growth has been steady at around the 4 plus percent level. Growth in Singapore, on the other hand, has declined over the year from 10.7% in the first quarter to 8.2% in the second and 7.2% in the third. The year-over-year growth in real GDP for the two countries is shown in the second chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061120k.jpg" width="353">
Taiwan and, particularly, Singapore are two of the smaller nations of the Pacific Rim. In dollar terms, the GDP of Taiwan is currently about $88 billion and Singapore, $33 billion, compared to Japan&#39;s $1.1 trillion. They have been, however, among the faster growing nations in the East.

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<colgroup><col><col><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Q3 06 Y/Y %</th>
<th scope="col">Q2 06 Y/Y %</th>
<th scope="col">Q 1 06 Y/Y %</th>
<th scope="col">2005&nbsp; &nbsp;%</th>
<th scope="col">2004&nbsp; %</th>
<th scope="col">2003&nbsp; %</th>
<th scope="col">2002&nbsp; %</th>
<th scope="col">2001&nbsp; %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">TAIWAN GDP</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current NT$ (NSA)</td>
<td>3.37</td>
<td>3.35</td>
<td>3.47</td>
<td>3.49</td>
<td>4.38</td>
<td>1.22</td>
<td>3.37</td>
<td>-1.69</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Real 2001 NT$ (NSA)</td>
<td>4.92</td>
<td>4.57</td>
<td>4.39</td>
<td>4.03</td>
<td>6.07</td>
<td>3.43</td>
<td>4.25</td>
<td>-2.17</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">SINGAPORE</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current S$ (NSA)</td>
<td>9.78</td>
<td>6.76</td>
<td>8.15</td>
<td>6.96</td>
<td>12.48</td>
<td>1.98</td>
<td>3.27</td>
<td>-4.03</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Real 2001 S$ (NSA)</td>
<td>10.66</td>
<td>8.17</td>
<td>7.21</td>
<td>6.35</td>
<td>8.72</td>
<td>2.93</td>
<td>4.04</td>
<td>-2.28</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
</tbody>
</table>
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Seasonally unadjusted GDP data are available for the third quarter for Taiwan and Singapore. The year-over-year increase in real Taiwanese GDP in the third quarter was 4.4% while the nominal increase was 3.5% implying a decline in the [...]

Taiwan and Singapore Report 3rd Quarter Gross Domestic Product

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061120a.jpg" width="353">
The composite index of leading economic indicators rose 0.2% last month after an upwardly revised 0.4% gain during September, according to the Conference Board. The back to back increases were the first since January and followed several monthly declines during 2006 but the October increase fell short of Consensus expectations for a 0.3% rise.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators and the lagged change in real GDP.
The breadth of one month gain amongst the 10 components of the leading index improved to 60%, the best since June.
Higher stock prices, improved consumer sentiment, and especially a higher money supply offset lower building permits and weaker vendor performance to generate the leader&#39;s increase last month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061120b.jpg" width="353">
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators increased 0.1% after an upwardly revised 0.2% increase during September. Over the last ten years there has been a 91% correlation between the y/y change in the coincident indicators and real GDP growth.
The lagging indicators increased 0.2% for the second month as the average duration of unemployment lengthened. The ratio of coincident to lagging indicators, which is a measure of actual economic performance versus excess, fell after three consecutive months of increase.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Leading</td>
<td>0.2%</td>
<td>0.4%</td>
<td>1.0%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.7%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
</tbody>
</table>
</body>
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The composite index of leading economic indicators rose 0.2% last month after an upwardly revised 0.4% gain during September, according to the Conference Board. The back to back increases were the first since January and followed [...]

U.S. Leading Economic Indicators Better

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061120a.jpg" width="353">
The composite index of leading economic indicators rose 0.2% last month after an upwardly revised 0.4% gain during September, according to the Conference Board. The back to back increases were the first since January and followed several monthly declines during 2006 but the October increase fell short of Consensus expectations for a 0.3% rise.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators and the lagged change in real GDP.
The breadth of one month gain amongst the 10 components of the leading index improved to 60%, the best since June.
Higher stock prices, improved consumer sentiment, and especially a higher money supply offset lower building permits and weaker vendor performance to generate the leader&#39;s increase last month.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061120b.jpg" width="353">
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators increased 0.1% after an upwardly revised 0.2% increase during September. Over the last ten years there has been a 91% correlation between the y/y change in the coincident indicators and real GDP growth.
The lagging indicators increased 0.2% for the second month as the average duration of unemployment lengthened. The ratio of coincident to lagging indicators, which is a measure of actual economic performance versus excess, fell after three consecutive months of increase.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Leading</td>
<td>0.2%</td>
<td>0.4%</td>
<td>1.0%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.1%</td>
<td>0.2%</td>
<td>2.7%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
</tbody>
</table>
Taiwan and Singapore Report 3rd Quarter Gross Domestic Product 
by <a href="/comment/Curley.html">Louise Curley</a> November 20, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061120j.jpg" width="353">
Seasonally unadjusted GDP data are available for the third quarter for Taiwan and Singapore. The year-over-year increase in real Taiwanese GDP in the third quarter was 4.4% while the nominal increase was 3.5% implying a decline in the deflator. While most other countries in the Asian Pacific region--even Japan--have seen a reversal of price trends from declines to modest increases, Taiwan is still experiencing declines. The year-over-year change in the deflator for Taiwan is compared with that of Singapore in the first chart. While both countries show considerable variation in the year-over-year changes in the deflators, there is a clear downward trend in the Taiwan data and a slight upward trend in the Singapore data.
Real growth in Taiwan increased 4.4% in the third quarter. So far this year growth has been steady at around the 4 plus percent level. Growth in Singapore, on the other hand, has declined over the year from 10.7% in the first quarter to 8.2% in the second and 7.2% in the third. The year-over-year growth in real GDP for the two countries is shown in the second chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061120k.jpg" width="353">
Taiwan and, particularly, Singapore are two of the smaller nations of the Pacific Rim. In dollar terms, the GDP of Taiwan is currently about $88 billion and Singapore, $33 billion, compared to Japan&#39;s $1.1 trillion. They have been, however, among the faster growing nations in the East.

<table border="0" cellspacing="0" width="100%">
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<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Q3 06 Y/Y %</th>
<th scope="col">Q2 06 Y/Y %</th>
<th scope="col">Q 1 06 Y/Y %</th>
<th scope="col">2005&nbsp; &nbsp;%</th>
<th scope="col">2004&nbsp; %</th>
<th scope="col">2003&nbsp; %</th>
<th scope="col">2002&nbsp; %</th>
<th scope="col">2001&nbsp; %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">TAIWAN GDP</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current NT$ (NSA)</td>
<td>3.37</td>
<td>3.35</td>
<td>3.47</td>
<td>3.49</td>
<td>4.38</td>
<td>1.22</td>
<td>3.37</td>
<td>-1.69</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Real 2001 NT$ (NSA)</td>
<td>4.92</td>
<td>4.57</td>
<td>4.39</td>
<td>4.03</td>
<td>6.07</td>
<td>3.43</td>
<td>4.25</td>
<td>-2.17</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
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<tr class="odd">
<td class="firstcol">SINGAPORE</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current S$ (NSA)</td>
<td>9.78</td>
<td>6.76</td>
<td>8.15</td>
<td>6.96</td>
<td>12.48</td>
<td>1.98</td>
<td>3.27</td>
<td>-4.03</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Real 2001 S$ (NSA)</td>
<td>10.66</td>
<td>8.17</td>
<td>7.21</td>
<td>6.35</td>
<td>8.72</td>
<td>2.93</td>
<td>4.04</td>
<td>-2.28</td>
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<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
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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/061117j.jpg" width="353">
Mexico&#39;s GDP is enjoying its best run of growth since before dot.com bust in 2001. In Q3, the year-on-year gain was 4.6%, following 5.5% and 4.7% in Q1 and Q2, respectively. The quarterly growth in Q3 was 1.0% from Q2, led by construction and transportation. Manufacturing edged up a mere 0.1% and didn&#39;t grow at all in Q2, but it had surged 2.9% in Q1 and is ahead 5.1% year-on-year. These data were reported yesterday afternoon, November 16, by INEGI, the Mexican government statistics institute.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061117k.jpg" width="353">
Government officials, speaking prior to the G-20 Conference in Melbourne, Australia, indicated that this pattern was in line with their hopes. Their aim is to diminish the Mexican economy&#39;s dependency on demand from the US. So they are emphasizing local construction and services industries. The financial sector and other business services are up 4.6% year-on-year for Q3, the same as total GDP, but they have been expanding more rapidly than the total for most of the last five years. Finance Minister Gil Diaz highlighted the growth in construction, fueled in part by expansion of mortgage lending. Indeed, during the first half of this year, mortgage lending at banks was running more than 40% ahead of last year. Gross value added in construction is up 7.7% in Q3 from a year ago and 2.6% Q3/Q2 alone. Another strong sector is transportation, storage and communication, up 9.4% year-on-year. Mexico&#39;s output of oil is slowing, but its production of natural gas is growing rapidly, and we would surmise that pipeline usage is one part of the gain in the transportation sector.

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</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Mexico</th>
<th scope="col">Bil. New 1993 Pesos</th>
<th scope="col">Q3 2006</th>
<th scope="col">Q2 2006</th>
<th scope="col">Q1 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Real GDP</td>
<td>1854.1</td>
<td>0.9</td>
<td>0.8</td>
<td>1.9</td>
<td>4.6</td>
<td>3.0</td>
<td>4.2</td>
<td>1.3</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>330.0</td>
<td>0.1</td>
<td>-0.0</td>
<td>2.9</td>
<td>5.1</td>
<td>1.2</td>
<td>4.0</td>
<td>-1.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>73.8</td>
<td>2.6</td>
<td>-0.1</td>
<td>2.1</td>
<td>7.7</td>
<td>3.3</td>
<td>6.1</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">Transportation, Etc.</td>
<td>236.4</td>
<td>1.8</td>
<td>1.5</td>
<td>4.1</td>
<td>9.4</td>
<td>7.1</td>
<td>9.2</td>
<td>5.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Finance, Other Business Services</td>
<td>301.3</td>
<td>0.5</td>
<td>1.4</td>
<td>1.2</td>
<td>4.6</td>
<td>5.8</td>
<td>3.9</td>
<td>3.9</td>
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Mexico's GDP is enjoying its best run of growth since before dot.com bust in 2001. In Q3, the year-on-year gain was 4.6%, following 5.5% and 4.7% in Q1 and Q2, respectively. The quarterly growth in Q3 was 1.0% from Q2, led by [...]

Mexico GDP Up 4.6% Yr/Yr in Q3, With Good Gains in Construction and Services

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061117a.jpg" width="353">
In October, housing starts more than retraced the downwardly revised 4.9% September gain and fell 14.6% to the lowest level since July 2000. The latest result fell well short of Consensus expectations for 1.68M starts.
At 1.486M units, the October figure pulled the year-to-date average to 1.863 starts and 10.2% below the first ten months of 2005.
Single-family starts in October fell 15.9% to 1.177M, also the lowest level since July 2000. The year-to-date average level of single family starts fell 11.5% from 2005. Multi family starts in addition were down by 9.1% m/m.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061117b.jpg" width="353">
By region, single family housing starts were weakest down South and fell 24.8% (-32.4% y/y). Starts also fell 9.1% (-32.9% y/y) out West, were 7.3% (-33.1% y/y) lower in the Midwest but in the Northeast single family starts rose 10.9% (-22.2% y/y).
Building permits fell 6.3% after a revised 5.2% September drop. The ninth monthly decline this year was to the lowest level since 1997. Permits to start single family homes fell 3.8% (-31.7% y/y), the lowest since 2000.
What Do Financial Asset Prices Say About the Housing Market? from the Board of Governors of the Federal Reserve System can be found <a href="http://www.federalreserve.gov/pubs/feds/2006/200632/200632abs.html"> here</a>.

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<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1,486</td>
<td>1,740</td>
<td>-27.4%</td>
<td>2,073</td>
<td>1,950</td>
<td>1,854</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,177</td>
<td>1,400</td>
<td>-31.8%</td>
<td>1,719</td>
<td>1,604</td>
<td>1,505</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>309</td>
<td>340</td>
<td>-3.4%</td>
<td>354</td>
<td>345</td>
<td>349</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,535</td>
<td>1,638</td>
<td>-28.0%</td>
<td>2,159</td>
<td>2,058</td>
<td>1,888</td>
</tr>
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In October, housing starts more than retraced the downwardly revised 4.9% September gain and fell 14.6% to the lowest level since July 2000. The latest result fell well short of Consensus expectations for 1.68M starts. At 1.486M [...]

Housing Starts Plumb Six Year Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061117a.jpg" width="353">
In October, housing starts more than retraced the downwardly revised 4.9% September gain and fell 14.6% to the lowest level since July 2000. The latest result fell well short of Consensus expectations for 1.68M starts.
At 1.486M units, the October figure pulled the year-to-date average to 1.863 starts and 10.2% below the first ten months of 2005.
Single-family starts in October fell 15.9% to 1.177M, also the lowest level since July 2000. The year-to-date average level of single family starts fell 11.5% from 2005. Multi family starts in addition were down by 9.1% m/m.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061117b.jpg" width="353">
By region, single family housing starts were weakest down South and fell 24.8% (-32.4% y/y). Starts also fell 9.1% (-32.9% y/y) out West, were 7.3% (-33.1% y/y) lower in the Midwest but in the Northeast single family starts rose 10.9% (-22.2% y/y).
Building permits fell 6.3% after a revised 5.2% September drop. The ninth monthly decline this year was to the lowest level since 1997. Permits to start single family homes fell 3.8% (-31.7% y/y), the lowest since 2000.
What Do Financial Asset Prices Say About the Housing Market? from the Board of Governors of the Federal Reserve System can be found <a href="http://www.federalreserve.gov/pubs/feds/2006/200632/200632abs.html"> here</a>.

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<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E901/@E90101/@E90101.HTM">Housing Starts (000s, AR)</a> </th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>1,486</td>
<td>1,740</td>
<td>-27.4%</td>
<td>2,073</td>
<td>1,950</td>
<td>1,854</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Single-family</td>
<td>1,177</td>
<td>1,400</td>
<td>-31.8%</td>
<td>1,719</td>
<td>1,604</td>
<td>1,505</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Multi-family</td>
<td>309</td>
<td>340</td>
<td>-3.4%</td>
<td>354</td>
<td>345</td>
<td>349</td>
</tr>
<tr>
<td class="firstcol">Building Permits</td>
<td>1,535</td>
<td>1,638</td>
<td>-28.0%</td>
<td>2,159</td>
<td>2,058</td>
<td>1,888</td>
</tr>
</tbody>
</table>
Mexico GDP Up 4.6% Yr/Yr in Q3, With Good Gains in Construction and Services 
by <a href="/comment/Stone.html">Carol Stone</a> November 17, 2006


<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061117j.jpg">
Mexico&#39;s GDP is enjoying its best run of growth since before dot.com bust in 2001. In Q3, the year-on-year gain was 4.6%, following 5.5% and 4.7% in Q1 and Q2, respectively. The quarterly growth in Q3 was 1.0% from Q2, led by construction and transportation. Manufacturing edged up a mere 0.1% and didn&#39;t grow at all in Q2, but it had surged 2.9% in Q1 and is ahead 5.1% year-on-year. These data were reported yesterday afternoon, November 16, by INEGI, the Mexican government statistics institute.<img align="right" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061117k.jpg">
Government officials, speaking prior to the G-20 Conference in Melbourne, Australia, indicated that this pattern was in line with their hopes. Their aim is to diminish the Mexican economy&#39;s dependency on demand from the US. So they are emphasizing local construction and services industries. The financial sector and other business services are up 4.6% year-on-year for Q3, the same as total GDP, but they have been expanding more rapidly than the total for most of the last five years. Finance Minister Gil Diaz highlighted the growth in construction, fueled in part by expansion of mortgage lending. Indeed, during the first half of this year, mortgage lending at banks was running more than 40% ahead of last year. Gross value added in construction is up 7.7% in Q3 from a year ago and 2.6% Q3/Q2 alone. Another strong sector is transportation, storage and communication, up 9.4% year-on-year. Mexico&#39;s output of oil is slowing, but its production of natural gas is growing rapidly, and we would surmise that pipeline usage is one part of the gain in the transportation sector.

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</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Mexico</th>
<th scope="col">Bil. New 1993 Pesos</th>
<th scope="col">Q3 2006</th>
<th scope="col">Q2 2006</th>
<th scope="col">Q1 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Real GDP</td>
<td>1854.1</td>
<td>0.9</td>
<td>0.8</td>
<td>1.9</td>
<td>4.6</td>
<td>3.0</td>
<td>4.2</td>
<td>1.3</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>330.0</td>
<td>0.1</td>
<td>-0.0</td>
<td>2.9</td>
<td>5.1</td>
<td>1.2</td>
<td>4.0</td>
<td>-1.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>73.8</td>
<td>2.6</td>
<td>-0.1</td>
<td>2.1</td>
<td>7.7</td>
<td>3.3</td>
<td>6.1</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">Transportation, Etc.</td>
<td>236.4</td>
<td>1.8</td>
<td>1.5</td>
<td>4.1</td>
<td>9.4</td>
<td>7.1</td>
<td>9.2</td>
<td>5.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Finance, Other Business Services</td>
<td>301.3</td>
<td>0.5</td>
<td>1.4</td>
<td>1.2</td>
<td>4.6</td>
<td>5.8</td>
<td>3.9</td>
<td>3.9</td>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061116j.jpg" width="353">
The US Treasury today reported its &quot;TIC&quot; data for September. Besides the usual monthly flows of security purchases, there is a new compilation of summary data on short-term liabilities and on return of capital to foreign investors through such vehicles as stock swaps and repayments of principal on mortgage-backed securities. The new table is called &quot;TIC Monthly Reports on Cross-Border Financial Flows&quot;.
The flows themselves are large, but relatively unsurprising, given the size and direction of world trade. Foreign investors continue to buy domestic US securities in size, totaling $88.0 billion in September and the same average over the past year. This year, though, they have reduced their purchases of Treasuries and increased their participation in agencies (&quot;GSEs&quot;) and corporate bonds. The trend in purchases of corporate equities remains far smaller than other assets, but considerably larger than anytime in the past five years -- since the &quot;dot.com&quot; bust.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061116k.jpg" width="353">
We often argue that the capital accounts do not exist simply to &quot;finance the trade deficit&quot;. People make investment decisions based on their assessments of relative return in its own right. So we note with interest that in addition to the outflows of funds associated with the current account deficit, there are capital outflows as US investors participate in foreign financial markets. In September this amounted to nearly $23 billion and has averaged $15 billion over the past 12 months, an unprecedented amount.
Further, as the Treasury&#39;s new summary table shows, &quot;other acquisition of long-term securities&quot; is responsible for net capital outflows of about $12.0 billion monthly. These data have long been available, but hidden far down in the tables. This move by the Treasury to put them in a main table highlights the growing importance of these flows -- mortgage prepayments and swaps. In another helpful action, the Treasury has also summarized the detailed bank-reported data on Treasury bills and custody holdings. These perhaps can be seen as transactions that help put the &quot;balance of payments&quot; in balance. And they are volatile; for instance, they generated inflows of almost $30 billion in July, but outflows of nearly $11 billion in September. Over the last 12 months, net foreign acquisition of these short-term assets has averaged $9.2 billion, but there were net foreign liquidations in 2005 of almost $4 billion a month.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061116l.jpg" width="353">
In a final new item, &quot;Monthly Net TIC Flows&quot;, the sum of the Treasury&#39;s data shows that foreign investors have invested about $75 billion a month over the last year, up from $55.6 billion in 2005 but less than the $81.6 billion in 2004. These flows omit direct investment and other banking and non-banking instruments, so they are not a complete balance of payments set, but they are strong indicators of investor interest in both US and international capital markets.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USINT/@U3/@U3.HTM">Net Foreign Pur chases from US Residents</a><a href="http://www.haverselect.com/dlx/USINT/@U3/@U3.HTM">, Bil $</a></th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</th>
<th scope="col">July 2006</th>
Monthly Average
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Last 12 Months</td>
<td>2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">1. Domestic Securities</td>
<td>88.0</td>
<td>117.2</td>
<td>54.5</td>
<td>88.0</td>
<td>84.2</td>
<td>76.4</td>
<td>60.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Treasuries</td>
<td>-0.4</td>
<td>44.3</td>
<td>6.2</td>
<td>17.8</td>
<td>28.2</td>
<td>29.3</td>
<td>22.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Agencies</td>
<td>26.0</td>
<td>31.4</td>
<td>18.6</td>
<td>23.4</td>
<td>18.3</td>
<td>18.9</td>
<td>13.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Corporate Bonds</td>
<td>52.7</td>
<td>37.0</td>
<td>19.1</td>
<td>37.5</td>
<td>31.0</td>
<td>25.8</td>
<td>22.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Equities</td>
<td>9.6</td>
<td>4.4</td>
<td>10.4</td>
<td>9.2</td>
<td>6.7</td>
<td>2.4</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">2. Foreign Securities</td>
<td>-22.9</td>
<td>-2.7</td>
<td>-21.8</td>
<td>-15.2</td>
<td>-14.4</td>
<td>-12.7</td>
<td>-4.7</td>
</tr>
<tr>
<td class="firstcol">3. &quot;Other Acquisition&quot;*</td>
<td>-11.9</td>
<td>-11.1</td>
<td>-14.5</td>
<td>-12.0</td>
<td>-11.7</td>
<td>-3.2</td>
<td>-11.6</td>
</tr>
<tr class="odd">
<td class="firstcol">4. Net Foreign Acquisition (1+2+3)</td>
<td>53.2</td>
<td>103.3</td>
<td>18.3</td>
<td>60.8</td>
<td>58.2</td>
<td>60.4</td>
<td>43.7</td>
</tr>
<tr>
<td class="firstcol">5. Short-Term Liabilities</td>
<td>-10.8</td>
<td>9.6</td>
<td>29.7</td>
<td>9.2</td>
<td>-3.9</td>
<td>15.8</td>
<td>1.3</td>
</tr>
<tr class="odd">
<td class="firstcol">6. Total TIC Flows**&nbsp; </td>
<td>53.7</td>
<td>97.1</td>
<td>53.9</td>
<td>75.4</td>
<td>55.6</td>
<td>81.6</td>
<td>60.0</td>
</tr>
</tbody>
</table>
</body>
</html>

The US Treasury today reported its "TIC" data for September. Besides the usual monthly flows of security purchases, there is a new compilation of summary data on short-term liabilities and on return of capital to foreign investors [...]

Treasury TIC Data Shows Strong Investment Flows into US, but Also Sizable Outflows Abroad by US Investors

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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Andrew Cates

**The Global Monetary Policy Consensus**
The latest Blue Chip Financial Forecasts survey points to a notably more balanced global monetary policy outlook over the coming year. In contrast to the pronounced easing bias that dominated much of the past two years, expectations are now more symmetric, with a similar number of central banks projected to raise rates as to ease policy. Japan is seen delivering further tightening, while Canada is expected to initiate an interest rate hike in coming months. In Australia’s case, this tightening guidance was reinforced this week, with the Reserve Bank lifting its policy rate by 25 basis points. Elsewhere, and in contrast, the euro area, UK and US are expected to move in the opposite direction.

260205Z1.jpg

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

260205Z2.jpg

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

260205Z3.jpg

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

260205Z4.jpg

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

260205Z5.jpg

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

260205Z6.jpg

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

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

Robert Brusca

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

Winnie Tapasanun

260205X15.jpg

260205Y15.jpg

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

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

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

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

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

260205C15.jpg

260205D15.jpg

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

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

Sandy Batten

260205A2.jpg

260205B2.jpg

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

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

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

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

260205C2.jpg

260205D2.jpg

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

U.S. Initial Unemployment Claims Surged in Latest Week

260205E.jpg

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

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

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

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

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

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

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

Economy in Brief

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Chicago Fed Nat'l Activity Index Remained Negative

Taiwan and Singapore Report 3rd Quarter Gross Domestic Product

U.S. Leading Economic Indicators Better

U.S. Leading Economic Indicators Better

Mexico GDP Up 4.6% Yr/Yr in Q3, With Good Gains in Construction and Services

Housing Starts Plumb Six Year Low

Housing Starts Plumb Six Year Low

Treasury TIC Data Shows Strong Investment Flows into US, but Also Sizable Outflows Abroad by US Investors