SERVICES PMIs

USA: Business activity growth weakens in December as inflation rates pick up

The headline S&P Global US Services PMI^® Business Activity Index registered 52.5 in December to signal solid growth of activity and extending the current period of continuous expansion to just under three years. However, the index was down from 54.1 in November and thereby signaling the slowest growth for eight months.

Demand conditions cooled somewhat in December, with growth of new work faltering. Overall, inflows of new business rose only marginally and to the weakest degree in 20 months. Panelists commented on a degree of uncertainty in market demand, with client budgets and spending reportedly squeezed.

Tariffs remained a source of instability, especially in relation to foreign demand. Latest data showed new export business declined in December for a second time in the past three months. Although modest, the rate of contraction was the steepest since last May.

Meanwhile, employment volumes fell negligibly in December, ending a nine-month sequence of continuous growth. Panelists noted cost concerns, budget constraints and the downturn in demand growth as reasons for the lackluster trend in employment. Some capacity constraints were however evident, with backlogs of work rising modestly and for the tenth month in a row.

Highlighting an ongoing squeeze in company budgets at the end of 2025, input price inflation accelerated during December to a seven-month high and remained well above its historical trend level. Service providers continued to report that costs were being driven higher by tariffs, and a general increase in supplier charges. Labor related expenses were also reported to be a source of cost inflation.

Higher input prices fed through to an increase in selling charges over the month. Overall, the rate of inflation picked up to its highest level since August as firms sought to offset the impact on margins of higher operating expenses.

Finally, expectations about the year ahead were again positive overall during December, albeit a little softer than in November and therefore still below trend. Tariffs and broader uncertainty over government policies continued to weigh on sentiment. Where growth is forecast, hopes of lower interest rates, business expansion plans and new product launches were all seen as sources of growth for the year ahead.

Expansion in December rounds of solid quarter of growth for eurozone economy

The seasonally adjusted HCOB Eurozone Composite PMI® Output Index fell from November’s 30-month high of 52.8 to 51.5 in December. Despite the slowdown in growth (which was signalled by the headline index posting above, but closer to the 50.0 mark), it meant that the average for the final three months of 2025 (52.3) was the highest since the second quarter of 2023.

December’s softer expansion at the aggregate level was broadly reflective of the national data as growth momentum was lost in most of the eurozone constituents with Composite PMI data available. The sole exception to this was Spain, where private sector business activity rose at a sharper pace than in November.

France stagnated at the end of the year, failing to maintain growth after November’s renewed expansion, while Italy only managed a marginal upturn that was its slowest in nearly a year. Germany – which was key driver of the eurozone’s solid growth rates earlier in the fourth quarter – likewise saw a curtailment of its expansion at the end of 2025.

New business received by private sector firms in the eurozone rose in December, marking five consecutive months of demand growth. That said, the upturn slowed and was the weakest since last September. A faster decrease in new factory orders combined with a softer increase in sales by services companies. There were fewer wins in export markets, with new business from non-domestic clients falling to the greatest extent since March 2025.

Weaker demand pressures allowed eurozone firms to make faster inroads into outstanding work. Backlogged orders fell at the quickest pace in three months during December. Businesses in both monitored sectors recorded clearances to work-in-hand. Private sector employment continued to increase, with the rate of job creation even ticking slightly higher from that seen in November. Growth in workforce numbers was only marginal, however, amid further cutbacks in the manufacturing sector.

Meanwhile, input cost inflation accelerated to a nine-month high as companies in both monitored sectors saw pressures intensify. The extent to which output charges rose was nonetheless unchanged from that seen in November and therefore the joint-weakest since October 2024 (tied also with May 2025).

Fed’s Miran Says More Than Full Point of Cuts Needed in 2026

(…) “I think it’s very difficult to argue that policy is about neutral. I think policy is clearly restrictive and holding the economy back,” Miran said Tuesday during an appearance on the Fox Business Network. “I think that well over 100 basis points of cuts are going to be justified this year.” (…)

The central bank’s benchmark is currently within a 3.5% to 3.75% band, and the estimates of the neutral level among the 19 policymakers on the rate-setting Federal Open Market Committee range from 2.6% to 3.9%, though the median estimate is 3%. (…)

BTW, US real GDP was +4.3% in Q3.

BTW #2: November CPI came much lower than expected at ~2.7% YoY, showing significant moderation but remaining above the Fed’s 2% target.

But Truflation’s independent US inflation indexes (both CPI and PCE) have sharply decelerated since mid-December to hit the 2% target on Dec 30, showing further downtrends in 2026 in food, gasoline, and housing inflation, especially in softening rents.

Truflation’s data don’t jibe with the PMI surveys: “Higher input prices fed through to an increase in selling charges over the month. Overall, the rate of inflation picked up to its highest level since August as firms sought to offset the impact on margins of higher operating expenses.”

Supreme Court Sets Friday for Opinions Amid Tariffs Watch

The US Supreme Court scheduled Friday as an opinion day, indicating that date will be the first chance for a ruling on President Donald Trump’s global tariffs.

The court never says in advance which decisions are ready for release, only that rulings in argued cases are possible when the justices take the bench at 10:00 a.m. Washington time. A tariff decision is a possibility given the court’s expedited handling of the case so far. (…)

Eurozone Inflation Falls to ECB Target The result underpins views that ECB monetary policy will remain stable in the near future

Services prices increased at a slightly slower pace following three straight months of faster rises, indicating some key price pressures in the currency area are dissipating.

The data comes on the heels of lower-than-expected inflation prints on Tuesday from Germany and France, the eurozone’s two largest economies.

After the central bank held the deposit rate at 2% at its last meeting on Dec. 18, President Christine Lagarde reiterated that policy remains in a “good place.”

The central bank sees the inflation rate averaging at 1.9% in 2026 after 2.1% in 2025, hovering a little under target until averaging at 2% in 2028. Slowing inflation comes even though the ECB recently upgraded its growth forecasts. (…)

The FT adds:

Core inflation, which excludes volatile food and energy prices, fell to 2.3 per cent, compared with 2.4 per cent in November.

The closely watched figure for services inflation — a gauge for domestic price pressures that has remained well above the ECB’s 2 per cent target for more than three years — fell by 0.1 percentage points to 3.4 per cent, after rising to its highest level since April in November. (…)

AI CORNER

The data center rebellion is here, and it’s reshaping the political landscape As the buildout of AI infrastructure alarms communities, it is fast emerging as a potent electoral issue across the political divide.

(…) From Archibald, Pennsylvania, to Page, Arizona, tech firms are seeking to plunk down data centers in locations that sometimes are not zoned for such heavy industrial uses, within communities that had not planned for them. These supersize data centers can use more energy than entire cities and drain local water supplies.

Anger over the perceived trampling of communities by Silicon Valley has entered the national political conversation and could affect voters of all political persuasions in this year’s midterm elections. (…)

The grassroots blowback comes from deep red states as much as from left-wing groups such as the Democratic Socialists of America, which have helped draw hundreds of residents to hearings in Arizona, Indiana and Maryland.

Even Energy Secretary Chris Wright warned data center developers that they are losing control of the narrative. “In rural America right now, where data centers are being built, everyone’s already angry because their electricity prices have risen a lot,” he told energy executives assembled in Washington for the North American Gas Forum last month. “‘I don’t want them in my state’ is a common viewpoint.” (…)

The White House frames the data center boom as beneficial, saying in a statement that it will lead to big investments in infrastructure and boost manufacturing. But the administration is also aware some communities oppose them.

“Communities know what’s best for them, and the Administration is clear that local infrastructure decisions remain with states and localities,” the statement said.

Many local politicians are yielding to community pressure and rejecting data centers. Between April and June, more projects were blocked or delayed than during the previous two years combined, according to Data Center Watch, a tracking project by the nonpartisan research firm 10a Labs. Some $98 billion in planned development was derailed in a single quarter.

Last month, a group of Senate Democrats launched an investigation into the role data centers play in increasing electricity prices.

Sen. Bernie Sanders (I-Vermont) last month called for a moratorium on data center construction, warning that the tech firms are draining scarce energy and water reserves and pushing the cost onto everyday Americans in pursuit of AI technologies that threaten to displace millions from the workforce. (…)

Even Florida Gov. Ron DeSantis (R) is championing an AI “bill of rights” to enshrine local governments’ power to stop data center construction and prohibit utilities from pushing AI infrastructure costs onto residents. The break between Rep. Marjorie Taylor Greene (R-Georgia) and Trump was driven in part by her vocal criticism of his AI build-out push.

The industry has struggled to quell the concerns. In Chandler, Arizona, former senator Kyrsten Sinema (I), co-founder of the AI Infrastructure Coalition, implored city officials to get on board with a large proposed project or risk the federal government pushing it through without city input.

The city council rejected the project unanimously. (…)

“People are understandably asking how they will benefit,” said Chris Lehane, chief global affairs officer at OpenAI, which has won initial local approval for some of the country’s largest data center projects. He said companies need to listen to communities and make sure they are sharing in the economic gains. “You need to be on the ground, having these conversations. It is a journey.” (…)

It’s a journey that some local officials are willing to go on because the projects generate construction jobs and boost revenue for schools.

“We’re trying to work through this,” said Mike Carter, the city manager in Sand Springs. “This would probably be one of our major employers. It would almost certainly become the dominant part of our tax base. … When you can surpass Walmart, which is right now the biggest taxpayer in our community, there is a big incentive to look at this.” (…)

It is cold comfort to many residents of the rural community, where the data center would industrialize a landscape now defined by the ranches that drew them there. (…)

• Samsung Warns of Price Hikes as Rising Memory Costs Affect All

(…) “There’s going to be issues around semiconductor supplies, and it’s going to affect everyone,” Wonjin Lee, president and head of global marketing, said in an interview. “Prices are going up even as we speak. Obviously, we don’t want to convey that burden to the consumers, but we’re going to be at a point where we have to actually consider repricing our products.” (…)

The AI data center buildout boom has brought about unprecedented demand for high-bandwidth memory, a lucrative product that’s lifted Samsung and fellow memory maker SK Hynix Inc.’s stock prices to new highs, and constrained supply lines for other uses. (…)

OpenAi Watch

Google’s AI Edge

Can anyone catch up with Google in the AI race? That question came to mind on Monday, after Reuters quoted Samsung’s co-CEO talking about his plans to double the number of mobile devices running Galaxy AI, Samsung’s branded AI features backed by Google’s Gemini AI technology, to 800 million this year. (That’s separate to Samsung phones that have the Gemini consumer chatbot preinstalled.)

And the two companies are not just collaborating on phones: Samsung plans to unveil Gemini-powered AI features for kitchen appliances at CES this week. They’re also working together on smart glasses featuring Gemini. Beyond Samsung, Google is also installing Gemini on TV sets running its Google TV software—it’s previewing some new features at CES this week.

But phones are key. This is where Google may soon have an unbeatable lead. Samsung has the top share of the global smartphone market, although some analysts have predicted Apple will take that spot once the final numbers for 2025 are tabulated.

That tussle doesn’t matter much to Google, as it is expected to negotiate a deal to help power Apple’s Siri assistant on iPhones. You might say Google’s AI has locked up the mobile market, at least for the moment. Whether it proves permanent is hard to say, as Google’s arrangement with Samsung is likely for a few years only and it hasn’t yet finalized a deal with Apple.

Even with that qualification, this is a good reminder of why OpenAI is so keen to launch some kind of AI device, and why Meta is putting so much effort into AI for its smart glasses. Both companies are hoping to supplant phones.

They might succeed, but don’t bet on it. In the meantime, Google’s Gemini models will be powering AI features on many different outlets. That should mean Google is able to improve how the models function on a variety of tasks, simply because of the data it gets from interacting with so many consumers. And that could make Google’s models even more attractive to potential business partners.

What about money? Google is presumably charging Samsung for use of its models, although Google may have been keen enough for the business to discount its fee.

Indeed, one of the revelations in an antitrust court hearing last year is that Google paid “enormous” amounts of money to have the Gemini consumer chatbot preinstalled on Samsung and other phones running Google’s Android software. But even without the chatbot, Google features like Gemini Live (through which you can talk to Gemini about what you see on your phone screen) will be available via Galaxy AI, according to this Samsung description of the technology.

That’s valuable for raising consumer awareness of Gemini and potentially giving Google a bigger audience to sell ads to. OpenAI’s ChatGPT may be the only AI the average person knows about right now, but Google’s AI is looking to become increasingly ubiquitous.

Why an OpenAi Watch? The “AI” or “Aïe, Aïe, Aïe” Year

CES 2026

Jansen Huang’s presentation: https://www.youtube.com/watch?v=UrMnOp2N9Kw

BTW:

Humanoid Robot Companies Exhibiting at CES 2026: 26 Chinese, 5 American:

If you missed it: Bots On The Ground (Robotics)

U.S. Factory Activity Slides Unexpectedly ISM says its purchasing managers index of manufacturing activity fell to 47.9 in the month, compared with 48.2 in November

(…) “In December, U.S. manufacturing activity contracted at a faster rate, with pullbacks in the production and inventories indexes,” said Susan Spence, chair of the ISM.

The indexes recording new orders, order backlogs and employment all crept up, but remained in contraction territory.

“Of the six largest manufacturing industries, only computer and electronic products expanded in December,” Spence said.

Meanwhile the prices index continued to expand at the same pace as in November, indicating that raw materials prices increased for the 15th straight month. (…)

S&P Global: Manufacturing operating conditions improve at slower pace as demand weakens

The headline index from the report, the seasonally adjusted S&P Global US Manufacturing Purchasing Managers’ Index™ (PMI®), recorded 51.8 in December. That was down from 52.2 in November and signaled the weakest expansion of the manufacturing economy in the current five-month growth sequence.

Weaker growth emanated from a contraction in new order intakes. The decline was mild, but nonetheless the first in a year. Exports were also a source of demand weakness, falling for the seventh successive month. Tariffs were reported to have weighed on export sales, especially to Canada.

A reduction in demand led to weaker output gains in December, the softest in three months. Amid a reduction in sales, production increased sufficiently for firms to continued adding to their stocks of finished goods for the fifth month in a row, though the rate of accumulation moderated noticeably from November’s survey record.

Work outstanding declined for the fourth month in a row during December, partly due to an expansion in labor capacity. Latest survey data showed that employment rose solidly as firms filled vacancies in anticipation of a stronger 2026. (…)

Tariffs continued to push up input prices during December, with vendors reportedly raising charges. Although input cost inflation weakened since November to an 11-month low, it remained historically elevated. Similarly, manufacturers also recorded their least pronounced uplift in charges since the start of 2025, but inflation was again comfortably above trend.

Higher prices and weak demand discouraged purchasing activity in the latest survey period, as input buying stalled over the month. Where buying rose, this was linked to efforts to bolster inventories to protect against further price rises, contributing to a fifth consecutive accumulation in pre-production inventories. Meanwhile, difficulties receiving inputs due to supplier capacity constraints were noted to have driven average lead times higher in December. The latest lengthening of lead times was the most marked in seven months.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence

“Although manufacturers continued to ramp up production in December, suggesting the goods producing sector will have contributed to further robust economic growth in the fourth quarter, prospects for the start of 2026 are looking less rosy.

“Something of a Wiley E Coyote scenario has developed, whereby – just like the cartoon character continues to run despite chasing the roadrunner off a cliff– factories are continuing to produce goods despite suffering a drop in orders. The gap between growth of production and the drop in orders is in fact the widest seen since the height of the global financial crisis back in 2008-9. Unless demand improves, current factory production levels are clearly unsustainable. Payroll numbers will also be adversely impacted if production capacity has to be scaled back.

“A key factor causing concern over sales is the extent to which producers are having to pass higher costs on to customers in the form of raised prices, with higher costs continuing to be overwhelmingly blamed on tariffs.

“Some encouragement comes from input cost inflation moderating in December to the lowest recorded since last January. However, while this cost trend suggests the tariff impact on inflation peaked back in the summer, costs are still rising month-on-month at an elevated rate to suggest that US firms continue to face higher cost growth than competitors in most other major economies.”

Canada: Manufacturing sector downturn sustained

(…) Solid declines in both output and new orders were recorded in December. Panellists reported that market uncertainty remained a key depressor of sales, especially in relation to tariffs. This was again especially the case for exports, which declined steeply and at the quickest rate since July.

In line with the dominant theme of 2025, tariffs also continued to impact supply chains and prices at year end. Average lead times for the delivery of inputs lengthened to a solid degree amid customs delays, especially in relation to
US imports. Due to tariffs, firms in some instances reported sourcing inputs from suppliers based in countries outside of the US, which also led to a deterioration of delivery times.

Mexico: Sharpest fall in factory orders since June

Falling from 47.3 in November to 46.1 in December, the headline S&P Global Mexico Manufacturing Purchasing Managers’ Index™ (PMI^®) indicated the quickest deterioration in the health of the sector since April. Moreover, the latest contraction was the fourth in consecutive months.

As was the case in November, new orders placed with manufacturers decreased at the end of 2025. Not only was the downturn marked, but it also accelerated to the fastest since June. When explaining the latest drop, panellists remarked on fierce competition, projects on hold and US tariffs.

New export orders decreased further, thereby stretching the current sequence of reduction to 22 months. The pace of contraction was solid and the quickest since July. Europe and the US were cited as the main sources of weakness in international demand.

Amid reports of constrained investment, lower sales volumes, and weaknesses in sectors like construction and mining, factory production remained on a downward path. December’s contraction was sharp and the most pronounced since April.

Despite a challenging demand environment, goods producers in Mexico lifted their selling prices further amid intense cost pressures: on average, output charges increased to the greatest extent in over a year. Although moderate, the rate of inflation was above its long-run average.

Pollyanna De Lima, Economics Associate Director at S&P Global Market Intelligence, said:

“Manufacturers in Mexico ended 2025 on weaker footing, registering reductions in output, new orders and input purchasing that were among the sharpest since early-2021. They made further cuts to headcounts and found little to be optimistic about when thinking about 2026.

“Exports continued to dent total sales, with international demand worsening to the greatest extent since July. Most of the weakness stemmed from lower sales to the US, according to the survey’s panel comments, with some mentions of subdued order intakes from clients in Europe.

“The PMI data showed that goods producers foresee tough times in 2026, with survey participants listing several headwinds to growth. Among them, they expect inflation, insecurity, subdued investment, tariffs and tax uncertainty to constrain output volumes in the year ahead.”

North American manufacturing is clearly in a funk. US manufacturers need a quick revival in demand to unload their excess inventories. Otherwise …

• GM, Toyota Hint at Tough Year Ahead for U.S. Auto Sales Sales are expected to slow after three years of gains as consumers push back on rising prices

General Motors and several rivals reported year-end sales slumps, an ominous sign that U.S. auto sales will slow this year as consumers push back on higher prices.

GM, the biggest automaker in the U.S. by sales and a bellwether for the U.S. industry, said Monday that sales fell 7% in the final quarter of 2025. Honda, Hyundai, Mazda and Nissan also said on Monday that their U.S. sales fell toward the end of the year.

The slowdown is expected to extend into this year. Analysts and automakers predict U.S. annual sales will fall in 2026 following three straight years of gains as belt-tightening American car buyers collide with tariff costs that companies probably won’t keep absorbing.

Executives at Toyota, which notched an 8% increase in U.S. sales during the fourth quarter, said they are preparing for a bruising year ahead.

Toyota was able to maintain sales momentum at the end of last year by absorbing the costs of U.S. tariffs, and because car buyers gravitated toward the company’s entry-level models like the Corolla sedan. Yet executives said companies won’t be able to keep footing the bill for tariffs.

“Prices are going to go up for us and for our competitors,” David Christ, Toyota’s U.S. sales chief, said on a call with reporters.

Last year’s U.S. auto sales defied the industry’s worst-case scenarios, triggered by the Trump administration’s initial tariff plans. Instead, the administration eased the tariffs, and consumers rushed to buy electric vehicles ahead of the end of federal tax credits in September.

Overall U.S. auto sales rose about 2% from 2024, to about 16.3 million, according to J.D. Power.

For 2025, General Motors said total sales were up 6%. Nearly a quarter of its volume represented vehicles that start under $30,000, such as the popular Chevrolet Trax compact crossover.

Yet the reticence from car buyers toward the end of 2025 portend a potentially volatile year marked by uncertainty around tariffs and the broader economy.

“What we saw in 2025 is going to bleed into 2026,” said Randy Parker, chief executive of Hyundai Motor America, which reported sales slid 1% in the fourth quarter. “The way consumers’ mindsets are right now, we’re still dealing with inflation, with negative consumer sentiment.”

The world’s biggest automakers took multibillion-dollar hits on tariff costs in 2025, though the Trump administration walked back some automotive duties.

Toyota swallowed higher tariff costs to avoid a hit to sales, but the move came at a cost. The company’s North American business swung to a loss in the six months ended Sept. 30, from a year-earlier profit.

“There is a lot of question on our side whether the consumer could handle” higher prices offsetting tariff costs, Toyota’s Christ said. “If we priced it all in, what would our sales look like?”

Consumers also face more expensive insurance, financing and maintenance expenses, in addition to higher new-car prices. The average monthly payment on a new vehicle hit a record $776 in December, J.D. Power said.

“The cumulative weight of all these increases has pushed total vehicle ownership costs beyond reach for many middle- and lower-income households,” Cox Automotive economist Jeremy Robb said.

Honda suffered one of the biggest quarterly sales slides, with U.S. sales down 9.5% in the fourth quarter. Honda’s production was hit hard by a shortage of semiconductor chips stemming from turmoil at the Chinese-owned, Dutch-based Nexperia. (…)

Further cuts to interest rates could lower the cost of car payments and bolster demand. President Trump’s new tax deduction for auto-loan interest could also spur demand for vehicles assembled in the U.S.

In addition, automakers are looking for a U.S. trade deal with Canada and Mexico that would reduce the current 25% tariff on vehicles assembled in those countries.

“We are very hopeful that something happens with Mexico and Canada so at least we can establish, ‘OK, this is the new normal, and then plan for it,’” Toyota’s Christ said.

Modest US Hiring to Cap a Sluggish Year for the Job Market

Economists project nearly 60,000 jobs were added for the month, based on the median of a Bloomberg survey ahead of Bureau of Labor Statistics data out Friday. That would leave payrolls up about 670,000 for 2025, far below the 2 million jobs added in 2024. The jobless rate probably eased to 4.5% in December from a four-year high. (…)

The rapid adoption of artificial intelligence may also be a limiting factor for payrolls growth as companies seek to bolster productivity. But while the pace of hiring has slowed, there are also few signs of widespread layoffs. (…)

In addition to the December jobs report, the BLS on Wednesday will issue November figures on job openings, quitting and layoffs.

LinkUp is not so optimistic on December jobs:

China’s Services Gauge Slows Again With Growth at Six-Month Low

The RatingDog China services purchasing managers’ index slipped slightly to 52 in December [from 52.1], slowing for a fourth straight month, according to a statement published Monday.

A smaller number of tourists — especially from Japan — was “primarily” responsible for the renewed drop in new export business, said Yao Yu, founder at RatingDog. Tokyo and Beijing have been at loggerheads for weeks as tensions rose after Japanese Prime Minister Sanae Takaichi’s remarks on Taiwan. (…)

The services sector has been a rare bright spot in China’s sluggish consumer market for much of last year. Retail sales in services have consistently outpaced growth in goods sales, with an increase of 5.4% in the first 11 months of 2025.

The government has sought to revive household spending by promoting the consumption of services such as sports, travel and entertainment. In September, it announced a new initiative to boost that effort, rolling out measures to extend the operating hours of museums and tourist sites, host more sporting events, and allow more companies to enter such industries as high-end medical care. (…)

In truth, the small decline was mainly tourist related, “particularly from Japan”.

Higher new business contributed to the sustained expansion in services activity. According to panellists, promotional activities and greater customer interest supported the latest upturn in sales. The rate of new order growth was the softest in six months, however, as new export business declined.

New business from abroad shrank in December amid reports of reduced tourist numbers. Although marginal, the contraction contrasted with an increase in overseas sales in November.

OIL

President Trump told NBC News yesterday that the U.S. may subsidize an effort by oil companies to rebuild Venezuela’s energy infrastructure — saying the project could take less than 18 months, Axios’ Ben Geman writes. “A tremendous amount of money will have to be spent and the oil companies will spend it, and then they’ll get reimbursed by us or through revenue,” he said.

Venezuela’s crude output has dwindled to well under 1 million barrels per day after years of underinvestment, mismanagement, and sanctions — a far cry from around 3.5 million per day in the late 1990s. Researchers with Columbia University’s energy think tank estimate that reaching even 2.5 million barrels per day would take $80–90 billion of investment in oil infrastructure over six or seven years.

Beware Venezuela’s reported “huge” oil reserves. The current 300 Bn or so reserves jumped after oil prices exploded in 2008-2011 as Venezuela self-reclassified Orinoco reserves which became economic at over $100 for crude oil. Will US oil companies rush in Venezuela at current prices, and uncertainties, when the world is in no urgent need for more oil?

FYI:

Partisan Bias in Professional Macroeconomic Forecasts

• The evidence is clear: partisan identity systematically affects GDP growth projections. Specifically, we find that Republican-affiliated forecasters project higher GDP growth relative to their Democratic counterparts when there is a Republican president in office.
• Using a novel dataset linking professional forecasters in the Wall Street Journal Economic Forecasting Survey to their political affiliations, we document a partisan bias in GDP growth forecasts. Republican-affiliated forecasters project 0.3–0.4 percentage points higher growth when Republicans hold the presidency, relative to Democratic-affiliated forecasters.
• Forecast accuracy shows a similar partisan pattern: Republican-affiliated forecasters are less accurate under Republican presidents, indicating that partisan optimism impairs predictive performance. This bias appears uniquely in GDP forecasts and does not extend to inflation, unemployment, or interest rates.
• Finally, we show that Republican forecasters become more optimistic when tax cuts are salient in public discourse, suggesting that partisan differences reflect divergent beliefs about the economic effects of fiscal policy.
• Partisan differences in forecasts emerge specifically during Republican presidencies, whereas under Democratic presidents, average forecasts from Republican and Democratic forecasters are statistically indistinguishable.
• Our findings raise a natural question: does partisan optimism signal superior insight or a distortion that degrades forecast accuracy? If forecasters aligned with the party in power had better understanding of policy impacts, their optimism would translate into greater predictive accuracy.
• Instead, we find that Democratic-affiliated forecasters are more accurate on average, producing lower mean absolute forecast errors for GDP projections under both Democratic and Republican presidents.
• Both forecaster groups perform worse during Republican administrations, but Democratic forecasters maintain a relative advantage.
• Importantly, applying the same difference-in-differences strategy used to study forecast levels, we find that Republican forecasters make relatively larger forecast errors when their preferred party is in office—about 0.15 percentage points higher in mean absolute error, representing roughly 10 percent of the typical forecast error.
• This pattern suggests that partisan optimism comes at the expense of accuracy, indicating a distortion in professional judgment rather than privileged insight into policy effects.
• Republican-affiliated forecasters systematically view tax cuts as more expansionary than Democrats, and this belief appears central to the bias we document.

Did you miss yesterday’s The “AI” or “Aïe, Aïe, Aïe” Year.?