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U.S. FOMC expects to be tighter for longer

Robert Brusca

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Monthly money and credit developments in July hinted at a possible reversal in the ongoing global declines in money and credit trends one month ago. However, in August the data for money and credit in the European Monetary Union (EMU), as well as money supply data from the U.S. and the U.K., show that the declines in money on the month are back in force. Only Japan shows an increase in money supply in August and that's not surprising since Japan has a legacy of positive money growth rates unlike other major monetary centers in this table.

**EMU conditions**
**Nominal growth-** The European Monetary Union shows negative money supply growth in both July and August as well as over 12 months, six months, and three months. Money supply trends are flat with growth declining mostly at about a 2% pace or a little more over the three-, six-, and 12-month intervals. Credit growth in the EMU remains weak and registers tiny growth rates over 12 months compared to negative growth rates of about -1% over both three- and six-month horizons for overall credit and private credit.

**Real growth-** Inflation-adjusted growth rates for credit and money in the EMU show a table full of negative numbers. The steepest negative growth rate is over 12 months at minus 7% for M2, that gives way to -5.7% over six months and then steps back up to minus 6.8% over three months. So, we're not able to say that the decline in real balances is tapering off in the monetary union. Credit to residents has its steepest sequential growth rate over three months at -5.9%, compared to -4.9% over 12 months. Private credit posts nearly identical growth numbers to total credit as well as nearly identical trends. Money and credit in the EMU, looked at sequentially, looked at in nominal terms or looked at in real terms, show significant ongoing weakness and possibly stepped-up weakening.

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**Global monetary trends**
**U.S. trends-** Global trends show money growth in the U.S. decelerating from 12-months to six-months to three-months as growth rates reduce their pace of descent and turn to increasing. U.S. M2 growth falls by 3.7% over 12 months, but then rises at a 0.5% annual rate over three months. The growth of real balances in the U.S. logs a -7.1% growth rate over 12 months, that's reduced to -3.4% at an annual rate over three months. The monetary braking in the U.S. shows signs of dissipating in both real and nominal terms. But inflation still runs hot.

**U.K. trends-** U.K. growth shows a slightly different pattern, but nominal M4 growth falls at a 0.4% annual rate over 12 months and six months, then the pace of decline steps up to -1.3% annualized over three months. However, the U.K. growth rate of real balances shows diminishing slowing as the 12-month growth rate at -7.1% is reduced to -3.6% annualized over three months.

**Japan’s trends-** Japan's nominal growth rates are simply unique among this data set, showing relatively steady growth over 12 months, six months and three months in the region of 2.5% to 3% growth- that’s in addition to showing small positive growth rates for money in both July and August. Japan's real money balance growth rates, however, are negative like the other major monetary countries on the table. Except, even here, Japan’s negative growth rates are unusual and extremely small. Finding a trend in them would require finding a needle in a haystack as the growth rates log numbers from three-months to six-months to 12-months at annualized growth rates in a range of -0.5% to -0.7%.

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**Oil prices step out of the shadows-** During the sequential period from 12-months, to 6-months to 3-months, we have oil prices steadily accelerating as West Texas Intermediate oil prices fall by 11.5% over 12 months, rise at an 11.1% annual rate over six months, and then surge at a 61.5% annual rate over three months. For the first time in a while, oil prices are contributing positively to an inflation impulse globally instead of fostering quiescence.

**Central bankers sport new stripes-** Except for Japan, central banks have been raising rates and tightening policy, although Japan has been fiddling a bit with its yield-curve control policy that we could argue has tangentially the same effect. However, inflation itself continues to run too high relative to target in all these countries including Japan although Japan's inflation problem is clearly the least among all these countries. In fact, Japan has not yet decided if it has inflation that will persevere let alone whether it has an inflation problem after its extended battle with deflation. In the U.S., the EMU, and the U.K., central banks have slowed down or possibly even frozen their rate hikes as they wish to assess how inflation is doing after a series of significant rate increases. The path forward remains unclear in each of these countries, where inflation is, nonetheless, clearly still excessive.

**Summing up**
**Not in Kansas anymore? The wizards play the odds?-** One observation we can make about global monetary policy is that this is not the 1980s. Inflation is not as high or entrenched as it was in the 1980s – or in the 1970s beforehand. In fact, the inflation of this period comes after an extended period of inflation stability and even flirtation with deflation. For that reason, central banks are less aggressive in going after the inflation rates which are nonetheless quite excessive relative to their targets. Central banks generally seem to have much more concern about the effect on the local economy should they raise rates too much. Meanwhile, central bank rhetoric continues to be focused on achieving long-run inflation targets. Yet, the actions that would achieve that result are simply watered down or lacking. A previous long period of price stability has either weakened central bank resolve, or weakened the political backing for central banks to reach these inflation targets, or led to complacency about what the bankers will have to do to restore inflation to targets. There seems to be an assumption that inflation will simply gravitate back to ‘target’ if central banks implement modestly restrictive policies.

**Abandoning Technicolor™ for a world that’s black and white-** In the wake of the Covid infections, the scare that it put into people, and particularly into older workers, labor markets have become much tighter in the post-Covid era. Many economists think Covid has created a sea-change, that will make pre-Covid and post-Covid environments starkly different. Central banks do not seem to share this view. Inflation already has undercut workers’ wages and, in this environment, workers have desires to restore their real wages to their pre-pandemic levels. In the U.S., there are multiple cases of increased worker militancy and striking actions by workers to try to achieve wage gains that could become not just industry-wide but economy-wide bellwethers. At the same time, a lot of the discipline from international competition is gone due to increases in trade restrictions and corporate supply re-routing. The Russia-Ukraine war has imposed other costs and disruptions. Central bankers don't seem to be too concerned about such developments. And, in the U.S., the Federal Reserve has looked in the eye a number of different and potentially conflicting risks and decided to ignore them all when implementing policy and giving policy guidance. As a result of these developments, we are left with much less actual information about what monetary policy is and how it's going to progress. This is because we are less sure about the commitment of central banks to short-run targets that are currently being smashed despite ongoing inflation progress. We know that commitments to long-term targets don't really mean very much – we live in the short run, not the long run as Mr. Keynes pointed out.

EMU Money and Credit Decline Broadly in August; Globally Money Growth Remains Weak and Largely Contracts

Tom Moeller

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The Conference Board's Index of Consumer Confidence weakened 5.2% during September (-4.5% y/y) to 103.0 after declining 4.6% during August to 108.7, revised from 106.1. It was the lowest level of confidence in four months. A reading of 105.6 for September had been expected in the Action Economics Forecast Survey.

The Expectations Index declined 11.5% (-7.3% y/y) to 73.7 after falling 5.3% in August. It rose 10.0% in July. The index remained up from a most recent low of 70.4 in February. The Present Situations Index improved 0.3% (-2.1% y/y) to 147.1 after falling 4.1% in August. It reached a high of 155.3 in June.

Twenty-one percent of respondents characterized current business conditions as good in September, down from 21.5% in August and off a high of 23.4% in June. These figures are still above their low of 16.3% in July of 2022. Labor market readings were little changed this month. The jobs gap, representing the difference between respondents indicating that jobs are plentiful versus those saying jobs are hard to get, rose to 27.3% from 26.7% in August. Both were below the March 2022 high of 47.1. Calculated by Haver Analytics, this series has a 64% correlation with the unemployment rate over the last ten years. The jobs plentiful measure rose to 40.9% from 39.9% and remained down from the March 2022 high of 56.7%. The jobs hard to get measure of 13.6% compared to 13.2% in August. It remained near the highest level in two years. The jobs not-so-plentiful reading of 45.5% was down modestly m/m but increased from a 30.5% low in September 2021.

Consumers assessment of future business conditions deteriorated as a lessened 14.1% felt that conditions would get better in six months. That was down from 17.5% in August and a high of 20.9% in December. A reduced 15.5% of respondents felt there would be more jobs in six months, down from 20.0% in December. A lessened 16.3% expected income to increase in six months, down from 18.7% in August and a high of 19.6% in October of last year.

The expected inflation rate in twelve months of 5.7% held steady with August. It remained below the 7.9% high in June of last year, but it was above the 4.4% low in January 2020.

A notably lessened 58.2% of respondents felt that interest rates would be higher in twelve months, compared to 63.5% In August, while a fairly steady 12.2% thought they would be lower. Thirty-one percent of respondents thought that stock prices would be higher in twelve months, compared to 33.9% in August. That remained up, however, from 26.6% twelve months ago. A slightly higher 33.1% thought stock prices would be lower in twelve months versus a high of 44.7% in July of last year.

The share of respondents planning to buy a home within six months fell to 4.9%. from 6.1% in August. It was the same as one year earlier, but below the October 2022 high of 7.4%. The percentage of respondents planning to buy a major appliance fell to 46.2% and has fallen from a high of 52.4% in October 2022.

The Consumer Confidence data are available in Haver's **CBDB** database. The total indexes, which are indexed to 1985=100, appear in **USECON**, and market expectations are in **AS1REPNA**.

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- Expectations weaken sharply while present conditions improve slightly.
- Inflation expectations are unchanged.
- Business, employment & income expectations deteriorate.

U.S. Consumer Confidence Declines in September

Kathleen Stephansen, CBE

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New single-family home sales fell 8.7% (+5.8% y/y) to 675,000 during August after an 8.0% (36.1% y/y) rise during July to 739,000 units (SAAR), revised from 714,000, according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development. The Action Economics Forecast Survey expected sales of 700,000. Sales remained below the peak of 1.029 million in August 2020.

By region, sales in the Midwest dropped 17.2% (+24.2% y/y) to 77,000 in August, after a whopping rise of 60.3% (75.5% y/y) to 93,000 in July, revised up from 84,000. Sales in the West dropped 9.4% (44.1% y/y) to 183,000 in August, following the 31.2% (78.8% y/y) rise to 202,000 in July, up from a low of 106,000 in June of last year. Sales in the South declined 7.5% (-9.2% y/y) to 383,000 last month, after a fall of 5.7% (+17.0% y/y) to 414,000 in July. Bucking the trend, new home sales in the Northeast rose 6.7% (18.5% y/y) to 32,000 in August, after a 9.1% (+30.4% y/y) drop to 30,000 during July.

The median price of a new home fell 1.4% (-2.3% y/y) to $430,000 during August, down from the 4.8% (-8.7% y/y) rise to $436,600 in July. The recent peak of $496,800 was in October 2022. The average sales price of a new home rose 1.2% (-3.2% y/y) to 514,000 in August, after a 0.6% (-10.1% y/y) rise to 507,900 in July. These sales price data are not seasonally adjusted.

The number of new homes on the market rose 1.2% (-5.2% y/y) to 436,000 last month and added to the July increase of 0.2% (-6.1% y/y) to 431,000. These figures remain below the 466,000 high in October 2022 but well above a low of 281,000 in October 2020. The seasonally adjusted months' supply of new homes for sale rose to 7.8 months in August, following the July decline to 7.0 months. It remained down from a high of 10.1 months in July 2022 but remained well above its record low of 3.3 months in October 2020.

The median number of months a new home stayed on the market remained at 2.3 months in August. The reading remained up from the record low of 1.5 months in both September and October of last year but down from a high of 5.1 months in March 2021. These figures date back to January 1975.

New home sales activity and prices are available in Haver's **USECON** database. The consensus expectation figure from Action Economics is available in the **AS1REPNA** database.

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- Sales decline in August.
- Regional sales drop, except for the 6.7% rise in the Northeast. 
- Median sales price drop last month.

U.S. New Home Sales & Prices Drop in August

Winnie Tapasanun

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U.S. house prices rose 0.8% m/m in July after rises of 0.4% in June (+0.3% initially) and 0.8% in May (+0.7% previously), according to the Federal Housing Finance Agency (FHFA) House Price Index. The July reading was the eighth consecutive monthly rise to the highest index level on record (409.48). The year-on-year rate of increase accelerated to 4.6% in July from 3.2% in June; nevertheless, decelerating from 13.6% in July 2022 and a high of 19.1% in February 2022.

The month-on-month increases in house prices were evident in July (vs. June) in all of the nine census divisions. These included Middle Atlantic (+1.4% vs. +0.9%), South Atlantic (+1.4% vs. +0.8%), East North Central (+1.2% vs. -0.1%), Mountain (+0.8% vs. +0.7%), West North Central (+0.6% vs. +0.3%), West South Central (+0.5% vs. -0.5%), New England (+0.3% vs. +2.4%), Pacific (+0.3% vs. +0.5%), and East South Central (+0.1% vs. +0.4%).

Year-on-year house prices rose in July, with the pace of advance accelerating (vs. June) in seven of the nine census divisions. These included New England (8.1% vs. 6.9%), Middle Atlantic (7.1% vs. 4.8%), East North Central (7.0% vs. 5.7%), South Atlantic (6.3% vs. 4.2%), West North Central (5.4% vs. 4.9%), East South Central (4.3% vs. 4.0%), and West South Central (2.6% vs. 1.7%). Notably, year-on-year house prices grew 0.3% in the Mountain region, the first y/y gain since February, following a 1.5% June drop, while house prices in the Pacific region rose 0.5%, the first y/y rise since December, after a 0.6% June decline.

The FHFA house price index is a weighted purchase-only index that measures average price changes in repeat sales of the same property. An associated quarterly index includes refinancing the same kind of properties. The indexes are based on transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on single-family properties are included.

The FHFA data are available in Haver’s **USECON** database.

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- FHFA HPI +0.8% m/m (+4.6% y/y) in July vs. +0.4% (+3.2% y/y) in June.
- House prices rise m/m in all of nine census divisions.
- House prices in the Mountain region and the Pacific region rebound modestly y/y.

U.S. FHFA House Prices Continue to Appreciate in July

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Retail gasoline prices eased last week to an average $3.96 per gallon (+3.4% y/y) for all grades from $4.00 the week before. Prices have ranged between $3.20 and $5.11 for the last year. The retail price for on-highway diesel fuel also slipped to $4.59 per gallon (-6.2% y/y) last week from $4.63 the previous week. The latest price was increased from a low of $3.77 in early-July.

The price of West Texas Intermediate crude oil rose to an average $90.51 per barrel (8.7% y/y) in the week ended September 22 from $89.14 in the prior week. It was the highest price since the first week of September 2022 and stood significantly above the late-June low of $69.37. Still, it remains well below the high of $120.46 in the week of June 10, 2022. Yesterday, the price was $89.68	 per barrel. Brent crude prices rose to $94.86 per barrel (7.1% y/y) last week from $93.87 in the prior week. It was the highest price since the second week of November 2022. The recent low for Brent was $73.89 in the first week of June 2023, and the recent high was $127.40 in the week of June 10, 2022. Yesterday’s price was $94.01 per barrel.

Natural gas prices eased to an average $2.62/mmbtu (-65.9% y/y) in the week of September 22 after rising to $2.71 in the previous week. The price has ranged between a low of $1.93 in the first week of June to $9.17 in the first week of September 2022. Yesterday, the price was $2.63/mmbtu.

In the four weeks ended September 15 gasoline demand rose 2.8% from a year earlier after increasing 4.0% y/y in the prior four-week period. Demand for all petroleum products increased 6.8% y/y versus 6.6% y/y in the previous four weeks. Crude oil input to refineries rose 2.8% in the latest four weeks from a year ago after rising 3.7% y/y in the prior four weeks.

Gasoline inventories rose 2.3% y/y in the September 15 week after rising 3.4% y/y in the prior week but residual fuel oil inventories fell 2.0% y/y after a 4.0% y/y fall in the previous week. Crude oil inventories, including the Strategic Petroleum Reserve, fell 10.3% from a year ago after a 10.7% y/y decrease in the prior week.

Measured in days’ supply, gasoline inventories in the week of September 15 stood at 25.0 days versus 24.8 days in the prior week. The recent high was 29.7 days in the third week of January and the recent low was 23.4 days in the last week of June. The supply of crude oil was steady w/w at 25.2 days. The recent high was 31.9 days at the beginning of March.

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

- Gasoline & diesel fuel prices ease.
- Crude oil costs strengthen.
- Natural gas prices retreat.

U.S. Energy Prices Are Mixed

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Price trends in the early reporting European Monetary Union countries show a mixed bag of results for the PPI. In August, we have six countries listed in the table of which five are monetary union members. Only two show PPI declines in August. Germany shows a decline of 0.1% and Denmark, a member of the economic union, not of the monetary union, shows a decline of 1.1%. In August, the consumer price index core HICP gains 0.3%, building on a 0.5% gain from July. The early inflation data from the monetary union suggest that the pace of the inflation decline is shifting and slowing.

**Tail wind becomes head wind-** Some of this pressure undoubtedly stems from Brent oil prices that rose by 6.1% in August and by 6.3% in July, both are month-to-month gains. Brent oil prices are up at a 56.8% annual rate over three months and a 3.5% annual rate over six months, compared to dropping by 12.7% year-over-year. Energy prices are no longer a tailwind for falling inflation in the monetary union.

**Hints on core inflation-** While the consumer price core measure shows increases in each of the last two months, for Germany at least, the ex-energy PPI gauge shows a 0.3% decline in August and a 0.4% decline in July. The German PPI excluding energy is showing a faster deceleration as it rises 1.4% year-over-year, falls at a 2.3% annual rate over six months and then falls at a 3.3% annual rate over three months.

**Oil impacts the PPI and CPI-** Inflation trends are somewhat confused and complicated, which is not surprising after having seen such a burst of inflation and then an unwinding of oil prices. Now, as oil prices begin to firm and rise, we're going to see an upside to headline inflation; it's unclear exactly how core inflation is going to navigate in this environment. We would expect core producer price inflation to be somewhat more sensitive to price pressures from oil and consumer prices to be less sensitive to energy pressures. But when we look at some, admittedly limited, core readings, what we're seeing in August for Germany are core prices ex energy continuing to fall while the HICP for the EMU, excluding tobacco food & energy, is rising, and slightly accelerating over three months compared to six-months.

**Inflation trends-** Central banks tend to focus on year-over-year inflation rates and for the monetary union we're looking at PPI prices that are declining sharply over this group of countries although for Germany the core ex-energy is up by 1.4% and, of course, the ECB is looking at consumer prices union-wide. There we see the core is up at a 5.3% annual rate, decelerating only to a 4.8% annual rate over six months and then ticking back up to a 4.9% annual rate over three months. Oil prices are wreaking havoc with these trends. Producer prices generate massive declines in inflation over 12 months and over six months; then, there are scattered results over three months as oil prices begin to turn and as the lags apparently work through different countries at different speeds. Over three months PPI prices are falling at a double-digit rate (or at least nearly so) in Germany, Denmark, and Ireland. Over three months producer prices are rising at a 3.3% annual rate in Finland, at a 6.3% annual rate in Spain, and at a 7.7% annual rate in Portugal.

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**The Monetary focus-** Inflation, according to the measure that the ECB emphasizes, which is the HICP, is so far over target. We must expect that the ECB will be forced to pay more attention to headline inflation even if it's spiking because of oil prices. The core inflation rate on the HCP measure also is simply too far elevated above the ECB target to be in any way coddled or dismissed. The rise in oil prices is going to put the ECB in a difficult spot, especially at a time that economic growth is being challenged. The PPI data in the table above are not decisive, but they provide broad hints that the turn lower in inflation is going to run into rough spots over the next few months at least.

Europe

Early Read on EMU PPI Suggests Growing Pressure

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The general business activity index in the Texas Manufacturing Outlook Survey conducted by the Federal Reserve Bank of Dallas dipped to -18.1 in September from -17.2 during August and has been negative since May of last year. A fairly steady 11.7% of respondents reported improved business activity this month while a roughly steady 29.8% of respondents reported a worsening of business conditions.

The company outlook index of -17.5 in September	compared to -18.4 in August. It has been negative since March, 2022. A lessened 9.8% of respondents expected improved business activity and a fewer 27.3% expected deterioration. Data were collected between September 12-20 from 89 Texas manufacturers.

In the survey of current conditions, the production index jumped to 7.9 from -11.2, the highest level since December. A raised 26.8% of respondents reported higher output while a greatly lessened 18.9% reported a decline. The capacity utilization measure also jumped to 7.8 from -3.7. The employment reading strengthened to 13.6 from 4.3. An improved 23.0% of respondents reported more hiring while a lessened 9.4% reported less. The hours-worked measure also improved. The wages & benefits index held at 34.8 after surging to 34.9 which was its highest level in nine months. The growth rate of new orders index of -7.7 compared to -12.5 in August as an increased 21.5% of respondents reported higher orders growth while a lessened 29.2% reported a decline. The volume of new orders index rose to -5.2 from -15.8 as 24.3% of respondents reported an increase and 29.5% reported a decline. The delivery time series rose to -1.5 from -4.3, indicating lower product delivery speeds. The shipments series rose to -1.1 from -15.8 but remained down from a high of 46.2 in March 2021.

Inflation indicators were mixed this month. The index for prices received for finished goods held at 1.8 and remained nearly the lowest reading in three years, down from a high of 51.3 in October 2021. A lessened 13.1% of respondents reported raising prices while a diminished 11.3% reported lowering prices. The index of prices paid for raw materials surged, however, to 25.0	 this month from 17.4 in August but remained well below an 84.1 high in November 2021.

Expectations for future manufacturing activity weakened this month. The future general business activity index of -16.5 compared to 4.6 in July. It remained up, however, from a low of -27.3 in June of last year. The future production index rose to 10.9 but remained down from a recent high of 24.2 in a June and future orders growth rose slightly. The future employment index offset some of these increases by slipping m/m to its lowest level since October of last year. The future hours-worked index series weakened sharply and the future capital spending measure fell moderately. The expected wages & benefits reading fell slightly and remained well below its February 2022 high.

Each index is calculated by subtracting the percentage reporting a decrease from the percentage reporting an increase. When all firms report rising activity, an index will register 100. An index will register -100 when all firms report a decrease. An index will be zero when the number of firms reporting an increase equals the number reporting a decrease. Data for the Texas Manufacturing Outlook, conducted by the Federal Reserve Bank of Dallas, can be found in Haver's **SURVEYS** database.

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- General business activity index deteriorates but remains up sharply from May low.
- New orders, production & employment improve.
- Pricing pressure unchanged & moderate. Wage index stabilizes.

Texas Manufacturing Activity Index Remains Negative and Expectations Deteriorate in September

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The Federal Reserve Bank of Chicago reported that its National Activity Index (CFNAI) declined to -0.16 from 0.07 in July, revised from 0.12. The index was negative in all but one month from February to June. The August CFNAI was constructed using data available as of September 21, 2023. At that time, August data for 51 of the 85 indicators were available. For all missing data, estimates were used in constructing the index.

Smoothing out month-to-month volatility, the index's three-month moving average of -0.14 last month compared to -0.15 in both of the prior two months. It was at a low of -0.39 in December. This index is expressed in standard deviation units from zero (with a value of zero defined as trend real GDP growth). Research at the FRB Chicago indicates that average readings of -0.70 or below are consistent with the economy being in a recession.

The monthly figures in August reflected a decline in the personal consumption & housing reading to -0.08 from +0.03 in July. The employment, unemployment & hours reading of -0.04 was the same as in July. The sales, orders & inventory component of -0.03 compared to -0.04 in July and -0.03 in June. The production & income indicator contributed -0.02 to the CFNAI after adding 0.12 in July. It had been as low as -0.70 in December.

The CFNAI Diffusion Index, which measures the breadth of movement in the component series and is also a three-month moving average, fell to -0.04 in August from –0.01 in July. Thirty-five of the 85 individual indicators made positive contributions to the CFNAI in August, while 50 made negative contributions. Thirty-three of the indicators improved in August, while 49 indicators deteriorated and three were unchanged. Of the indicators that improved, 16 made negative contributions.

The CFNAI is a weighted average of 85 monthly indicators of national economic activity. It is constructed to have an average value of zero and a standard deviation of one. Since economic activity tends toward trend growth rate over time, a positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend.

These figures are available in Haver’s **SURVEYS** database.

- Each of the four components is negative.
- Production & personal spending losses follow positive readings.
- Three-month average of total remains below zero.

Chicago Fed National Activity Index Returns to Negative Territory in August

Andrew Cates

**World trade**
This week’s data from the monthly CPB World Trade Monitor suggest the outlook for the world economy is darkening. World trade volumes specifically fell by 0.6% m/m in July to lie 3.2% lower than last year. This monthly decline was driven to a large extent by a fall in China’s trade volumes but activity in other parts of Asia (e.g. Japan) was also quite weak.

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**Consumer confidence**
This week’s data additionally revealed that the upward momentum seen in consumer confidence in the US and euro area over the last months has been checked over the last few weeks. The Conference Board gauge of US consumer confidence and the EC’s gauge of euro area confidence slipped back in September (and August).  That stands in contrast to the UK where consumer confidence has continued to climb. Energy price gyrations have arguably been a key driver of these global trends.

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**Broad money supply growth in the euro area**
That the euro area economy is now feeling great strain from tighter monetary policy was another message from this week’s data for the broad money supply. Euro area M3 is now contracting by 1.3%y/y in August after -0.4% y/y-July. This is the weakest performance on record. Underlying details revealed that these contractions were driven by weaker credit to both the private and government sectors. In short, the wheels of credit are moving into reverse, largely thanks to higher interest rates and weaker demand.

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**The burden of higher interest rates on US households**
The US economy does not yet appear to be facing the same burden from tighter monetary policy as the euro area. The relatively easy stance of fiscal policy (compared with Europe) is arguably one reason for this. But another concerns the structure of household and corporate balance sheets and differing methods of debt finance. In the US, for example, a relatively high proportion of US homeowners hold long-maturity 30 year fixed rate mortgages. That’s a key reason for why the US mortgage debt service ratio and the effective interest rate on US mortgage debt has barely risen in recent months notwithstanding the Fed’s relatively aggressive hikes in policy-controlled interest rates.

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**US corporate debt – long-term and short-term debt burdens**
Equally the proportion of company debt that is long-maturity is relatively high in the US as well. The proportion of long-term bank loans and long-term debt securities compared with short-term lending and debt has typically been quite high, as evidenced in chart 5 below. But relative to, say, the 1980s and 1990s it is higher than it used to be, and particularly the proportion of long-term debt financing.

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**Female labour force participation in the world economy**
According to recent updates for 2022 from the World Bank only 45 percent of women are active in the world’s labour market markets at present. That compares with 68 percent of men. The IMF has recently noted that unfair laws, unequal access to services, discriminatory attitudes and other barriers that prevent women from working are to blame. This is a big brake on many countries’ potential growth rates. In Asia’s big economies, however, this is not a big problem for China. It is, however, a problem in India.

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Financial markets have been roiled over the past few weeks largely thanks to a “tighter for longer” narrative from the Fed and a related - and steep - climb in US Treasury yields. That narrative has been amplified by recent comments from Fed officials, by a batch of stronger-than-expected US growth data, as well as by heightened concern that firmer oil prices could re-ignite inflationary pressures. Against that backdrop our charts this week focus on the more downbeat messages that have emerged of late from the global economic dataflow (charts 1, 2 and 3). As noted, the relative resilience of the US economy, nevertheless, has continued to surprise forecasters, and some potential reasons for this are subsequently highlighted (in charts 4 and 5). Away from these near-term cyclical matters we look at another more structurally-rooted reason for global growth concern, namely still-low levels of female labour force participation in the world economy, and in India in particular (in chart 6).

Charts of the Week (Sep 29, 2023)

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