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Sectoral shift in US job openings

Robert Brusca

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There's a good deal of concern about the development of inflation globally and across individual areas where central banks are making decisions on what to do with policy. In the euro area in August, the headline rate rose by 0.4%, with the core rising by just 0.2%. The three-month inflation rate for headline HICP inflation is 3.3% annualized while the pace for the core is only 2.4% annualized. That's excessive relative to the 2% target but not a particularly strong acceleration for inflation. It's not the kind of number that says to the ECB that it has to raise rates right now.

Sequentially, the headline rate goes from 3.3% to 4.3% to 3.3% over 12 months, six months, and three months on an annualized basis. These are all too high and too uncomfortable, topping 3% and in one case topping 4%. These are the kinds of numbers that require some kind of remedy. However, core inflation posts a very different set of numbers that go from 2.4% to 2.5% to 2.4% over 12 months, six months, and three months, again all annualized. These numbers show inflation skimming too high over the target but not even half a percentage point too high. It’s the kind of thing that a central bank might be willing to continue to tolerate for a while. There's nothing about a 2% target that says 2.4% is an outrageous miss and requires a monetary policy remedy. On the other hand, the fact that that's happening and the headline rate is cruising at a much higher pace over the top of the target may be something that will cause the central bank to say, well, core inflation is too high and I'm also concerned that headline inflation is going to pull it even higher, so maybe it is time to act. These sorts of considerations will keep the market a little bit off balance and wondering what the ECB is going to do.

The Big Four economies in the monetary union all have year-over-year inflation rates for the headline that are excessive compared to the target set for the entire community. France has the lowest 12-month headline pace at 2.7%. Spain has the highest at 4.5%. Over three months, both France and Italy run headline inflation near a pace of 1.5%, while German inflation runs hot at 3.7% and Spanish inflation sizzles at a 7.0% pace.

Once again, however, core is a better-behaved series, at a 12-month pace of 2.9% for Spain, 1.4% for Italy, and with German ex-energy inflation up at a 12-month pace of 2.2%. Over three months, the ex-energy or core paces run at 0.4% for Italy, 2.0% for Germany, and 2.6% for Spain.

**Bottom line**
European inflation is too high. The inflation rate in the community appears to be irregular, just judging by the Big Four countries and all their variation. Core inflation is mostly contained, but the headline is not. Still, core inflation is running mildly hot. It is decision time for the ECB. The safe course would seem to hike rates again to be sure. But nothing here is clear. Stay tuned.

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Europe

EMU Inflation Is Too High but Not Jet-setting

Tian Yong Woon

In this week’s Letter, we examine why the continuing oil shock is placing renewed pressure on several Asian currencies—and why the mechanisms differ significantly across economies. The US–Iran conflict shows no meaningful sign of abating, with further strikes exchanged earlier this week. Meanwhile, shipping through the Strait of Hormuz remains severely disrupted (chart 1), effectively putting a floor beneath crude prices. The resulting increase in energy costs is sustaining inflation risks and worsening the terms of trade for oil-importing economies. This has contributed to the weakness of both the yen and the rupee this year, although energy dependence is only part of the explanation (chart 2). Unfavourable interest-rate differentials remain the principal constraint on the yen, while portfolio flows have amplified the rupee’s decline. Pressure on the Indonesian rupiah, by contrast, owes more to concerns about domestic politics and fiscal credibility. Although broad dollar strength is often blamed for the region’s currency weakness, our trade-weighted nominal dollar index has moved largely sideways.

India’s vulnerability to the oil shock is particularly pronounced. Domestic crude production covers only a small share of consumption, leaving the economy highly exposed to movements in global prices (chart 3). South Korea, Japan and Taiwan face similarly heavy import dependence, while the headline figures for China probably understate its underlying exposure. For India, however, a deteriorating energy bill has coincided with financial-account pressure. Portfolio investors withdrew capital for an extended period after conflict erupted in late February (chart 4). These outflows subsequently reversed after the RBI introduced incentives in June to attract dollar deposits—measures that proved effective enough to be withdrawn ahead of schedule. Nevertheless, the rupee has recovered little of its earlier decline. Indonesia presents a different risk profile. Investor unease centres less on oil-import dependence than on the direction of fiscal policy and the broader political environment. Foreign ownership of rupiah-denominated government bonds has fallen below 13%, even as the outstanding stock of debt has continued to expand (chart 5). President Prabowo’s USD 230bn budget for 2027 targets a smaller deficit (chart 6), but it remains unclear whether this will be sufficient to restore investor confidence.

**The oil situation**
There is little sign of a substantive let-up in the US-Iran situation. Both sides exchanged strikes earlier this week, the first such exchange in about a month. Absent the strikes, the underlying economic reality remains broadly unchanged. Shipping traffic through the Strait of Hormuz has remained weak (chart 1), leaving an implicit floor under crude oil prices. Upside inflation risks stemming from energy therefore remain alive, and with them the implications for monetary policy. Beyond inflation, this protracted bout of elevated oil prices continues to add to the hefty bills faced by net energy importers, in the region and well beyond it.

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**Currencies**
Among other drivers, the exposure of Japan and India to oil imports has weighed on their currencies this year. The surge in oil prices has raised their energy bills sharply. Other factors are also at play, with rate differentials weighing on the yen and capital flows compounding rupee weakness. The latter is a topic we revisit later in this Letter. Other Asian currencies have also shown significant weakness this year, though energy is not the main driver of their depreciation. The Indonesian rupiah has fallen sharply (chart 2), largely on fiscal concerns as the government pursues a highly expansionary fiscal policy. That has raised worries about fiscal sustainability, among other woes, which we also return to later. Dollar strength has been frequently cited as an additional driver of this Asian currency weakness. Yet the broadly sideways pattern of our trade-weighted nominal dollar index suggests otherwise.

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**India**
Focusing more on India, chart 3 shows how dependent the country is on imported petroleum for its consumption needs. Compared with oil producers in Asia such as Malaysia, India's production is minuscule as a proportion of its consumption. That implies an extremely high dependence on imported sources. It leaves India almost wholly exposed to fluctuations in global oil prices, apart from supply supplements drawn from oil reserves. Several other Asian economies fall into the same bucket, namely South Korea, Japan and Taiwan. Their production is slightly higher relative to consumption for petroleum and other liquids, but still very low. For other Asian economies such as China, the statistic does not tell the whole story, since much of China's refined production also relies on imported crude.

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India's hefty imported energy bill aside, another drag on the rupee came from persistent capital outflows earlier in the year. These immediately followed the initial outbreak of the US-Iran conflict in late February. As shown in chart 4, India faced protracted outflows from foreign institutional and portfolio investors during that early period. Those outflows were subsequently reversed following concerted measures by the Reserve Bank of India (RBI) to spur inflows. Specifically, the central bank introduced a raft of measures in June to boost dollar inflows. These allowed banks to offer attractive rates on FX deposits, with the RBI subsidising hedging costs. They have apparently been so successful in attracting inflows that the central bank has decided to shut them down early. That said, the rupee has not yet regained the ground it lost this year, despite the surge in inflows.

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**Indonesia**
Moving to Indonesia, the driver landscape behind the year's persistent rupiah weakness looks rather different. It is characterised more by investor perceptions of the country's political and fiscal state than by the energy-driven narrative facing India. Chart 5 shows one symptom of this loss of standing among foreign investors. The share of non-resident ownership of tradable rupiah government bonds has extended its mild decline through the year, falling to just under 13%. That decline reflects broadly unchanged non-resident holdings against a total stock of government securities that has continued to grow. Driving that expansion in the debt stock, and possibly further expansion ahead, are the fiscal-intensive measures of the current government, including its Free Nutritious Meals programme. Other measures, notably energy subsidies, have also bitten into the fiscal spend. All in, these have raised concerns about the country's future fiscal position, weighing on the rupiah in turn.

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On that note, Indonesia's President Prabowo has unveiled a USD 230bn "expansive" budget for 2027. This came earlier last month, perhaps in an attempt to allay the above-mentioned investor concerns about fiscal sustainability. The fiscal deficit is set at 2.4% of GDP, the narrowest in three years. It remains to be seen whether investor concerns will be substantially allayed by the news. Nor is it clear whether the rupiah could recover meaningfully on the back of these announced measures. Also still lacking is the full scale of the ongoing Free Nutritious Meals programme, which has already been beset by issues and scaled back. A further point to watch is whether expectations of Indonesia's fiscal trajectory shift substantially. That applies to investors and to organisations such as the IMF, in its upcoming fiscal outlook publication.

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Asia

Economic Letter from Asia: Lingering Unease

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Growth among the eleven reporting EMU countries continues to be mixed. Growth in EMU is stable enough but modest at 0.5% to 1.2% over four quarters when assessed over the last four quarters. Quarterly results are more volatile, of course. Median annual growth is 1.3% to 2.1%.

**Mixed Result on Growth**
In Q2, five of these eleven countries showed lower growth based on annualized quarter changes, while three showed weaker growth quarter-to-quarter based on four-quarter rates of growth. Belgium, Denmark, and France were weaker based on four-quarter growth rates. Growth in Spain was unchanged at 2.7%. Danish growth slowed to 4.6% from 6.1%.

**Assessing Rates of Growth**
The change in growth rate assessment is useful but never quite definitive, as you can see from the still-strong, although slower, Danish pace of growth. 4.6% is less than 6.1%, but it is still quite strong, hardly a problem. Similarly, Ireland shows better growth, but that is an ‘improvement’ to -5.6% from -13.2%, an improvement and a sharp one, but still chillingly weak. Of course, Ireland, with a preponderance of multinational corporations headquartered there, shows some accounting fluctuations that are not that representative of a real macroeconomic impact on the Irish economy but can have a big impact on reported GDP. Ireland logs the only negative growth rate in the monetary union over four quarters, with Belgium the next weakest at 0.5%, and Germany and Italy at 1%.

**The Big Four Economies**
The four largest EMU countries with GDP pooled have run an annual growth that has been quite steady around the 1% mark (0.9% to 1.1%). The rest of the EMU has had a more volatile growth rate. Pooling the remaining countries’ GDP performance yields growth rates over fourth quarters ranging from -0.9% to +2.1% over the last four quarters.

**Within EMU**
The table chronicles growth rates for 11 EMU members plus the United Kingdom, the United States, and Japan. Among these 14 countries, year-over-year growth rates on data back to 1998 show only five countries with GDP growth rates ranking over four quarters above 50%; rankings above 50% put them above their median for that period. Those five countries are Spain, Finland, Italy, Portugal, and Denmark. While Spain and Italy have rankings above their medians for the period, German growth ranks at only 45.7%, and French growth is quite weak at a 17.4 percentile standing, marking a split in performance among the Big Four economies.

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German GDP trends higher, U.K. waffles, and French trends continue to deflate.

**Other Considerations**
Growth in the EMU is uneven across the community, and inflation has begun to rise with Germany recently showing an adverse uptick to 2.9% from 2.8%. Conditions in the Middle East regarding the Strait of Hormuz are impacting growth, inflation, and the outlook; conditions are still touch and go. While it is still August, colder weather is coming and LNG supplies are going to be very important for winter in Europe. Weather has been a factor with drought conditions again sapping many important European rivers of their lifeblood flow, causing ships and barges to either run with lighter loads or not at all. In a number of cases, European nuclear facilities were run at a slower pace; some were shut completely because river flows were so low and river temperatures were too high to permit cooling at full capacity.

Between nature and geopolitics, conditions remain uneven and that extends to the outlook. International relations are strained as well, and Russia has been creating mischief and trying to unnerve NATO members with threats of broadening the war in Ukraine. All in all, it is a difficult picture and one of considerable instability on offer. The shake-out in the Middle East will be important for inflation and the evolution of energy prices and more. The outlook is in flux.

EMU GDP in Member Countries: Some Minor Revisions

Winnie Tapasanun

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The U.S. international trade deficit in goods unexpectedly expanded to $118.81 billion in July, the biggest since March 2025, from $101.41 billion in June and $105.33 billion in May, according to the advance estimate from the U.S. Census Bureau. The July reading marked the second widening in the goods trade deficit in three months, exceeding a $101.28 billion shortfall in July 2025. A deficit of $99.5 billion for July had been expected by the Action Economics Forecast Survey. The deficit reached a low of $61.44 billion in October 2025 (the smallest since February 2020) and a record high of $158.73 billion in March 2025.

In Q2'26, the goods trade deficit widened to $288.96 billion after narrowing to $245.88 billion in Q1'26; the monthly deficit averaged $96.32 billion in Q2'26, the largest since Q1'25, up from $81.96 billion in Q1'26. In real terms, the goods trade deficit subtracted 1.00%-point from real GDP growth in Q2'26 after having subtracted 0.41%-point in Q1'26.

Total goods exports fell 2.9% m/m (+11.7% y/y) to $199.37 billion in July, the third consecutive monthly fall and the lowest level since January, after a 1.8% decline to $205.41 billion in June. A record high of $220.11 billion was reached in April. However, exports were up 22.6% from a June 2023 low. The m/m decline in exports in July was led by an 11.2% drop (+18.4% y/y) in industrial supplies & materials, followed by decreases of 3.5% (+4.7% y/y) in other goods, 1.4% (+10.1% y/y) in foods, feeds & beverages, and 0.7% (+1.0% y/y) in automotive vehicles & parts. To the upside, exports of nonfood consumer goods excluding autos (+8.1%; +0.2% y/y) and capital goods excluding autos (+2.9%; +13.1% y/y) rose m/m in July.

Total goods imports rebounded 3.7% m/m (13.7% y/y) to $318.18 billion in July following a 2.4% decline to $306.81 billion in June, marking the fifth monthly increase in six months and the highest level since March 2025’s record high of $340.11 billion. Imports were up 26.9% from a March 2023 low. The m/m rise in imports in July was led by an 11.3% rebound (46.9% y/y) in capital goods excluding autos, with a marginal 0.1% increase (-1.7% y/y) in nonfood consumer goods excluding autos. In contrast, imports of industrial supplies & materials (-3.9%; -11.7% y/y), automotive vehicles & parts (-1.6%; +3.9% y/y), foods, feeds & beverages (-0.9%; -4.2% y/y), and other goods (-0.4%; +10.0% y/y) fell m/m for the second successive month in July.

The advance international trade data can be found in Haver's **USECON** database. The expectation figure is from the Action Economics Forecast Survey, which is in **AS1REPNA**.

- Deficit: $118.8 bil. in July, up $17.4 bil. (+17.2%) from June’s $101.4 bil.
- Exports -2.9%, third straight m/m decline to a six-month low, driven by an 11.2% drop in industrial supplies & materials exports.
- Imports +3.7%, fifth rise in six mths. to highest level since Mar. ’25, led by an 11.3% rebound in nonauto capital goods imports.

U.S. Goods Trade Deficit Balloons in July, Largest Since March ’25

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance declined 4,000 to 203,000 in the week ending August 22, from 207,000 in the week ending August 15, revised marginally from 206,000. The four-week average was 205,500 in the August 22 week, up from 204,250 in the August 15 week. Claims remain largely range-bound at historically low levels between 200,000 and 230,000. The Action Economics/Haver Analytics Survey looked for 208,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”— decreased by 18,000 to 1.778 million in the week ending August 15, from 1.796 million in the week ending August 8, revised from 1.799 million. The four-week moving average rose to 1.789 million in the August 15 week up from 1.788 million in the August 8 week. The insured unemployment rate remained unchanged at 1.2% in the week of August 15. 

The insured unemployment rate varies greatly across individual states and territories. In the week ending August 8, the highest unemployment rates were in Oregon (2.01%), Minnesota (2.06%), Massachusetts (2.11%), Rhode Island (2.20%), Puerto Rico (2.57%), and New Jersey (2.60%). The lowest rates were in South Dakota (0.26%), Florida (0.36%), Alabama (0.39%), Louisiana and North Carolina (both 0.40%), Arkansas (0.43%), and North Dakota (0.49%). Rates in other notable states include California (1.89%), New York and Pennsylvania (both 1.71%), Illinois (1.54%), and Texas (1.05%). 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.

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- New claims declined by 4,000 to 203,000 in the week of August 22.
- Continuing claims declined by 18,000 to 1.778 million in the week ending August 15.
- The insured unemployment rate was unchanged at 1.2% in the week of August 15.

U.S. Initial Unemployment Claims Edge Down in the Week of August 22

Jonathan Basile

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The U.S. Income and Spending report revealed headline inflation trends cooling in the last couple of months relative to higher price pressures in the immediate aftermath of the Iran War. The personal consumption expenditures (PCE) price index rose 0.2% month-over-month (MoM) in July after a 0.1% MoM decline in June. This is a noticeable contrast relative to the prior monthly run rates in March (0.7%), April (0.4%) and May (0.5%) and the MoM average over the previous five years (0.3%). Shorter-run PCE price trends have decelerated sharply: two-month annualized from April’s 6.7% to July’s 0.4% and three-month annualized from May’s 6.4% to July’s 2.2%. However, the smoother six-month annualized rate remained at an elevated 4.1%, and the year-over-year (YoY) rate was steady at 3.7% for a second straight month.

The underlying core PCE price index showed the same pattern as the headline figure in the last two months. July’s 0.2% MoM gain after June’s 0.1% MoM advance was in stark contrast to the 0.3-0.4% run rates exhibited from December 2025 to May 2026 and the 0.3% average over the previous five years. Given the recent core cooling, the two-month annualized rate eased to a 2.4% pace, less than half February’s 5.2% local high and the lowest level since April 2025. While this is the best progress toward the Fed’s 2% inflation target in over a year, other inflation trends continue to have 3-handles: 3.0% three-month annualized; 3.5% six-month annualized; 3.3% YoY rate. Moreover, the annual core PCE inflation rate has been above the Fed’s 2% target for 65 months in a row.

The consumer spending picture stalled in volume terms at the beginning of the third quarter. Real personal consumption expenditures were unchanged MoM in July. This marked the softest consumer performance since January’s 0.2% MoM decline. To be sure, real consumer spending was revised up slightly in the second quarter from a 3.2% quarter-over-quarter annualized rate to 3.4%. With one month on the books, the third quarter-to-date annualized rate is starting out at 1.7%, half that of the prior three-month period.

Nominal consumer spending rose 0.2% MoM, less than the 0.5% sequential increase in nominal disposable personal income (DPI). In dollar terms, spending underperformed DPI by about $89 billion, the same amount of the increase in personal saving from June to July. These dynamics produced a four-tenth rise in the saving rate to 3.0% from 2.6% in the previous period.

The July saving rate uptick should be viewed as a brief pause in an otherwise downward sloping path. To maintain spending in the last few years, consumers have whittled down the saving rate over time from the January 2024 high of 6.4% to the current level that is less than half that figure. Historically, a falling saving rate usually is a reflection of buoyant consumer confidence and optimistic income expectations. Neither were on display in Tuesday’s Conference Board Consumer Confidence report for August. This suggests that the lower trend in savings likely is not voluntary.

Forward-looking Consumer Expectations fell to 68.2, remaining below the 80 level for a 19th consecutive month. Conference Board considers this threshold a warning flag that points to heightened consumer pessimism and elevated risk of a near-term economic downturn. Conference Board’s Income Expectations, a subcomponent of Consumer Expectations, provides a focused viewpoint on the outlook for consumer spending. August’s 3.1-point fall to a net 3.8 fully arrested the improvement in the 15 months ended June 2026. This suggests a more cautious near-term spending outlook should be warranted.

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

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- Headline and Core PCE price measures cooled in the last two months.
- Real spending stalled in July.
- Saving uptick should be viewed as a pause in the downtrend.

U.S. Income and Spending: Inflation Progress Amid Spending Stall

Sandy Batten

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In the second estimate, real GDP grew 1.5% q/q saar in Q2, the same as the advance estimate, following a 2.1% increase in Q1, according to the Bureau of Economic Analysis. The Action Economics Forecast Survey looked for an unrevised 1.5% quarterly gain. Compared with a year ago, GDP was up 2.1%, also unrevised from the advance estimate. The slightly subpar performance in the second quarter continued to be due mostly to significant drags exerted by trade and inventory investment. An upwardly revised 12.5% q/q surge in imports (previously 11.5%) widened the trade deficit further resulting in net exports subtracting 1.1%-points from overall growth (previously -1.0%-point). Inventory investment declined a little more than previously estimated to $53.1 billion (2017$) in Q2 (previously -$50.8 billion) but still subtracted 0.7%-point as in the advance report. This was the fifth consecutive quarter in which inventories declined, a very unusual occurrence when the economy is not in a recession.

The second estimate of GDP contains the first estimate of corporate profits. They continued to soar in Q2, increasing 9.1% q/q not annualized following a 1.7% quarterly gain in Q1. Over the past four quarters, corporate profits have risen 22.8%, the fastest four-quarter growth since Q4 2021. In Q2, domestic profits jumped 9.9%, the fifth consecutive quarterly increase. Foreign profits rebounded 3.5% in Q2 after a 10.4% quarterly decline in Q1. Also, with an estimate of profits, gross domestic income (a second measure of total output in an economy) can be estimated. Real gross domestic income increased 2.2% q/q saar in Q2, up from 1.2% in Q1 and well above the 1.5% increase in GDP.

Personal consumption expenditures and business spending on equipment and intellectual property provided much of the boost to overall GDP growth in Q2 in the second estimate, as they had in the advance report. PCE grew 3.4% q/q saar in Q2 (previously +3.2%), accounting for 2.3%-points of overall GDP growth (previously 2.1%-points). Growth of spending on goods was revised down to 4.3% from 5.2% while spending on services was revised up to 3.1% from 2.2%.

The second consecutive double-digit increase in business spending on equipment was revised down to 13.6% q/q saar from 15.2% in the advance report. However, the previously reported 5.0% quarterly decline in spending on nonresidential structures was revised up to -1.8%. Consequently, growth in nonresidential fixed investment was revised up slightly to 8.5% from 8.4% in the advance report. The 1.5% increase previously reported for residential investment was revised down to a 1.2% gain.

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The 0.8% q/q saar previously reported for total government spending was revised down to -1.0% in the second estimate. Federal nondefense spending fell 3.5% versus -3.4% previously. Growth of spending by state and local governments slowed to 0.9% from 1.1% in the advance report. Accordingly, the drag from government spending increased to 0.2%-point from 0.1%-point in the advance report.

Reflecting the upward revision to personal consumption and the increased drag from the trade deficit, real domestic demand growth, already strong in the advance report, was revised even stronger. Real final sales to domestic purchasers (GDP less inventory investment and net exports) increased a well above trend 3.3% q/q saar in Q2 versus 3.1% in the advance report. Real final sales to private domestic purchasers (the Fed’s preferred measure of domestic demand) jumped 4.2% q/q in Q2, its largest quarterly gain since Q1 2023, up from 3.9% in the advance report.

GDP inflation measures for Q2 were generally revised slightly faster in the second estimate. GDP price inflation was revised up to 6.4% q/q saar from 6.2% in the advance report, still due mostly to the surge in energy prices that occurred in Q2. The core GDP price index rose 4.4% in the second estimate, the same as in the advance report. PCE price inflation was also revised up to 5.3% from 5.1% in the advance report with core PCE inflation revised up to 3.6% from 3.4% previously.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- The 1.5% q/q saar increase in real GDP reported in the advance report was not revised in the second estimate.
- Inventory investment and net exports continued to be meaningful drags on overall growth.
- The strong domestic demand growth reported in the advance report was revised even stronger.
- Corporate profits surged 9.1% q/q not annualized in Q2, the fastest quarterly advance since Q2 2021.

U.S. GDP Growth in Q2 Unrevised in Second Estimate; Corporate Profits Surged

Andrew Cates

**Global Growth Held Up in Q2**
For all the forecasts of a slowdown, the world economy has refused to oblige. Through a year of tariffs, war and the lagged bite of tighter money, global growth held up well in Q2 at close to its long-run pace (chart below). That resilience is noteworthy. Consumer and companies have absorbed shocks that might once have tipped it over and a reminder that the pressures bearing on some financial markets are coming less from a faltering economy than from somewhere else entirely.

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**The Flash PMIs Concur**
The timelier survey evidence only reinforces the point: the expansion is broad, and in most of the major economies gathering pace (chart below). What matters for the argument that follows is where that momentum originates. This is not just a consumer-led, services-driven upswing that had been the norm of recent years. It is being driven, in many parts of the world, by industry — the goods-producing side of the economy that builds, equips and invests. Manufacturing has moved to the front of a global revival, with services accompanying— and, in Europe, lagging — rather than setting the pace. That is arguably the signature of a capital-spending cycle taking hold, and a clear real-economy sign that an investment wave is under way.

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**South Korea Flags the Same Resilience — and the AI Boom**
South Korea is often regarded as the world economy’s early-warning system, wired as it is into the circuitry of global trade. Its exports confirm that demand is holding up. But the arresting part is semiconductors, where growth has gone almost vertical (chart below). This is the artificial-intelligence boom ceasing to be a story about valuations and becoming one about real, tradable demand: the capital being poured into data centres and computing power is now showing up, in hard numbers, in the trade of the economies that make the chips.

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**The Market’s Eye Stays on US Yields — and the Real Rate Leads**
Against so resilient a backdrop, the market’s fixation on US long-term yields can look overwrought. It may not be. What arguably matters is why they are rising: the climb is almost entirely driven by the real rate, not in any great fear (yet) of inflation (chart 4 below). This is not a market fretting too much about inflation; it is a market repricing the cost of capital.

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**Behind It, the World Funds Less of America’s Debt**
That shift is, in part, about who is willing to fund the United States. For two decades the world’s surplus savers — foreign central banks above all — recycled their reserves into Treasuries almost automatically, and asked little in return. That era is now passing (chart below). As the official buyer steps back, the task of financing an ever-larger debt falls to private investors who will hold it only if paid to, and (as now), possibly paid more.

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**And the Surplus Nations Turn to Gold**
If not into American debt, where is the world's surplus going? Increasingly into gold, and our final chart shows the scale of the shift already under way. The motive is straightforward: the freezing of Russia's reserves in 2022 demonstrated that dollar claims carry a political risk that gold does not — a reserve is secure only so long as its holder remains on good terms with the issuing government. The accumulation of gold and the retreat from Treasuries are two aspects of a single reallocation, as reserve managers move their surpluses out of assets they no longer regard as unconditionally safe. For the cost of Western capital, it is a further and durable source of upward pressure.

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A dominant anxiety in financial markets remains the level of long-term interest rates. It is worth beginning, though, with the real economy, where the news of recent days has been more reassuring. Haver’s proprietary calculation of world GDP growth suggests the global economy held up well in the second quarter, expanding at close to its long-run average pace and defying the sharper slowdown many had feared (chart 1). The August flash purchasing managers’ indices tell a similar story, with most of the major economies both in expansion and still improving — though, as ever, the composite readings conceal a more uneven picture beneath (chart 2). From South Korea, whose trade figures are among the world’s most timely, comes the same message, and a pointed one about the artificial-intelligence boom: semiconductor exports have continued to surge (chart 3). Yet the market’s gaze stays fixed on US yields, and a decomposition explains why they are being watched so closely — the rise has come overwhelmingly from the real component, not from any meaningful revival of inflation expectations (chart 4). That, one might argue, is not a passing technical matter but a structural one, rooted in who is willing to fund the US government. The rest of the world now funds a steadily shrinking share of its debt (chart 5), and the surplus nations that once recycled their savings into Treasuries are turning, instead, to gold (chart 6). It is against this backdrop that Treasury Secretary Scott Bessent's recent remarks that the government may intervene in the market to support its debt have drawn attention.

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Charts of the Week: Resilient Growth, Restless Yields

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Total factory orders rose a more-than-expected 0.9% m/m in July, the first monthly rise since April, reversing a 0.2% decline in June, according to data from the U.S. Census Bureau. The Action Economics Forecast Survey had expected a 0.5% m/m July increase. The year-on-year growth rate accelerated to 9.9% in July, the highest since April, from 7.6% in June (+1.6% in July 2025), while remaining far below the April 2021 peak of 39.6%. Factory orders excluding defense rebounded 1.0% (8.8% y/y), up for the first time in three months, following a 0.3% June decrease. Factory orders excluding the transportation sector rose 0.6% (9.2% y/y), the eighth m/m gain in nine months, after a 0.1% June downtick.

Notably, orders for nondefense aircraft & parts jumped 12.7% in July following a 2.9% decline in June and a 51.1% plunge in May; orders for defense aircraft & parts increased 4.9% (53.5% y/y), the fifth m/m rise in six months, after a 7.0% June drop and an 8.9% May gain. Additionally, orders for ships & boats climbed 5.3% in July after rising 7.5% and 3.5% in the prior two months.

Durable goods orders advanced 1.1% (12.0% y/y) in July after a 0.6% increase in June (matching +1.1% m/m in the advance report on August 26), marking the fourth m/m rise in five months. The July m/m gain was led by a 2.3% rebound (13.7% y/y) in transportation equipment, followed by increases of 2.0% (19.1% y/y) in primary metals, 0.8% (15.3% y/y) in machinery, 0.7% (1.6% y/y) in furniture & related products, and 0.6% (10.9% y/y) in fabricated metal products. In contrast, durable goods orders for computers & electronic products (-1.1%; +14.8% y/y) and electrical equipment, appliances & components (-0.3%; +6.7% y/y) declined m/m in July.

Nondurable goods orders, which equal nondurable goods shipments, rose 0.7% (7.9% y/y) in July, the seventh m/m gain in eight months, after a 0.9% decline in June. The July m/m increase was driven by a 2.4% rebound (+26.2% y/y) in petroleum & coal products, followed by rises of 1.7% (+2.3% y/y) in textile products, 1.2% (-0.5% y/y) in printing, 0.7% (+2.7% y/y) in paper products, 0.6% (+2.2% y/y) in beverage & tobacco products, 0.4% (-4.7% y/y) in textile mills, 0.1% (+7.7% y/y) in chemical products, 0.1% (+1.4% y/y) in food products, and 0.1% (+3.1% y/y) in plastics & rubber products. To the downside, nondurable goods shipments for leather & allied products (-1.9%; -1.0% y/y) and apparel (-0.5%; +5.5% y/y) fell m/m in July.

Total shipments increased 0.8% (8.3% y/y) in July, up for the seventh time in eight months, after no change in June. Excluding transportation, shipments rose 0.7% (8.1% y/y), the eighth m/m gain in nine months, following a 0.1% June easing. Shipments of durable goods industries grew 0.9% (8.6% y/y), the eighth straight m/m rise, after a 1.0% June increase. This reflected m/m gains in almost all durable goods shipments categories, led by a 2.9% advance (12.6% y/y) in machinery, alongside rises of 1.9% (16.8% y/y) in primary metals, 1.3% (9.1% y/y) in transportation equipment, 1.1% (2.4% y/y) in wood products, 0.8% (7.0% y/y) in miscellaneous durable goods, 0.7% (2.0% y/y) in furniture & related products, and 0.2% (6.6% y/y) in fabricated metal products. In contrast, durable goods shipments for computers & electronic products (-1.2%; +8.1% y/y) and nonmetallic mineral products (-0.7%; +1.5% y/y) fell m/m in July, while those for electrical equipment, appliances & components were virtually unchanged (+5.5% y/y) following five successive m/m increases.

Unfilled orders rose 0.6% (8.9% y/y) in July, the 12th consecutive m/m increase, after rising at the same pace in June. Excluding transportation, unfilled orders climbed 0.9% (6.4% y/y), also up for the 12th straight month, on top of a 1.0% June rise. Backlogs of durable goods grew 0.6% (8.9% y/y) in July, reflecting gains of 1.9% (8.2% y/y) in primary metals, 1.1% (6.8% y/y) in fabricated metal products, and 1.0% (5.9% y/y) in computers & electronic products, partially offset by a 0.2% decline (-2.2% y/y) in furniture & related products.

Inventories advanced 0.4% (2.0% y/y) in July, the ninth successive m/m rise, after a 0.1% uptick in June. Excluding transportation, inventories rose 0.4% (2.1% y/y), up for the sixth consecutive month, following a 0.1% June increase. Durable goods inventories grew 0.4% (2.3% y/y) in July, the 10th straight m/m gain, after a 0.4% rise in June, while nondurable goods inventories rebounded 0.3% (1.4% y/y), the fifth m/m increase in six months, following a 0.3% June decline.

The factory sector data are available in Haver’s **USECON** database. The Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Factory orders +0.9% (+9.9% y/y) in July, first m/m increase since Apr.; 15.2% above the Jan. ’24 low.
- Durable goods orders +1.1%, fourth m/m rise in five mths.; nondurable goods orders +0.7% and shipments +0.8%, seventh m/m gains in eight mths.
- Transportation orders +2.3%, led by a 12.7% jump in nondefense aircraft orders.
- Unfilled orders +0.6%, 12th straight m/m increase.
- Inventories +0.4%, ninth consecutive m/m rise.

U.S. Factory Orders Rebound More Than Expected in July on Strong Nondefense Aircraft Orders

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