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Abdel M. Zellou, Ph.D.

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Despite resilient economy, US consumers are not very happy

Winnie Tapasanun

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The Chicago Fed National Activity Index (CFNAI) was at +0.07 in September, up from a downwardly revised -0.08 in August (-0.04 initially) and down from an upwardly revised +0.12 in July (+0.08 previously), today’s report from the Federal Reserve Bank of Chicago showed, indicating that economic activity was slightly above its historical trend for the third time in four months in September after slightly below the historical trend in August. The latest CFNAI was above a low of -0.49 in October 2025 and a reading of -0.31 in September 2025 but below a high of +0.39 in February 2025.

The index's three-month moving average (CFNAI-MA3), which smooths out the m/m volatility in the index, edged up to +0.03 in September from +0.01 in August (unrevised), registering the fourth successive positive reading and the seventh in eight months. It was above a low of -0.39 in October 2025 and -0.23 in September 2025 but below its recent high of +0.07 in April. The CFNAI-MA3 is expressed in standard deviation units from zero (with a value of zero defined as trend real GDP growth). Research at the Chicago Fed indicates that an average reading of -0.70 or below is consistent with the economy being in a recession. Therefore, the September CFNAI-MA3 suggested that the U.S. economy is not currently in a recession.

The September reading reflected m/m increases in three of the four CFNAI key components and two positive contributions. The contribution of the Production & Income index to the CFNAI rose to +0.13 in September, the highest reading since April, from -0.06 in August; it was below a high of +0.37 in February 2025 but above -0.10 in September 2025 and a low of -0.61 in January 2024. The contribution of the Sales, Orders & Inventories index rebounded to +0.02 in September, the fourth positive reading in five months, from -0.03 in August; it was above -0.17 in September 2025 and a low of -0.19 in April 2025 but below a high of +0.16 in March 2025. The Employment, Unemployment & Hours index improved to a neutral value (0.00) in September from -0.02 in August; it was above its recent low of -0.13 in February and -0.01 in September 2025 but below its recent high of +0.05 in January. The contribution of the Personal Consumption & Housing index fell to -0.08 in September, the second negative reading in three months and the lowest level since May 2025, from +0.02 in August; it was below -0.03 in September 2025 and a high of +0.09 in March 2025 but above a low of -0.14 in January 2025.

The CFNAI Diffusion Index—which measures the breadth of change in the component series and is also a three-month moving average—ticked up to +0.06 in September, the seventh straight positive reading, from an upwardly revised +0.05 in August (+0.02 initially). A string of negative readings was posted during the March 2023 to February 2026 period. A reading of zero indicates that all of the indicators are growing at their long-term average. The September reading was above a low of -0.58 in October 2025 and -0.34 in September 2025 but below its recent high of +0.13 in July (matching September 2022).

The CFNAI is a weighted average of 85 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.

- CFNAI up to +0.07 in Sept., positive for the third time in four mths.
- Three of four CFNAI components up m/m; two make positive contributions.
- CFNAI-MA3 up to +0.03, fourth consecutive positive reading; above -0.70 (recession signal).
- CFNAI Diffusion Index up to +0.06, remaining positive for the seventh straight mth.

Chicago Fed National Activity Index Turns Positive in September

Robert Brusca

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The Confederation of British Industry (CBI) survey responses in October, for October itself or looking to the month ahead, show sharp improvements in the current results and significant improvement in expected retail sales and less broad improvement for expected wholesale orders and sales.

The rank standings of the survey categories all are below their 50% marks, their respective medians, for all the survey items except for the retail survey on sales for the time of year and for inventory ratios.

**Overview**
This means that despite some relatively pronounced recovery between September and October, conditions are still subpar for most of the categories. October levels are generally above levels posted a year ago as well and here, we're comparing the actual readings in October to October of one year ago, and the expectations for November to November of one year ago. For the most part, we're seeing significant improvements on that basis. We're also seeing significant improvements in the October-November values for current and expected activities compared to the 12-month averages. So, the U.K. economy has been through a real sort of baptism of fire over the last 12 months, with extremely weak readings having been posted and then, in October, or looking ahead to November, there is quite a remarkable improvement. But the economy was in such a deep hole that even with this sharp month-to-month jump, conditions continue to score out as weak compared to historic benchmarks.

**Retailing in real time**
The retail survey, for example, is showing sales in October for the concept ‘sales compared to a year ago’ at a -10 diffusion reading, compared to -55 in September and a 12-month average of -41. Orders, compared to a year ago, at -36 in October sharply improve; they also are up from -62 in September, but they're only back to their 12-month average, which is -36. Sales ‘for the time of year’ improve sharply to -3 in October from -40 in September; that compares to a 12-month average of -25. Without referencing the ranking statistics, it's clear that there's a sharp improvement underway, but when we reference the queue rankings, we see that it's still an improvement that has a long way to go just to get back to ‘average.’

**Retailing expectations**
Similarly, the expectations for retailing for ‘sales compared to a year ago’ in November are at -10 compared to -37 in October; that compares to a 12-month average of -34. Orders, compared to a year ago, come in at -29 for November’s expectations, up from -63 in October; that compares to a 12-month average of -35. So that marks a sharp improvement month-to-month, but a modest improvement compared to the 12-month average. Sales ‘for the time of year’ also improve to -24 for what's expected in November, from -39 in October; the -24 reading is only marginally better than the -26 average over the last 12 months.

**Current wholesaling evaluations**
The volume assessments for the current situation in wholesaling show similar improvements in October compared to September and also for the October standings relative to the 12-month averages. Sales compared to a year ago, for example, are at a -4 reading in October compared to -24 in September, which compares to a 12-month average of -26. But here again the queue standing for that October reading is only in its 34th percentile, barely above the lower third of all readings chronicled back to August 2002. Orders compared to a year ago come in at -10 compared to -22 in September, which compares to a -34 average over 12 months. Sales ‘for the time of year,’ a sort of seasonally adjusted view, actually deteriorate in wholesaling to -26 in October from -21 in September, but there is an improvement when compared to the 12-month average of -31.

**Wholesaling expectations**
Wholesaling expectations improve to -10 in November on the metric ‘sales compared to a year ago,’ a significant improvement from October’s -23 reading and an improvement from the 12-month average of -29. Orders ‘compared to a year ago’ improve to a reading of -21 in November from -28 in October; that's a nice improvement from the -37 average over 12 months. Sales ‘for the time of year,’ however, deteriorate slightly in November to -26 from -24 in October, although there is an improvement from the 12-month average of -32. Expected ‘sales for the time of year’ have an extremely low ranking, with a lower 12th percentile standing. But that was also the low ranking in retailing this month, for expected sales for the time of year in November, even though in retailing there was a sharp monthly improvement.

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**The bottom line**
So, the message from distributive trades in October is mixed. But it’s a mixed message that's still relatively positive. The various aspects of the distributive trades survey largely show improvements and some significant improvements from where they had been, especially one month ago. But one month ago, these readings really had their back against the wall; so even though there are improvements, conditions are still scored out as weak, when compared to history. However, they had been abysmally weak and so this is still a significant improvement for many measures. It's far from signaling that the economy is out of the woods, but it does suggest that the economy faces challenges that are perhaps more normal rather than the extraordinary circumstances it had seemed to face over the past year and especially one month ago.

United Kingdom

U.K. CBI Survey Remains Weak but Sharply Rebounds

Tian Yong Woon

In this week’s Letter, we take stock of a busy run of central bank decisions across Asia, as most of the region tightens in the face of an oil-driven inflation shock. So far this year, most central banks in the region have raised rates (chart 1). The US-Iran conflict, a renewed Fed hiking cycle and domestic pressures have driven this, with Thailand the clear exception. In Indonesia, BI held its benchmark rate at 5.75% but raised its deposit facility rate and cut reserve requirements (chart 2). Indonesian assets remain under heavy pressure, with equities hit further by MSCI’s potential downgrade to standalone status. In South Korea, the BoK paused at 3.00% after hikes in July and August, with markets eyeing November for another move. Yet much of its inflation is imported and its growth export-led, so the headline data may overstate its room to tighten (chart 3). The Philippines faces a harder trade-off. The BSP hiked for a fourth straight meeting as energy prices, El Niño risks and a record-weak peso push inflation up. Growth, meanwhile, remains a laggard (chart 4). Looking ahead, the Fed, ECB and BoJ all decide this week. The BoJ is expected to hold at 1.25% and hike in December, with solid wages and business sentiment offsetting weak household spending (chart 5). Thailand also decides this week. Having cut to 1.00% in February, the Bank of Thailand faces a soft economy weighed down by household debt and weak tourism. Relative to its pre-pandemic level, its real GDP has recovered the least in emerging Asia, a sign of deep pandemic scarring (chart 6).

**The year so far**
The past week brought a cluster of monetary policy decisions in Asia. Bank Indonesia (BI) and the Bank of Korea (BoK) held their policy rates, while the Philippines’ central bank (BSP) raised its policy rate by 25 bps. Zooming out, most central banks in the region have tightened policy so far this year (chart 1). Several forces lie behind this. The oil price shock from the US-Iran conflict has pushed inflation higher across the region. In the US, the Fed resumed hiking in September with a 25 bp move to 3.75% to 4%, its first increase in three years. Domestic factors have added to the pressure in several economies. There are exceptions, however. Malaysia has broadly stood pat, while Thailand has gone the other way. The Bank of Thailand cut its policy rate to 1.00% in February, in part to support soft domestic growth.

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**Indonesia**
In its latest decision, Bank Indonesia held its benchmark rate at 5.75% last week (chart 2), with economists split between a hold and a hike. It did, however, act on two other fronts. It raised the deposit facility rate by 25 bps to 5.00% to try to attract inflows. It also cut banks’ rupiah reserve requirement by 2 ppts, from 9% to 7% in two steps, to release liquidity. BI has raised its benchmark rate by 1 ppt this year, all of it in May and June. Even so, Indonesian assets remain under pressure. Policy concerns, among other factors, have weighed on the rupiah, equities and bonds. Equities took a further hit after MSCI proposed in mid-October a two-step downgrade from emerging market to standalone status. That would exclude Indonesian stocks from MSCI’s major benchmarks and the tracker funds that follow them, raising the risk of large outflows. Separately, Indonesia continues to step up efforts against persistent peatland fires, whose haze has degraded air quality in several neighbouring countries. 

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**South Korea**
The BoK kept its policy rate at 3.00% last week, a widely expected outcome after back-to-back hikes in July and August. The pause gives the board time to assess external developments and the effects of its earlier tightening. CPI inflation, at 2.9% y/y in September, remains above the 2% target. Growth is robust, supported by AI-driven demand for exports, with export volumes up more than 20% y/y on a three-month average basis (chart 3). Further tightening this year is therefore plausible, and many investors are eyeing November. However, much of the recent rise in inflation looks externally driven, through import prices, with energy import prices up sharply (chart 3). Demand-driven inflation appears limited so far, with retail sales volumes barely growing. Growth, too, has been led by exports rather than domestic demand. Looking at headline inflation and growth alone may therefore overstate how much room the BoK has for further tightening.

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**The Philippines**
Moving to the Philippines, the BSP raised its policy rate for a fourth consecutive meeting last week with a larger-than-expected 50 bp move, taking it to 5.50%. Its inflation problem is more acute than that of most peers. As a heavy energy importer, the Philippines saw an outsized surge in CPI inflation on higher oil prices. Inflation reached 7.2% y/y in September, well above the 2 to 4% target (chart 4). Developing El Niño conditions threaten adverse food supply shocks, adding a second source of upward pressure. A persistently weak peso, which hit a record low beyond 63 per US dollar this month, opens a third channel through import prices. The peso’s nominal effective exchange rate now sits at its weakest level since at least 2017. All this tightening is happening against a weak growth backdrop. GDP grew just 2.3% y/y in Q2 2026, the slowest pace since 2009 outside the pandemic. That makes the Philippines’ economic catch-up a harder task than usual.

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**Japan**
Looking ahead, markets face a pivotal week, with the Fed deciding on 28 October, the ECB on 29 October and the BoJ on 30 October. Markets expect the BoJ to hold at 1.25% for now, with the next hike seen in December instead. This fits the bank’s step-by-step approach to normalisation since it ended negative rates in March 2024. Domestic indicators broadly support continued gradual tightening (chart 5). CPI inflation, at 1.9% y/y, is close to the 2% target, with lingering upside risks from oil prices and a weak yen. Wage growth remains firmly positive, with nominal cash earnings up 3.8% y/y and real earnings up 1.5% y/y. Tankan business sentiment is strong, at 19 for manufacturers and 20 for non-manufacturers. Other indicators paint a softer picture. Real household spending is still falling, down 3.1% y/y, and consumer confidence remains subdued.

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**Thailand**
The week also brings Thailand’s rate decision on 28 October. As noted earlier, the Bank of Thailand is just about the only central bank in the region to have cut this year. That stands in stark contrast with peers, which have mostly tightened or stood pat. The soft domestic backdrop behind February’s cut has persisted. Real GDP contracted 0.2% q/q sa in Q2 2026, with private consumption weighed down by household debt of 85.2% of GDP. Foreign tourist arrivals are also running about 4% below last year’s pace. More broadly, Thailand remains a laggard among its regional peers (chart 6). Real GDP only climbed back above its pre-pandemic level around the end of 2023 and now sits about 7% higher, the smallest gain in the group. This points to deep scarring from the pandemic, especially in the tourism and household sectors. Foreign arrivals reached nearly 33mn in 2025, still well short of the almost 40mn recorded in 2019.

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Asia

Economic Letter from Asia: Decisions, Decisions

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Among the early reporting countries, I present flash readings for the S&P PMIs in October. Only two of these reporters, the United Kingdom and India, show stronger headline PMI readings in October than they had in September. For reporters Germany, the U.K., Australia, and the United States, stronger PMI readings for the manufacturing sector emerge in October compared to September. However, only the U.K. and Japan report stronger services readings in October than they reported in September.

The weakness in services is very broad-based, while the weakness in manufacturing is mixed. The impact on the headline causes readings to be weaker in most cases in October than they were in September. This rounds out the picture of an uneven economy as central banks are on the path to fight what has been an excess of inflation, as energy prices continue at uncomfortably high levels.

However, these results are only for the month of October. If we look at the three-month averages, which are based on historical final data and so do not include the October ‘flash’ readings, we have stronger readings across the board for the headline PMI. We have stronger readings across the board except for India in services. Also, over three months, the performance of the manufacturing sector is mixed, with four stronger and four weaker reporters.

For six months the picture is more uneven, as slightly more readings are weakening compared to the 12-month readings that are strengthening. However, over six months the U.S. shows strengthening on all three sector readings, as does India. Three-sector weakness over six months comes from Australia, while Japan, the U.K., France, Germany, and the European Monetary Union all show the headline weaker over six months, driven by a weaker services sector.

Over 12 months all the readings are stronger for all three sectors for all country comparisons except the U.S. For the U.S., weaker readings are in the services sector and the composite index compared to a year ago.

The queue percentile standings paint an upbeat picture, with the average composite reading at a 52nd percentile standing, above its historic median; manufacturing at a 58th percentile standing is looking quite strong, while services at a 46.8 percentile standing shows that the services sector has performed below its median performance on data back to 2021. Australia and India are the weakest on these timelines in terms of their ranking for their composites as well as because they have below-median results for their manufacturing and services sectors. The U.S. shows the strongest statistics on this comparison, with an 86.8 percentile standing for its composite, a 77.9 percentile standing for manufacturing, and an 85.3 percentile standing for services. Among the remaining countries, only France has a composite reading below its median, meaning it is below a ranking of 50%, while Japan manages a headline ranking of 72.1% despite having a services ranking below its 50% mark, and it does that on the strength of a manufacturing ranking in its 80.9 percentile.

Changes over 12 months show declines in all three PMI sector readings only in India and in Australia. The U.K. and France show improvements in all three sectors over 12 months, while the monetary union and Germany show headline declines over 12 months caused by a weakening services sector in the face of solid increases in manufacturing.

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**On Balance**
The bottom line on these PMI readings is that October was a difficult month; it was backtracking as the inflation numbers have flared. Central banks have generally been raising interest rates, and it remains to be seen how weak the conventionally reported economic data will be. It also remains to be seen how aggressively central banks are going to pursue the excess inflation problem or if they're going to view it as excessive for now but largely contained and whether they are going to start to get a little bit more concerned about growth prospects. This is the balancing act we need to look at for the period ahead. Are the central banks confident enough to go more aggressively after inflation, or are they too worried about whether growth could do anything more than raise rates modestly to defend their own credibility? That is the question.

S&P PMIs Show Mixed but Broad Weakening in October

Andrew Cates

**When the winners stumble**
The market retreat in the week to 16 October was striking for its pattern rather than its scale. Assets that had delivered the largest gains since the start of the year generally suffered the largest losses. For every ten percentage points of year-to-date gains, roughly 1.8 points were surrendered during the week (chart 1). Emerging-market equities and the Nasdaq were among the biggest casualties; broad US bonds and long-dated investment-grade credit edged higher. This looks more like a reversal of crowded positions than a wholesale reassessment of the economic outlook. But that distinction should not be too comforting. When market leadership is narrow, even modest doubts about its durability can prompt an outsized adjustment. Whether this episode proves fleeting will depend partly on the earnings and investment assumptions underpinning those earlier gains.

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**A global expansion with one powerful engine**
This week’s export data from Japan offer a revealing measure of the scale of the AI investment boom. Shipments of semiconductors and electronic parts are growing by more than 50% y/y, while exports of chip-making machinery have also surged. Total exports are rising at a much more modest pace (chart 2). Machinery exports are especially revealing: they reflect investment in future productive capacity, not merely demand for chips today. A weaker yen has inflated export values, but cannot plausibly explain the entire divergence. The strength of this investment cycle is real. So is its concentration. Much of the apparent resilience of global manufacturing now depends on the willingness of a relatively small number of firms to keep building computing capacity. The longer that continues, the more important the eventual returns on that investment become.

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**Britain’s awkward inflation arithmetic**
The latest UK labour-market figures complicate the outlook for inflation and interest rates. Private-sector regular pay growth, after slowing for much of the past two years, has levelled off at around 3% (3 month average, y/y) and edged higher in the latest monthly reading. Unemployment fell to 4.7% in the three months to August from 4.9 per cent in July, while payroll employment has recorded a modest increase (chart 3). Yet vacancies continue to decline, suggesting that demand for labour remains fragile. It would be premature to call this a renewed tightening of the labour market. Equally, the Bank of England cannot assume that wage disinflation will continue unaided. The uncomfortable possibility is that underlying pay pressures are proving sticky even as businesses remain reluctant to hire. That is precisely the combination that makes monetary policy difficult.

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**Housing bears the weight of high rates**
Across much of the advanced world, housing markets have reached a similar destination by different routes. Annual nominal house-price inflation has slowed to close to zero in the US, the UK, Germany and France; Canadian prices are still falling (chart 4). Adjusted for consumer-price inflation, all five markets are losing ground. Their mortgage systems, housing supply and ownership patterns differ substantially. What they share is a prolonged period of expensive finance. The consequences extend beyond homeowners’ paper wealth. Weaker housing markets weigh on construction, household confidence and the collateral available to support borrowing. They also constrain property-related tax revenues. Housing is one of the clearest channels through which more restrictive monetary conditions and higher bond yields are working. It helps explain why an economy that continues to grow can nevertheless feel sluggish to many households.

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**China’s investment problem deepens**
China’s latest figures this week challenge the idea that investment has simply migrated from property development to more productive industries. Real-estate investment is contracting by more than 20% y/y. Manufacturing investment has also turned negative, and investment in power, gas and water supply has followed it below zero after several years of rapid growth (chart 5). These are different sectors, with different drivers, but their simultaneous weakness is telling. Industrial production is still expanding by more than 5% y/y while retail sales are growing by barely 1%. China continues to produce far more vigorously than its households spend. That leaves growth dependent on exports at a time when trading partners are increasingly resistant to absorbing additional Chinese supply. For the rest of the world, the result is weaker Chinese demand alongside continued downward pressure on traded-goods prices.

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**The rising cost of power**
Electricity has continued to emerge as a major constraint on the very investment boom that has helped sustain growth. Wholesale prices have increased sharply across major markets over the past year: French prices are more than three times their earlier level, those in Spain and the UK have roughly doubled, and prices in the US Mid-Atlantic market have risen by close to 80% (chart 6). The causes are not identical. French nuclear availability and Iberian hydrological conditions matter, as do local generation and transmission bottlenecks. It would be too simple to attribute every increase to data centres. Nevertheless, growing demand from electrification and computing is arriving faster than power systems can always accommodate. This matters well beyond the technology industry. Higher electricity costs squeeze households and energy-intensive businesses before any promised productivity dividend from AI becomes visible. The paradox of this expansion is becoming clearer: the investment intended to make economies more productive may, in the meantime, make them more expensive to run at least in the short term.

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The global economy has proved remarkably resilient in the face of war, political uncertainty and persistently high borrowing costs. Yet resilience is not the same as strength. Growth has become increasingly dependent on a narrow investment boom, particularly in artificial intelligence, while its financial and physical costs are mounting. Last week's market retreat exposed the concentration of investor enthusiasm (chart 1), while Japanese exports revealed the growing importance of semiconductor investment to global industry (chart 2). Elsewhere, the picture is less reassuring. British wage disinflation appears to be stalling (chart 3), housing markets remain subdued (chart 4), and China's investment weakness has spread well beyond property (chart 5). Meanwhile, rising electricity prices point to another constraint on growth (chart 6). The underlying question is whether the investment sustaining the expansion can deliver sufficient productivity gains to justify its rising costs.

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Charts of the Week: Growth on Borrowed Strength

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance dropped by 6,000 to 194,000 in the week ending October 17 from 200,000 in the week ending October 10, revised from 199,000. This is the lowest level since the July 18 week and suggests a relatively stable labor market. The four-week average was 197,750 in the October 17 week, down from 198,750 in the October 10 week, revised from 198,500. The Action Economics/Haver Analytics Survey looked for 200,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose 25,000 to 1.728 million in the week ending October 10, up from 1.703 million in the week ending October 3, revised from 1.710 million. This is the highest level since the August 29 week. The four-week moving average was 1.711 million in the October 10 week, up from 1.707 million in the October 3 week. The insured unemployment rate was unchanged at 1.1% in the October 10 week, where it has held since the week of August 29.

The insured unemployment rate varies greatly across individual states and territories. In the week ending October 3, no state had an insured unemployment rate above 2.00%; the highest was in New Jersey (1.98%). The lowest rates were in South Dakota (0.20%), Louisiana (0.29%), Florida (0.31%), Alabama and North Dakota (both 0.33%), North Carolina (0.35%), Arkansas (0.36%), Iowa and Tennessee (both 0.41%), Kentucky and Nebraska (both 0.43%), Kansas and Wyoming (both 0.44%), Idaho (0.45%), New Hampshire (0.47%), Georgia (0.48%), and Mississippi, Virginia and Wisconsin (all 0.49%). Rates in other notable states include Texas (0.89%), Pennsylvania (1.18%), Illinois (1.26%), New York (1.37%) and California (1.67%). 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 6,000 to 194,000 in the week of October 17.
- Continuing claims rose by 25,000 to 1.728 million in the week ending October 10.
- The insured unemployment rate was unchanged at 1.1% in the week of October 10.

U.S. Initial Unemployment Claims Dropped in the Week of October 17

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The INSEE survey for France that evaluates manufacturing and services sector firms shows a strong rebound for manufacturing in October and a solid rebound for services in the same month. However, the two sectors are experiencing significantly different environments, with the industry climate reading for manufacturing at a 76.5 percentile standing, putting it in the top 25 percentile of all performances back to 2001. The services climate reading is at a 42.8 percentile standing, leaving it below its historic median over the same period.

**Manufacturing**
The manufacturing survey shows manufacturing production expectations improved slightly, moving from a -9 reading in September to -8.5 in October; the recent trend for production increased to 2.3 in October from -1.4 in September. While participants in the survey found the prospects for their own industry, the personal likely trend rose to 18.6 from 14.3 in September. The assessment of the industry trend is still a weak one with a 40th percentile standing; however, the personal likely trend is quite strong at a 93.8 percentile standing. This shows that participants have a much more upbeat view of their own industry compared to their expectations for the manufacturing sector as a whole. Since the survey is a broad one across sectors, these results make the survey somewhat inconsistent with itself.

Orders and demand improved sharply in October with the net rating of -10.5, sharply improved from -15.8 in September. The response for foreign orders and demand showed an even stronger positive shift to -1 from -10.1 in September. The rankings for orders and demand show a 74.2 percentile standing for the overall reading, while foreign orders & demand have an 87.3 percentile standing; both of these are quite strong.

The outlook for prices diverges, with firms seeing their own likely price and trend for their industry at 10.6 in October, lower than 14.6 in September. However, for the manufacturing sector price level, they look for an escalation to 31.1 in October from 24.7 in September. The own likely price trend has a 78.1 percentile standing, while the manufacturing price level has an 83.3 percentile standing; both are looking for significant upward pressure on prices.

**Services**
The services survey in October shows an increase in the climate indicator to 99.3 from 97.8 in September; however, it still leaves the sector with a 42.8 percentile standing, below its historic median. The three-month average and the 12-month average of the climate gauge both show improvements; in both cases, they're relatively small, but a lot of that is the result of the smoothing. In terms of the rankings, the rankings for the three-month and 12-month measures are fairly similar to the ranking for the reading for the current month in October.

The outlook improved to -9 in October from -10 in September but still has only a 34.6 percentile standing, nearly a lower 1/3 standing for the outlook.

For sales, the observed performance over the last three months weakened to -5 in October from -1 in September. However, the expectations for three months ahead improved to 3.9 from 0.6 in September. The past observed trend is weak with a 22.5 percentile standing, while the expected result for the three months ahead has an above median, at a 60.8 percentile standing. With such a weak outlook, the turnaround on sales is surprising.

On the price side, there are slightly mixed results, with the observed trend over three months falling to 2.2 in October from 3.4 in September against the expected trend over the next three months, which moved up to 5 from 4.6 in September. The ranking of the past three-month trend is a 77.8 percentile standing; the ranking for the expected trend is a stronger 89.2 percentile standing.

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**Summing up**
For both services and industry outlooks, we see concerns or expectations of higher prices ahead. Manufacturing shows a split view on the recent growth trend versus the trend that respondents are expecting for their own industries, while for services, the overall industry expectation is upbeat despite a low ranking on the past three-month trend.

In assessing what these things mean for France, it's difficult to say because the country is involved in this current upheaval with nationwide protests, some of them of terrific intensity. One thing the survey tells us is that, at least at the time these demonstrations were occurring, the economy was performing fairly well. We'll have to look in the coming months to see how much of this dissatisfaction winds up undercutting what had been a relatively stable-to-strong economy with improving expectations, but also one layered with inflation concerns.

France

French Industry and Services Both Improve

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Mortgage applications fell 5.3% w/w (-40.4% y/y) in the week ending October 16, the 7th consecutive weekly decline and after declining 2.7% w/w (-37.2% y/y) in the week ending October 9, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house fell 7.3% w/w (-17.9% y/y) in the latest week, after declining 4.0% w/w (-16.1% y/y) in the October 9 week. Applications for loan refinancing fell 2.0% w/w (-58.6% y/y) in the October 16 week following a decline of 0.4% w/w (-56.0% y/y) in the October 9 week.

The effective interest rate on a 30-year fixed-rate loan fell 12bps to 7.63% in the week ending October 16 from 7.75% in the week ending October 9, and after rising for 8 consecutive weeks. The rate on 15-year fixed-rate mortgages fell 18bps to 6.91% in the October 16 week from 7.09% in the October 9 week. The 30-year Jumbo rate fell 19bps to 7.50% in the latest week from 7.69% in the October 9 week. The rate on a 5-year ARM declined 9bps to 6.87% in the October 16 week from 6.96% in the October 9 week.

The share of applications for refinancing an existing loan rose to 39.0% of total applications in the week of October 16 from 37.7% in the week ending October 9. The adjustable-rate mortgage (ARM) share of activity was unchanged at 10.5% in the latest week.

The average size of a mortgage rose 0.5% w/w (-10.3% y/y) to $372,100 in the week ending October 16, after declining 2.0% w/w (-7.5% y/y) to $370,200 in the week ending October 9. The average size of a purchase loan was unchanged at $444,700 in the October 16 week after declining 0.8% w/w in the October 9 week. The average size of a loan to refinance a mortgage rose 4.5% w/w to $258,400 in the week ending October 16 after declining 3.9% w/w to $247,200 in the October 9 week.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Applications for loans to purchase and applications for loan refinancing both declined in the latest week.
- Interest rate on 30-year fixed-rate loans fell 12bps to 7.63%, the first decline in 8 weeks.
- Average loan size rose slightly in the October 16 week.

U.S. Mortgage Applications Fell in the October 16 Week

**Factories do the lifting**
The October flash purchasing managers' surveys carried a consistent message. Output is still expanding across most of the advanced world, but the pace eased almost everywhere, and the balance between sectors has shifted. German manufacturing recorded its strongest reading in years and now sits comfortably above German services; the same ordering holds in Japan and, more narrowly, across the euro area as a whole. A year ago factories were the laggard in every one of these economies. The United States remains the outlier in both level and mix, with services still ahead and composite output far above anything in Europe, while France slipped back below the expansion threshold and Australia fell further still. Germany's ifo survey, released in the same week, pointed the same way: a fourth consecutive improvement in business climate, driven by expectations rather than by any assessment of present conditions, which in fact slipped. Firms might be positioning for a recovery they cannot yet see in their order books.

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**Good news on growth, less bad news on prices**
For most of this year the global data have surprised on the upside for activity more than for inflation, and equity markets have moved with that gap. The pattern is not new, but its persistence through an energy price shock is notable. Core CPI inflation has been stubbornly unremarkable: around two and a half per cent in the United States, the euro area and Japan, with none of the three moving materially higher over the past six months even as headline rates climbed. Unit labour costs tell a similar story outside Japan, where they are rising faster and accelerating. On the evidence so far, the energy shock has not been spreading into wages, services prices or expectations in the way that would compel further restraint.

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**The bond market draws a different inference**
The rise in bond yields reflects the financing demands of the current expansion as well as expectations for monetary policy. Upside surprises across the G10 have coincided with a climb in the ten-year Treasury yield, which remains well above its level at the start of the year despite retreating from its peak. Investment upswings typically require substantial capital, but the scale of spending on AI infrastructure is adding to demand for finance at a time when governments also face large borrowing needs. Spending on data centres, computing equipment and the electricity infrastructure to run them requires funding today against returns expected much later. Higher yields raise borrowing costs and reduce the present value of those prospective returns, making the investment harder to justify.

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**Incomes are not the engine**
Strip the expansion back to the household and the picture thins considerably. Real disposable income per head is growing by a little over half a per cent in the United States and less than that in the euro area; in Britain and Japan it is falling. Consumption has nonetheless held up, which means that saving has given way. The October confidence surveys suggest households themselves are not comfortable with the arrangement. German consumer climate weakened further to among its lowest readings on record, British confidence dropped sharply, and French and euro area measures both deteriorated. American households are the exception only in part: the Conference Board's headline rose on a firmer assessment of current conditions, while its expectations component sits below the level the Conference Board itself associates with recession risk, and the Michigan measure remains pinned near its historical floor.

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**Spending the portfolio**
In the United States the gap between weak income growth and resilient consumption has been bridged by wealth. The relationship in the data is unusually tight: when household net worth runs ahead of its trend relationship with income, households save less out of current income, and when it falls behind, they save more. The latest observation sits at the far right of more than a hundred quarters of history, with net worth some ninety percentage points of disposable income above trend, and almost all of that excess held in equities. This is not a borrowing story and it need not end badly. But it does mean that consumption is now underwritten by asset valuations rather than by earned income, and that a sustained fall in equity prices would transmit to slower spending through the saving rate rather than through the credit channel.

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**The revisions point to one place**
The narrowness shows up in the forecasts as clearly as in the data. Since January, the Blue Chip consensus for next year's growth has been raised meaningfully only for Taiwan and South Korea, with marginal upgrades for India and the United States. Germany, France, Mexico, Brazil, Canada, Britain and Japan have all been marked down. The upgrades track the semiconductor supply chain almost exactly. That concentration is visible in the American capital stock too, where spending on information processing equipment and software has risen by more than forty per cent since the end of 2023 while every other category of business investment has fallen, and which now accounts for a substantially larger share of real business investment than it did before the pandemic. An expansion resting on one capital spending cycle, one stock market and a falling saving rate is a resilient one, but it is not a broad one. That is the case for central banks to tread carefully before leaning against it further.

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Four central banks are deciding policy this week, and the first two have set the tone. The Federal Reserve left its policy rate unchanged while the Bank of Canada delivered a further quarter-point increase. The European Central Bank reports today and the Bank of Japan at the end of the week. Markets have given them an awkward backdrop. Ten-year Treasury yields have climbed by roughly a third of a percentage point since the summer, touching 5.3 per cent at the start of this month before easing back towards 5 per cent, while equities have gone almost nowhere, the S&P 500 having traded in a narrow range since early August. The October flash surveys, meanwhile, left little doubt that the global expansion is still intact, though factories are now doing more of the work than at any point in the past two years (chart 1). Activity data have been beating expectations by more than prices have, and world equities have broadly moved with that gap (chart 2), yet bond markets have drawn a different inference from the same run of numbers, pushing yields and financing costs higher as the surprises accumulated (chart 3). The composition of the demand behind those numbers is where the discomfort lies. Real household incomes are barely growing in the United States and the euro area and are falling outright in Britain and Japan (chart 4), while American consumption leans to an unusual degree on a stock of household wealth that sits far above its historical relationship with income (chart 5). Forecasters have marked up next year's growth almost exclusively where semiconductors are made (chart 6). The expansion is real. The question for policymakers is how much weight it can bear.

Charts of the Week: Resilience on Narrow Foundations

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