Robert Brusca

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<p><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080919a.jpg" align="left" border="0" height="265" width="353"></p>
<p>The upward pressure on the PPI abated for one month but the
longer term momentum is still very clear. The PPI headline fell by a
harp 0.5% but that index is still up by 8.1% year-over-year and at a
faster pace over three months and six months. The Core PPI is up by
0.2% in the month and by 3.4% year-over-year but even that is still
accelerating from 12 months to 6 months to 3 months.</p>
<p>The accompanying chart shows the year-over-year trends by PPI
sector. Capital goods inflation is still on the rise and that one is an
energy price free sector. Consumer goods inflation peaked months ago
and intermediate goods inflation is just being blunted now.<span style=""> </span>Germany is one of the low inflation
euro economies. This is not a good picture if it is from one of the
best performers.</p>
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<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col"> <b>Germany PPI</b></th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3"><b>%m/m</b></td>
<td colspan="5"><b>%-SAAR</b></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td><b>Aug-08</b></td>
<td><b>Jul-08</b></td>
<td><b>Jun-08</b></td>
<td><b>3-mo</b></td>
<td><b>6-mo</b></td>
<td><b>12-mo</b></td>
<td><b>12-moY-Ago</b></td>
<td><b>IN Q3</b></td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>-0.5%</td>
<td>2.0%</td>
<td>1.0%</td>
<td>10.2%</td>
<td>10.4%</td>
<td>8.1%</td>
<td>1.0%</td>
<td>7.1%</td>
</tr>
<tr>
<td class="firstcol">Ex Energy</td>
<td>0.2%</td>
<td>0.8%</td>
<td>0.4%</td>
<td>5.4%</td>
<td>4.5%</td>
<td>3.4%</td>
<td>2.7%</td>
<td>5.0%</td>
</tr>
</tbody>
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The upward pressure on the PPI abated for one month but the longer term momentum is still very clear. The PPI headline fell by a harp 0.5% but that index is still up by 8.1% year-over-year and at a faster pace over three months and [...]

German PPI Drops But Still Has Lots of Upward Momentum

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Durable goods orders fell 9.3% (+10.9% y/y) in during June after rising 16.5% in May, revised from 16.4%. Orders in April fell 6.6%. A 10.0% decline had been expected in the Action Economics Forecast Survey.

The decline reflected a near-halving of orders for commercial aircraft which pulled total transportation equipment orders down 22.4% (+30.5% y/y). Orders excluding transportation rose 0.2% last month (2.2% y/y) after a 0.6% rise in May. Orders for computers & electronic products rose 0.6% (4.8% y/y) after rising 1.7% in May. Orders for machinery gained 0.4% (3.2% y/y) for the second straight month while electrical equipment, appliances & components orders inched 0.1% higher (4.7% y/y) following a 0.8% May rise. Primary metals orders gained 0.6% (-0.5% y/y) in June following a 0.7% gain and fabricated metals orders rose 0.2% (3.2% y/y) after surging 1.1% in May. Defense aircraft orders rose 9.1% (7.4% y/y) after a 10.2% May decline.

Total shipments increased 0.4% (1.8% y/y) in June following a 0.2% May rise. Shipments of durable goods industries rose 0.5% (2.9% y/y) in June after improving 0.2% in May. Transportation equipment shipments rose 0.8% (4.2% y/y) and machinery shipments gained 1.0% (1.5% y/y). Computer & electronic product shipments edged 0.1% higher (6.3% y/y) and electrical equipment & appliance & components shipments rose 0.7% (4.9% y/y). Primary metals shipments gained 0.6% (2.5% y/y) while fabricated metals shipments rose 0.2% (1.9% y/y). Shipments of nondurable goods 	rose 0.4% (0.6% y/y) following a 0.1% gain.

Unfilled orders for all manufactured products jumped 1.0% (7.1% y/y) in June after a 3.4% May rise. Excluding transportation, unfilled orders rose 0.1% (0.8% y/y), the same as in May. Backlogs of durable goods rose 1.0% (7.1% y/y) in June, reflecting a 1.6% jump (11.4% y/y) in transportation equipment, led by a 2.1% rise (14.7% y/y) in nondefense aircraft. Machinery backlogs eased 0.1% (-1.8% y/y) in June. Electrical equipment, appliances & component backlogs rose 0.1% (1.0% y/y). Order backlogs of computers & electronic products eased 0.1% (-0.2% y/y), off slightly for the third straight month.

Inventories of all manufactured products rose 0.2% (1.1% y/y) in June following a 0.1% gain in May and a 0.1% April decline. Durable goods inventories rose 0.2% (1.5% y/y) for the second straight month. Inventories of machinery gained 0.4% (2.3% y/y) while computer & electronic product inventories rose 0.1% (0.3% y/y) for the second straight month. Transportation inventories eased 0.1% (+1.6% y/y).

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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- Orders excluding transportation weaken.
- Shipments strengthen.
- Unfilled orders surge, led by aircraft; inventories increase slightly.

U.S. Advance Durable Goods Orders Decline in June as Aircraft Bookings Plunge

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Hypnotists are just trying to get you to focus on something and concentrate on it so that you can relax and they can put you into a hypnotic trance. Right now, you want to make sure that does not happen as you watch what is going on with money supply. It is not ‘entrancing’ and ought to be followed. The chart shows you that trends - and often excesses in ‘global money supply’ growth have begun in that money center country, the United States of America. And… well… here we go again? While it's very early in the game, it looks like, after a period of monetary weakness and re-escalation, U.S. money growth is now beginning to step up in the U.S. Meanwhile, in Europe and in the United Kingdom, money growth, especially real money growth, is beginning to tail off. All this is at a time when Japan's money growth, of course, has been marching to the step of a different drummer showing regular, consistent, nominal weakness and actual declines in the real money stock to try to tame its incipient inflation.

**The Policy Zone**
We are no longer in the COVID era; or even in the post-COVID era. We are now in the post post-COVID era. And monetary policy is being made based on conditions rather than remedy perceived legacy problems in the economy from COVID. We need to make that transition in our analysis too, and ask ourselves, “What's really happening?” In the U.S., the popular dogma is to claim that central bank independence is being undercut and that Donald Trump's tariffs are going to raise the inflation rate and that the Fed is losing its battle with inflation and inflation is coming because of excessive fiscal policy and the imposition of tariffs. It's a story you can believe if you want to. There's certainly some evidence to support those points; whether they completely justify that point of view, it is still too early to say. However, clearly, money supply growth in the U.S. is ramping up. The U.S. 12-month growth rate is up to 4.5%, over six months the annualized rate hits 5.5%, and over three months the annualized rate hits 6.9%. It's hard to say that that's occurring because of Trump's tariffs. At the same time, the growth rate in real money balances - that's money supply deflated by the CPI - has boosted its growth rate from 1.8% over 12 months to a 2.9% annual rate over six months to a 4.4% annual rate over three months. Is the chase on for an inflation ‘uptick’ that will not be temporary?

**Follow the leader, or go your own way?**
It will take some time to tell if the other money center countries are going to follow the leader or not. So far it looks like ‘or not.’ Money supply growth in the European Monetary Union (EMU) is actually decelerating slightly from 2.8% over 12 months to a 1.7% pace over six months to a 1.3% pace over three months. Similarly, in the EMU the growth of real balances has slipped from 0.8% over 12 months to a 0.2% annual rate over six months to a -0.6% annual rate (contraction) over three months. So far, euro area money supply is not tagging along with the U.S. trend.

**Euro-credit trends**
Meanwhile, private credit growth in Europe has stabilized with the 12-month growth rate of 2.3% that moves up to 2.4% over six months and settles back to 2% over three months, a relatively stable performance that would seem to signal ongoing moderate growth. The growth rate of private credit, deflated for the effects of inflation, shows continued growth, and beyond that the trend is unclear. Over 12 months the growth rate is 0.3%, over six months that improves to 0.8%, and over three months it drops back to a 0.1% pace. I'm not good enough at splitting hair to be able to tell you what that trend is.

**U.K. money weakens**
In the U.K., nominal money supply growth seems to be slowing, but that isn't crystal clear, with the 3.5% annual rate over 12 months moving up to a 4.1% annual rate over six months been slipping back to 1.7% over three months. It may take a few months to be able to tell if the step down to 1.7% is real or just volatility averaging out the step up over six months. U.K. money growth does not appear to be excessive or rogue; when we look at real balances, 12-month growth is -0.4%, six-month growth is -0.1% and the three-month growth rate is -1.6%. On that profile, real money growth in the U.K. does not appear to be following the U.S. rule book either.

**Japan- dealing with its own complex issues**
We know that Japan has been off on its own for a while. Japan clearly has been fighting off a bout of inflation. But, since that development is relatively new, and the previous battle with deflation was relatively long-lived, if we think in terms of inflation averaging, Japan is still dealing with an extremely small problem. Despite the appearance of some real inflation (depending on the price index you look at to establish Japanese inflation trends), Japan's inflation overshoot in contexts is only making up for lost time.

Money growth in Japan is 0.9% over 12 months; however, it's only running at a 0.1% annualized over six months and over three months. The growth of real money balances in Japan is negative. Real balance growth rates are negative on balance over three years and two years; the 12-month growth rate for real money balances is -2.3%, over six months it is -2.2%, and over three months it is -2%. The degree of restriction has faded but faded only very marginally. The main point is that in Japan, real money balances are contracting and so there is a fight to reduce inflation going on behind the scenes and that's clearing up; you can see it in the money growth rates on the chart as well if not from the level or real interest rates. Japan is balancing complex needs.

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**Are tariffs a threat or benign?**
As we sharpen our pencils or fill in our spreadsheets with guesses at the independent variables, and try to predict the future, let's not obsess too much about the independence and credibility of central banks and put too much of the blame on developing tariff policy. I'm not prepared to argue the tariffs are unimportant. In the short run, they could create some difficult decisions for monetary policy agencies. And beyond tariffs, let’s remember that the collapse of Bretton Woods and the installation of fluctuations exchange rates also did usher in an age of higher inflation. Exchange rate changes, like tariffs, are not formally inflationary but they do change (like tariffs) relative prices. There is more discussion about inflation and exchange rates than about inflation and tariffs mostly because exchange rate fluctuations became more pronounced after 1971 while tariffs were mostly being cut in periodic multilateral rounds until recently. The absence of a literature on tariffs and inflation is an artifact of economic circumstance.

**The road ahead and the traffic around us**
Whatever the ‘threat’ of tariffs, the trends in money supply are more fundamental and certainly something you don't want to lose track of although many people do lose track of money supply these days. Central banks have certainly downgraded money supply. In the U.S., relevant money supply data are released much less frequently and the data we are provided with is much less thorough than it used to be. Central banks want to be known for their interest rate policy and inflation targeting. A strange desire after they have been so unsuccessful at hitting those targets over the past four years… But of course, there are policy tools to focus on: the official interest rate the central bank implements, the guidance it gives us about the future, the way that markets price themselves relative to the central bank rate which affects the way interest rates work their way into the economy… And then, of course, there is the issue of what inflation is, and what it will be, and what assumptions monetary policy makes when it evaluates itself to decide how it's going to be presented to the public by the central bank. All of this leaves a lot of room for discretion and slippage and what monetary policy really is. It puts the central bank in a position to - as always - occupy the bully pulpit and to steer the discussion in the direction they want which inevitably is the direction that justifies the kind of policy they've decided to run. Now is a good time to pull yourself out of that cycle to step back and to look objectively at what's happening with money supply and policy and to think about what happens next. Policy is not completely about politics after all. Tariffs are not the keystone to build an outlook for the future.

Global Money Supply Begins to Show Divergences; Watch the Green Line and Don’t Get Sleepy

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Sales of new single-family home sales improved 0.6% (-6.6% y/y) in June to 627,000 (SAAR) after falling 11.6% to an unrevised 623,000 in May, and rising to 705,000 in April, revised from 722,000 according to the U.S. Census Bureau. The Action Economics Forecast Survey expected sales of 650,000 in June. The sales gain occurred as the average 30-year fixed-rate mortgage held steady m/m at an average 6.82% in June, according to Freddie Mac. So far in July the 30-year mortgage rate has fallen to an average 6.71% and compares to a low of 6.18% averaged in September of last year.

By region, new home sales varied across the country last month. Sales of new homes in the Midwest rose 6.3% (9.0% y/y) to 85,000, after falling 3.6% during May. In the South, new home sales rebounded 5.1% (-4.4% y/y) to 390,000, following a 15.1% May decline. Offsetting these gains, sales of new homes in the West weakened 8.4% (-14.4% y/y) to 131,000, after declining 8.3% in May. Showing even more weakness, new home sales in the Northeast were off 27.6% last month (-34.4% y/y) to 21,000, after holding steady in May.

The median sales price of a new home declined 4.9% (-2.9% y/y) to $401,800 (NSA) in June after rising 2.3% to $422,700 in May. New home prices were 12.7% below the all-time peak of $460,300 in October 2022. The average sales price of a new home fell 2.1% (+1.1% y/y) to $501,000 in June, following a 0.4% May decline. The average price was 7.4% below a high of $541,200 in July 2022. These sales price data are not seasonally adjusted.

The number of unsold new homes on the market rose 1.2% (8.5% y/y) to 511,000 (SA) in June, after a 1.0% May increase. The seasonally adjusted months' supply of new homes for sale rose to 9.8 months in June, the highest level since September 2022, after increasing to 9.7 months in May. The latest reading remained above a low of 6.9 months in May 2023.

The median number of months a new home stayed on the market increased to 2.8 months in June, remaining above a June 2024 low of 2.1 months. The latest number stood well above its record low of 1.5 months in both September and October of 2022, but remained below a high of 5.1 months in March 2021. These figures date back to January 1975.

New home sales are recorded when the sales contract is signed. 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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- Small gain in sales follows sharp decline.
- Sales are mixed throughout the country.
- Median sales price is lowest since November.

U.S. New Home Sales Improve Slightly in June; Prices Decline Sharply

Winnie Tapasanun

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The Kansas City Fed manufacturing composite index inched up to 1 in July from -2 in June and -3 in May, the July 2025 Manufacturing Survey by the Federal Reserve Bank of Kansas City showed, indicating Tenth District manufacturing activity increased slightly this month. The headline index was last positive in September 2022 (with a reading of 6). The July index was up from -11 in July 2024 but well below a high of 30 in March 2022. “The increase from last month was driven by nondurable manufacturing, while durable manufacturing activity continued to fall,” the Kansas City Fed reported.

The ISM-adjusted index calculated by Haver Analytics rebounded to 50.2 (NSA) in July after a 1.3-point decline to 49.8 in June, indicating expansion in factory activity for the fourth time in five months. The latest ISM-adjusted figure was above a low of 43.7 in July 2024 but well below a record-high 68.9 in March 2022.

In the latest survey, the new orders index rose to 2 in July, the first positive reading and the highest since July 2022, after a seven-point increase to -2 in June. Thirty percent of respondents (NSA) reported orders gains in July while 33% reported declines. The production index, however, fell to -3 this month after a 15-point rebound to 5 in June; these readings were well below a high of 35 in March 2022. The shipments index decreased to 3 in July after an 18-point jump to 8 in June; thus, having remained down from a peak of 39 in March 2022.

The raw materials inventory index rose to 8 in July following a 12-point drop to -9 in June, registering the second positive reading in three months and the highest since September 2022. These figures were above a low of -17 in July 2024 but well below a high of 28 in March 2022. The order backlog index, having remained negative since October 2022, plunged to -30 in July, the lowest reading since September 2024, after a 12-point rebound to -11 in June; these numbers were significantly below a record-high 43 in July 2021. Meanwhile, the supplier delivery time index rose to 7 in July, the highest reading since April, after rising to 5 in June; these readings remained well below a high of 51 in March 2022.

On the labor front, the employment index declined to -11 in July after an 11-point drop to -8 in June, posting the fifth negative reading in six months and the lowest in three months. The index was down from a high of 30 in May 2022. A lessened 13% of respondents (NSA) reported increases in the number of employees in July while a steady 23% reported decreases.

On the pricing front, the prices received index for finished products fell to 18 in July following a four-point increase to 21 in June. These readings, while up from a low of -5 in September 2024, remained well below a high of 50 in June 2022 and a record-high 63 in August 2021. Twenty-one percent of respondents (NSA) reported higher prices received in July while 6% reported price declines. The prices paid index for raw materials fell to 47 this month after a 17-point jump to 51 in June. These figures were up from a low of -1 in October 2023 but significantly down from a high of 72 in April 2022 and a record-high 85 in October 2021.

Expectations for future activity continued to stay positive, with activity in most categories expected to gain. The expectations index for six months ahead was at 8 in July, slightly down from 9 in June and up from 5 in May. The expectations indexes for raw materials inventories (8) and supplier delivery time (5) rose in July, while those for production (14), shipments (11), new orders (8), and employment (4) fell for the month; nevertheless, they remained in positive territory. To the negative side, the expectations indexes for new orders for exports (-8), backlog of orders (-5), and capital expenditures (-4) registered negative readings. The expectations index for raw materials prices held steady at a still-high 64 in July compared to a low of 13 in June 2023; the index for finished goods prices was unchanged at 48 vs. a low of 15 in October 2023.

The latest survey was conducted for a six-day period from July 16-21, 2025 and included 105 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and western Missouri.

The series dates back to July 2001. The diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Data for the Kansas City Fed Survey can be found in Haver’s **SURVEYS** database.

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- July Composite Index at 1 reflects positive numbers in materials inventories (8) and new orders (2), while employment (-11) and production (-3) post negative readings.
- Price growth cools somewhat, w/ prices paid down 4 pts. to 47 and prices received down 3 pts. to 18.
- Expectations for future activity, while edging down to 8, remain in positive territory.

Kansas City Fed Manufacturing Index Rises in July; First Positive Reading Since Sept. ’22