Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030930d.jpg" width="353">
The United Kingdom released revised Gross Domestic Product data showing that the economy rose twice as fast in the second quarter as preliminary data had revealed. The new data are the result of a major revision in the National Accounts. The revisions include revised data on construction from the Department of Trade and Industry, the results of the latest available surveys, new information on prices and, for the first time, the use of annually weighted and chained estimates of volume measures. The base year has been changed from 1995 to 2000. 
The attached chart compares the old and new measures of real output. Although growth in 2002 has been reduced to 1.7% from 1.9%, the longer term trend of annual growth is somewhat above that indicated by the old data.

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<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">2Q 03 </th>
<th scope="col">1Q 03</th>
<th scope="col">4Q 02&nbsp;</th>
<th scope="col">3Q 02&nbsp; </th>
<th scope="col">2Q 02&nbsp; </th>
<th scope="col">1Q 02 </th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Real GDP % Change</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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<td class="firstcol">New Chained Volume&nbsp;</td>
<td>0.6</td>
<td>0.2</td>
<td>0.5</td>
<td>0.7</td>
<td>0.5</td>
<td>0.3</td>
<td>1.7</td>
<td>2.1</td>
<td>3.8</td>
</tr>
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<td class="firstcol">Old Constant Prices</td>
<td>0.3</td>
<td>0.1</td>
<td>0.5</td>
<td>0.9</td>
<td>0.6</td>
<td>0.3</td>
<td>1.9</td>
<td>2.1</td>
<td>3.1</td>
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The United Kingdom released revised Gross Domestic Product data showing that the economy rose twice as fast in the second quarter as preliminary data had revealed. The new data are the result of a major revision in the National [...]

Revised UK GDP Data Show Greater Growth

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The general business activity index in the Texas Manufacturing Outlook Survey conducted by the Federal Reserve Bank of Dallas stood at -14.5 in April compared to -14.4 in March. It has been negative since May 2022. An increased 15.0% of respondents reported improved business activity this month while a higher 29.5% of respondents reported a worsening of conditions. The company outlook index of -6.3 in April compared to -16.2 in March, up from a low of -23.0 in May 2023. Data were collected between April 16-24 from 87 Texas manufacturers.

In the survey of current conditions, the production index rose to 4.8 this month from -4.1 in March. The shipments series improved to 5.0 after having been negative for 17 of the prior 18 months. The new orders growth rate rose to 3.8, its first positive reading since April 2022. The unfilled order series jumped to -5.9, its highest level since September of last year. The hours-worked reading rose to -2.3 from -7.9, up from -11.8 in January. The wages & benefits index surged to 30.6 from 20.4. Working the other way, the employment reading fell to -0.1 following two successive positive figures. A steady 14.6% of respondents reported more hiring while a higher 14.7% reported a decline.

Inflation indicators weakened this month. The index of prices received for finished goods fell to 5.5 compared to 11.0 in March, but has risen from a low of -6.7 in November of last year. A greatly lessened 14.2% of respondents reported raising prices while a reduced 8.7% reported lowering prices. The index of prices paid for raw materials fell to 11.2 this month from 21.1 in March and remained well below its 84.2 high in November 2021.

Expectations for future manufacturing activity improved. The future general business activity index of 7.9 compared to 1.3 in March. The future production index rose to 34.8, up from a low of 2.8 in April of last year. The future orders growth index rose to its highest level since March 2022. The future employment index rose to its highest level in nine months. The future hours-worked index series also surged. The expected wages & benefits reading eased slightly and remained well below its February 2022 high. The future capital spending measure eased slightly.

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

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- Current business index is unchanged while future reading improves. 
- Production, shipments, new orders growth & hours-worked improve.
- Wages strengthen but employment moves lower.
- Finished goods & raw materials price indexes ease.

Texas Manufacturing Activity Holds Steady in April

Robert Brusca

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The European monetary union showed weakness in April; the overall index fell to 95.6 this month from 96.2 in March. The April reading of 95.6 is slightly above the February level of 95.4 but still below the January reading of 96.0. Over these last four months, the index has vacillated and has a narrow range but has eroded more often than it has improved across sectors, and it is still locked in an eroding trend.

The component indexes of the industrial sector, retailing, construction, and services, as well as consumer confidence, generally showed weakness month-to-month or stability in April. Services and construction were unchanged in April from their March levels demonstration stability. Retailing fell by one point, posting a - 7 reading in April from -6 in March. The industrial sector slipped to -11 in April from -9 in March; these sectors exhibited weakness. The exception was consumer confidence, and that wasn't much of an exception, as it rose to -14.7 in April from -14.9 in March. However, it has been gradually improving from January to February through March and April. From mid-2022 onward, consumer confidence, despite its clear deep negative readings, has been engaged in a process of ongoing improvement.

Of the 17 countries in the monetary union that report to this survey in a timely fashion, seven of them showed declines in their overall indexes in April, compared to March. March was a month of relative strength with only four countries weakening relative to February. However, February had been the opposite, with weakness prevalent across monetary union members. In February, only six showed improvement compared to the month before – and each of the four largest economies showed deterioration.

The queue percentile standings rank the countries and the sectors on data back to January 2020. The monetary union has a 31.7 percentile standing on that timeline, leaving it in the lower third of all observations reported during that span. Retailing and construction have queue percentile standings above the 50th percentile which marks them as above their median estimates over this period. The industrial sector is the relative weakness with the 22.4 percentile standing, followed by consumer confidence with a 24.7 percentile standing. The services sector is climbing with a 45.9 percentile standing closing in on its median value over the past four years.

Across member countries, only three have percentile standings above their historic medians for this period. They are Cyprus, Greece, and Spain. They're hardly bellwethers for the community and all Mediterranean countries. Among the largest four economies, especially Germany, the largest economy in the monetary union, weakness prevails. Germany has a 20.7 percentile standing, 36.8% for France, 44.1% for Italy, and 56.4% in Spain. The largest EMU economies are not very strong on a relative scale (queue standings).

Among the rest of EMU members, Estonia has the weakest standing at 6.7%, Finland at 10.3%, Austria at 17.4%, Belgium at 23.2%, and five others clustered in the 30-percentile range. For all EMU members large and small, the percentile standing averages 37.3%, a bit higher than the ranking for the EMU which is a size-weighted measure.

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Europe has improved. The service sector reading from the EU Commission shows net positive diffusion readings. All the other components are still net negative, showing sector level of indicator level contraction. Over four months, the net changes in these components to the EU indexes show declines in four of five sectors. And over 12 months, all sectors are weaker except consumer confidence. The EMU area is still struggling.

Europe

EMU Indexes Ease in April

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Consumer spending remains firm. Personal consumption expenditures (PCE) increased 0.8% (5.8% y/y) during March after rising an unrevised 0.8% in February. A 0.6% increase had been expected in the Action Economics Forecast Survey. Adjusted for price changes, PCE rose 0.5% last month (3.1% y/y), also steady with February.

Real spending on durable goods increased 0.9% in March (4.3% y/y) after rising 1.4% in February. Real spending on motor vehicles improved 0.8% (-2.9% y/y) after rising 2.8%. Real home furnishings & appliance outlays increased 0.8% (5.6% y/y) after rising 0.6% in February while real spending on recreational goods & vehicles jumped 1.2% (9.8% y/y) after edging 0.1% higher in February. Spending on other durable goods rose 0.7% (9.9% y/y) after a 2.2% jump.

Real spending on nondurable goods jumped 1.3% last month (3.0% y/y), after falling in each of the prior two months. Real clothing and footwear purchases were off 0.6% (+3.0% y/y) following a 0.8% decline. Real food & beverage buying surged 1.1% (2.4% y/y) after rising 0.2%. Real outlays on gasoline & other energy products rose 4.3% (-0.3% y/y) after falling sharply in three of the prior four months. Spending on other nondurable goods increased 1.2% (4.7% y/y) following a 0.3% rise.

Real spending on services increased 0.2% (2.8% y/y) in March following a 0.6% February gain. Real spending on housing & utilities held steady (0.6% y/y) after easing 0.1% in the prior month while real healthcare spending rose 0.6% (4.5% y/y) after a 0.5% rise. Real spending on food services & accommodations improved 0.3% (4.0% y/y) after gaining 0.6% in February while real spending on financial services & insurance rose 0.4% last month (3.5% y/y), about the same as in February. Real spending on transportation services fell 0.7% (+4.2% y/y) after rising 1.9% in February.

Personal income rose 0.5% (4.7% y/y) in March after increasing an unrevised 0.3% in February. A 0.5% increase had been expected. Wages & salaries rose 0.7% (5.9% y/y) for the second consecutive month. Rental income jumped 1.6% (8.4% y/y), about as it did in February and proprietors’ income rose 0.3% (4.3% y/y) after a 0.4% gain. Income from assets improved 0.1% (2.3% y/y) after a 2.0% decline and current transfer receipts rose 0.3% (3.1% y/y) after rising 0.6% in February. Government social benefits rose 0.3% (3.0% y/y) after strengthening in each of the prior two months.

Disposable personal income increased 0.5% (4.1% y/y) in March following a 0.2% February rise. After adjusting for price changes, disposable income improved 0.2% (1.4% y/y) last month after easing 0.1% in February and holding steady in January.

As spending growth again outpaced the gain in disposable income, the personal saving rate fell to 3.2% from an unrevised 3.6% in February. The rate was down from a May 2023 high of 5.3% and the lowest since October 2022. Personal saving declined 9.2% (-35.9% y/y) after falling 13.7% in February.

The PCE chain price index rose 0.3% (2.7% y/y) in March, the same as it did in February but down from 0.4% in January. These increases were up from minimal monthly change during the fourth quarter of last year. The price index excluding food and energy rose 0.3% (2.8% y/y), the same as it did in February, but these were below a 0.5% January rise. Goods prices rose 0.1% last month (0.1% y/y) following a 0.5% rise. Services prices rose 0.4% (4.0% y/y) following a 0.3% increase. Services prices excluding energy & healthcare increased 0.5% (4.4% y/y) after rising 0.3% in February. Food prices eased slightly (+1.5% y/y) last month after rising 0.1% in February. Energy goods & services prices rose 1.2% (2.6% y/y) following a 2.3% rise.

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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- Spending growth holds at strongest rate since June.
- Disposable income increase picks up.
- Core PCE price index gain stabilizes at lessened rate.

U.S. Personal Spending Remains Firm; Core Price Rise Steadies in March

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**Money growth still contracting; credit growth is flat**
**EMU Money Growth-** Money and credit growth in the European Monetary System has ground to a halt with M2 money supply still decelerating in nominal terms. Three-year growth is at 2.6% at an annual rate, two-year growth at a 0.5% annual rate, and growth over three months is flat. When viewed in real terms, there's a little more progress that appears but the growth rates for real money supply are negative. Over three years European Monetary Union money grows at a rate of -2.7%; over two years it is weaker at a -3.8% annual rate; over 12 months real money supply declines at a 2.5% annual rate. Over three months, real money supply has declined at a 1.3% annual rate, reversing the step-down in contraction. There's a gradual and somewhat uneven movement toward money growth contraction to be less restrictive; however, negative real money growth rates persist and when it comes to nominal money growth the performance is simply flat.

**EMU Credit Growth-** Credit growth in the monetary union faces similar trends. Private credit grows at 2.7% at an annual rate over three years, at a 1.9% annual rate over two years, but private credit growth over three months has only a 0.2% annual rate of growth. Nominal private credit growth has slowed its pace so much that over three months its pace has been close to zero. Looking at private credit growth in real terms, we see it shrinks at a 2.7% annual rate over three years; it shrinks at a 2.5% annual rate over two years, that's further reduced to a -2% annual rate over 12 months. Over three months, the annual rate for credit growth is further reduced to -1.1%. The degree of contraction for credit in the European Monetary Union has been reduced; however, the EMU continues to demonstrate weak nominal credit growth and declining inflation adjusted credit growth.

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**Global money center monetary conditions**
**Japan makes its own way-** Globally, Japan stands alone among major monetary centers, in terms of nominal money growth. Japan's money growth in nominal terms has been extremely steady at a 2.8% annual rate over three years, at a 2.5% annual rate over two years, and at a 2.5% annual rate over one year. Over three months, money growth in has ticked up to 3.2% at an annualized rate. These are extremely stable nominal growth rates. The chart clearly demonstrates Japan’s relative stability comparing only year-on-year rates. In real terms, Japan's money growth shows mixed patterns with growth of 0.5% over three years, which weakens and shows declines over two years and over one year. Those declines in real money growth transition to a 0.5% annual rate over six months and a 2.1% annual rate of real growth over the last three months, as real balance growth accelerates.

**U.S. and U.K. trends; commonalities and differences-** U.S. and U.K. nominal money growth rates show a swale pattern with nominal growth rates over three years strong, giving way to declines (or weakness) in nominal money growth over two years and 12 months and then swinging up toward expansion and rising in the most recent three months. U.S. nominal money growth, for example, declines by 0.3% over 12 months and gains at a 1.3% annual rate over six months and at a 1.7% annual rate over three months. In the U.K., over 12 months M4 declines at a 2% pace; it trims that to an annualized rate of decline at a -0.2% pace over six months and then it grows at a 4% annual rate over three months. Real money balance growth in the U.K. and in the US shows ongoing contraction with the increase in money supply not sufficient to compensate for the increase in inflation that has been experienced. Over three years U.S. and U.K. money growth rates have a 3% ‘handle,’ over two years the ‘handle’ grows to 6%. Then U.S. and U.K. trends diverge. Over 3 months, real M2 declines in the U.S. to a -2.8% pace while U.K. real M4 growth declines at a -0.9% annual rate. How each country gets there in terms of growth rates differs. Short-term trends are mixed globally.

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**Money balances are not promoting growth-** As a result of these patterns, it's not possible to make a particular overarching statement about money supplies except the money supply is not particularly stimulative right now. Japan is a partial exception to this statement but looking at the U.S., the U.K., and the European Monetary Union, we see weak-to-declining nominal money supply growth and we see declining real balances for money supply. The growth rates all show contraction, but the pace of contraction is mixed. The bottom line is that money growth isn't stimulative. It isn’t helping to promote growth in these developed money-center economies. Meanwhile, all eyes and ears are glued to clues on interest rate prospects.

**The transition fails to transition-** Central banks have generated these results while looking to transition from their tightening modes to an easing mode. This process was led by the rhetoric in the U.S. where three rate cuts at one point were queued up for this year and were relatively widely anticipated by the public statements and projections of Federal Open Market Committee members and by the markets. However, with the turnabout in short-term U.S. inflation trends, the outlook for rate cuts has been reduced – for some it has been eliminated. The Federal Reserve is talking about not having seen enough inflation progress. In the European Monetary Union, there are still expectations of a rate reduction by mid-year but, of course, that's going to depend on what happens on the inflation front, which has become somewhat touch-and-go. Japan is looking to hike interest rates. Inflation there remains higher than its target, but it hasn't accelerated as much as the Bank of Japan and market participants thought that it might. This could put the outlook for Japanese monetary policy in a state of uncertainty. It has also helped to muddy the waters in forex markets where Japan rates hikes, and a series of U.S. rate cuts had been expected to drive market trends and now all that is in a state of flux.

**Growth and inflation trends are mixed-** Inflation rates and the money center countries have uniformly been reduced when comparing year-over-year rates of change. However, over the last six months, inflation rates on a national or regional level have flattened out or annual rates of inflation have begun to show less decline than they did previously. Meanwhile, growth trends judged from industrial production show ongoing strong declines in Japan, declines in the EMU while the U.S. and the U.K. feature industrial vacillation.

**A muddy picture-** The global picture right now can only be considered muddy. Currently growth is mostly low, poor and in some places, showing contraction. However, central banks have reduced inflation, which is no longer accelerating in major way, but it may not be making the kind of progress central bankers would prefer to stay on a rate-cut path. Inflation is over target generally and central bankers are on the fence about how much longer they need to hold rates at elevated levels to make the inflation progress they desire. Still, no Western money center central banks have rate hikes as their base case. There are still some things Western central bankers can agree on.

Revised UK GDP Data Show Greater Growth

Summary

Louise Curley

More Economy in Brief

Texas Manufacturing Activity Holds Steady in April

EMU Indexes Ease in April

U.S. Personal Spending Remains Firm; Core Price Rise Steadies in March

Money and Credit Growth Are Stuck in a Transition Phase

	2Q 03	1Q 03	4Q 02	3Q 02	2Q 02	1Q 02	2002	2001	2000
Real GDP % Change
New Chained Volume	0.6	0.2	0.5	0.7	0.5	0.3	1.7	2.1	3.8
Old Constant Prices	0.3	0.1	0.5	0.9	0.6	0.3	1.9	2.1	3.1