Tom Moeller

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As the Omicron variant emerged, labor market signals were mixed in December. Nonfarm payroll employment increased 199,000 (4.6% y/y), down from a 249,000 gain in November, revised from 210,000. For all of 2021, payrolls increased 2.8% after falling 5.8% in 2021. The level of payroll jobs remained 2.3% below its peak in February 2020. A 399,000 rise in December payrolls had been expected in the Action Economics Forecast Survey.

The unemployment rate declined to 3.9% in December from 4.2% in November. Earlier figures were revised. A 4.1% rate had been expected. Employment in the household survey increased 651,000 last month following a 1.090 million November rise. The labor force rose 168,000 after rising 516,000 in November. The overall unemployment rate, including those who were marginally attached or working part-time for economic reasons, fell to 7.3% last month from 7.7% in November. It was the lowest level since February of 2020 and compared to a recession high of 22.9%.

Average hourly earnings increased 0.6% in December following a 0.4% November gain, revised from 0.3%. The 4.7% y/y increase compared to a 5.1% November high. A 0.4% monthly gain had been expected for December.

The employment & earnings data are collected from surveys taken each month during the week containing the 12th of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

* **Hiring growth is slowest of 2021.**
* **Jobless rate falls to lowest since February 2020.**
* **Earnings growth picks up.**

U.S. Payroll Growth Disappoints; Earnings Strengthen As Jobless Rate Falls in December

Robert Brusca

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The EMU economic sentiment index fell to 115.3 in December from 117.6 in November. EMU-wide consumer confidence back-tracked, retailing backtracked and services backtracked. Rising month-to-month was the industrial sector index and construction. The sectors stepping back in December are those sectors that are relatively more impacted by interpersonal transaction activity an important point with the virus spreading in Europe.

Among the 18 early-reporting EMU members in the table, 14 reported declines and only four showed index improvement in December (all small economics: Cyprus, Slovenia, Latvia, and Lithuania). That compares to seven countries reporting declines in November and eight reporting declines in October.

The headline is the weakest since May of last year. March 2021 was the month in which the EMU sentiment index made its jump to the 100 mark, and it improved to 110 by the next month. So, the comparison to the May 2021 level is to an intermediate step up as the economy in Europe dug out from the severe covid weakness. From May 2021 onward, the index improved; October 2021 was the high reading at 118.6. During this phase, improvements were incremental. The headline EMU index has now declined from this post-covid peak for two-months running.

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Despite the month's step back, some aspects of the economy are doing quite well. On comparison back to January 1991 and, as of December 2021, industrial confidence is at its best level, order volume is at its best level, export order volume is at its best level and employment expectations are at their best level. The four largest economies all have industrial readings in the top 10 percentile of their queue of data on that timeline and Germany is touting the second best reading ever on the timeline (better only in September 2021).

However, consumer confidence is not as robust. Among the four largest economies Italy has the highest queue standing for confidence in its 92nd percentile with France in its 80th percentile, Spain, and Germany both below their respective median markers. Those are huge differences.

Retailing also gets consistently lower marks from the largest economies. France and Italy give their sectors mid-80th percentile standings while Spain logs a 78.7 percentile standing; Germany sinks to a 64.8 percentile standing. Note that the EMU standing for retailing (87.4%) is relatively stronger than for any of the large economies pointing to consistently better results in this sector in the smaller economies of the EMU.

The service sector readings show wide differences in rankings among the four largest EMU economies. The overall ranking in EMU is in its 65th percentile, but for Germany, the largest economy in the EMU, the rank standing for the sector is at its 20th percentile. Italy has a 98.5 percentile standing, its fourth highest since 1991. Spain has a 91.3 percentile standing. France has a 77.7 percentile standing.

The construction sector shows some variability with a very high standing for Italy, a strong reading in Germany and a moderate reading in Spain.

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We can be fairly certain that in the EMU with its harmonized rules and common currency, one of the main things creating country differences in performance is the spread of the virus and the various national reactions to contain it. Omicron has been a huge factor in Europe in December. Although Omicron is extremely transmissible, it has been comparatively less impactful on people's heath- fewer deaths per reported per infection and fewer ICU stays in the hospital. Still, WHO has warned against describing Omicron as a mild variant.

_The WHO - the UN's health agency - said the number of global cases has increased by 71% in the last week, and in the Americas by 100%. It said that among severe cases worldwide, 90% were unvaccinated._

_"While Omicron does appear to be less severe compared to Delta, especially in those vaccinated, it does not mean it should be categorised as mild," Dr Tedros told a press conference on Thursday._

_"Just like previous variants, Omicron is hospitalising people and it is killing people." [(Source here)](https://www.bbc.com/news/world-59901547)._

However cautious or careful with its language WHO may be, the facts and the trends are clear. And the more that unvaccinated people get Omicron, the fewer are the unvaccinated people that have no immunity. Omicron also spreads in the vaccinated community but with less heath impact. Given Omicron's stepped-up infection rate, infection is going to have spread enormously and that is going to lay the groundwork for better immunity in its wake. That is probably the most positive statement we can take away from this infection cycle. We do not know if this is the last variant as some doctors/researchers maintain or if it covid will die out or remain in circulation as a threat but a lesser risk in the future. But given the way it has helped to spread immunity in this infection iteration, the outlook for growth in the future is made brighter with a lesser risk from covid ahead even though we can't categorize exactly what that future will look like.

Europe

EMU Confidence Backtracks in December

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Consumer credit outstanding strengthened a record $40.0 billion (5.8% y/y) during November following a $16.0 billion October gain, revised from $16.9 billion. An $18.8 billion November rise had been expected in the Action Economics Forecast Survey. The ratio of consumer credit outstanding-to-disposable personal income rose to 24.3% in November, the highest level since March 2020.

Revolving consumer credit balances increased $19.8 billion (6.1% y/y) in November after falling 11.1% in 2020. Credit provided by depository institutions (90% of the total and mostly credit card debt) rose 7.0% y/y versus an 11.0% decline in 2020. Credit union borrowing (6% of the total) rose 4.1% y/y after falling 6.4% in 2020. The value of finance company loans (2% of loans) declined 12.9% y/y following a 21.9% shortfall in 2020.

Nonrevolving credit usage grew $20.1 billion (5.6% y/y) in November following a 3.6% rise in 2020. Federal government borrowing, which issues over 40% of nonrevolving credit, grew a steady 4.1% y/y. Depository institution loans (26% of credit) grew an accelerated 8.6% y/y, up from 2.7% in 2020. Finance company borrowing (17.0% of loans) rose 5.9% y/y, quicker than the 3.6% growth in 2020. Credit union loans (14.0% of the total) increased 5.3% y/y, double the 2020 increase.

The value of student loans rose 2.7% y/y as of Q3:21 versus 3.4% growth in 2020. The value of motor vehicle loans increased 6.7% y/y in Q3:21 after rising 3.4% in 2020.

These Federal Reserve Board figures are break-adjusted and calculated by Haver Analytics. The breaks in the series in 2005, 2010 and 2015 are the result of the incorporation of the Census and Survey of Finance Companies, as well as changes in the seasonal adjustment methodology. The consumer credit data are available in Haver's **USECON** database. The Action Economics figures are contained in the **AS1REPNA** database.

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- Revolving credit growth explodes.
- Nonrevolving credit usage picks up.

U.S. Consumer Credit Growth Surges in November

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The U.S. trade deficit in goods and services deepened to $80.2 billion during November after shrinking to $67.2 billion in October, revised from $67.1 billion. A deficit of $75.5 billion had been expected in the Action Economics Forecast Survey. Exports edged 0.2% higher (21.1% y/y) in November following an 8.2% October surge. Imports rose 4.6% (20.6% y/y) after increasing 1.0% in October.

The trade deficit in goods deepened to a record $99.0 billion after shrinking to $83.9 billion in October. It compared to a $97.8 billion deficit in the advance report issued last week. Exports of goods declined 1.8% (+23.0% y/y) after an 11.1% October surge. Nonauto consumer goods exports weakened 3.0% (+27.0% y/y) in November after six consecutive monthly increases. Industrial supplies & materials exports fell 1.5% (38.1% y/y) after a 12.4% increase. Capital goods exports declined 2.7% (+14.0% y/y) in November after rising 7.3%. Auto exports declined 2.0% (-2.2% y/y) following a 14.1% jump. To the upside, exports of foods, feeds & beverages rose 5.1% (16.1% y/y) after surging 17.1% in October.

Imports of goods increased 5.0% in November (19.4% y/y) after rising roughly 0.9% in each of the prior three months. Auto imports surged 4.5% (-8.7% y/y) after rising 5.7% in October. Foods, feeds & beverage imports strengthened 3.4% (22.8% y/y) after a 1.9% gain. Nonauto consumer goods imports rose 4.6% (10.8 % y/y) after rising 1.5% in October. Capital goods imports edged 0.4% higher (13.1% y/y) after falling 0.7% in October. Industrial supplies & materials imports improved 10.3% (60.9% y/y) after easing 0.8% in October.

Petroleum imports rose 7.8% in November and more than doubled y/y. The monthly rise occurred as the price of crude oil strengthened 5.2% to an average $72.3 per barrel from $68.77 in October. The price has roughly doubled y/y. Nonpetroleum imports rose 4.7% (14.8% y/y) after modest gains in the prior two months.

The real (adjusted for price changes) trade deficit in goods widened to a near-record $110.8 billion (chained 2012 dollars) in November from $97.1 billion in October. Real exports of goods declined 2.5% (+4.3% y/y) in November after a 9.6% October gain. Real imports of goods rose 4.0% (8.2% y/y) after easing 0.3% in October.

The surplus of trade in services increased to $18.8 billion in November, its largest surplus since June. The surplus remained down from a high of $26.7 billion in January 2018. The value of services exports rose 5.0% (16.9% y/y) as travel exports rose roughly one-third (103.3% y/y) after rising 9.0% in October. Service imports improved a steady 2.3% (25.3% y/y) including a 4.2% rise (183.3% y/y) in travel imports.

The trade deficit with China was little changed at a seasonally adjusted $28.4 billion. Exports rose 0.4% (11.3% y/y) while imports also edged 0.4% higher (3.2% y/y). The trade deficit with Japan held steady at $3.6 billion as exports rose 2.4% (33.8% y/y) and imports rose 1.5% (-10.1% y/y). The goods trade deficit with the European Union widened to $19.4 billion, a record for the series which dates back to 2009. Exports fell 2.2% (+19.7% y/y) and imports rose 5.3% (17.2% y/y).

The international trade data, including relevant data on oil prices, can be found in Haver's **USECON** database. Detailed figures on international trade are available in the **USINT** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- October's narrowing is mostly reversed.
- Petroleum imports continue to rise with higher prices.
- Exports are little changed

U.S. Trade Deficit Nears Record in November

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The ISM Index of Services Activity fell sharply during December to 62.0 from the record 69.1 in November. During all of 2021, the index advanced to a record 62.5 from 54.3 in 2020. The Action Economics Forecast Survey had expected 67.0 for December. Haver Analytics constructs a composite index combining the services index and the manufacturing reading. This index strengthened to 61.6 in December from 68.2 in November and also was a record 62.3 for all of last year. These series date back to July 1997.

In the latest services survey, the business activity reading weakened to 67.6 from the record 74.6 in November. The new orders index also fell sharply to 61.5 from 69.7. A lessened 30.8% of respondents reported more orders while an increased 14.7% reported a decline. The employment measure fell to 54.9 from 56.5. A raised 30.1% of respondents indicated higher employment and an increased 22.0% reported it lower. The percentage indicating that employment held steady fell sharply to 47.9% of respondents. The supplier delivery index (NSA) dropped sharply to 63.9 in December from 75.7 in November. A greatly increased 8.6% of respondents reported faster delivery speeds while a reduced reported slower, the least since April.

The prices index was fairly steady at 82.5 after falling from a near-record 82.9 in October. A lessened 57.4% of respondents reported price increases versus 63.0% in November, while 1.5% reported price declines. A higher 41.1% reported stable prices.

The export orders series rose to 61.5 and reversed most of its decline to 57.9 in November. The record 65.8 was reached in July. The imports index rose to 55.5 in December from 50.5 in November. The order backlog measure declined sharply to 62.3, a three-month low, while the inventory change index eased to 46.7 from 48.2. These series are not seasonally adjusted and are not included in the nonmanufacturing composite total.

The ISM figures are available in Haver's **USECON** database, with additional detail in the **SURVEYS** database. The expectations figure from Action Economics is in the **AS1REPNA** database.

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- Total services index sets new record in 2021.
- Business activity, new orders and delivery speeds post sharp monthly declines.
- Price index remains strong.

U.S. ISM Services Index Falls Sharply in December

Sandy Batten

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Initial claims for unemployment insurance increased 7,000 in the week ended January 1 to a seasonally adjusted 207,000 (-73.5% y/y); the prior week was marginally revised up from 198,000 to 200,000 reported initially. The Action Economics Forecast Survey expected 200,000 claims for the latest week. The 4-week moving average rose to 204,500 from 199,750 in the previous week.

Initial claims for the federal Pandemic Unemployment Assistance (PUA) program, which expired on September 6, 2020, are no longer included in this report. This program provided benefits to individuals who were not eligible for regular state unemployment insurance benefits, such as the self-employed.

In the week ended December 25, continued weeks claimed for regular state unemployment insurance were 1.754 million (-66.1% y/y), up from 1.718 million in the previous week (revised up slightly from 1.716 million). The insured unemployment rate was unchanged at to 1.3% in the December 25, the lowest since 1.2% in the week of March 14, 2020.

Continued claims for both the Pandemic Unemployment Assistance (PUA) program and for Pandemic Emergency Unemployment Compensation (a program for those unemployed who had exhausted their state benefits) are no longer included in this report as both programs have expired.

In the week ended December 18, the not seasonally adjusted total number of continuing weeks claimed in all programs plummeted 199,869 to 1.722 million, the lowest level since the week ended November 23, 2019.

The state insured rates of unemployment in regular programs vary widely. In the week ending December 18, the highest insured unemployment rates were in Alaska (3.05%), New Jersey (2.30%), Minnesota (2.25%), California (2.24%), Illinois (1.87%) and Massachusetts (1.87%). The lowest rates were in Virginia (0.14%), Alabama (0.30%), Kansas (0.40%), North Carolina (0.41%), Arizona (0.43%) and South Dakota (0.43%) Other state insured rates of unemployment in regular programs included Pennsylvania (1.53%), New York (1.76%), Texas (0.87%), and Florida (0.50%). These state rates are not seasonally adjusted.

Data on weekly unemployment claims going back to 1967 are contained in Haver's **WEEKLY** database, and they are summarized monthly in **USECON**. Data for individual states are in **REGIONW**. The expectations figure is from the Action Economics Forecast Survey and is in the **AS1REPNA** database.

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- Initial claims edged up but remain below pre-pandemic level.
- Continued claims in regular state programs down 66% from a year ago.
- Insured jobless rate unchanged at 1.3%, lowest since 1.2% in March 2020.

U.S. Unemployment Insurance Claims Rise Slightly

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Total factory orders rose 1.6% m/m (15.5% y/y) in November on top of an upwardly revised 1.2% m/m gain in October (initially 1.0% m/m). This was the seventh consecutive monthly increase and the largest in six months. The Action Economics Forecast Survey expected a 1.5% m/m rise. Much of the November gain was due to a 6.5% m/m jump in transportation orders (led by a 34.0% m/m surge in nondefense aircraft orders) following declines in both September and October. Orders excluding transportation rose a more modest 0.8% m/m (15.1% y/y) in November, down from 1.5% in October.

Durable goods orders rebounded in November, rising 2.6% m/m (14.8% y/y) after an upwardly revised 0.1% m/m increase in October (originally -0.4% m/m). Again, the marked increase was due mostly to the jump in transportation orders. Orders for machinery, electrical equipment and furniture fell in November from October while orders for computers and electronic products posted a solid 4.0% m/m gain in November, its largest monthly increase since 2015.

Total shipments rose 0.7% m/m (13.0% y/y) in November, their eighth consecutive monthly gain, on top of a 2.0% increase in October. Excluding transportation shipments, the remainder of shipments increased 0.6% m/m (14.9% y/y) after a 1.7% m/m rise in October and a 1.2% m/m gain in September. A 2.2% m/m gain in shipments of nonmetallic mineral products, a 1.7% m/m increase in shipments of wood products and a 0.9% m/m rise in transportation shipments led the overall November increase.

Nondurable goods orders, which equal nondurable goods shipments, increased 0.7% m/m (16.3% y/y) in November after an outsized 2.3% m/m gain in October. A 1.6% m/m rise in shipments of plastics and rubber products and a 1.2% m/m increase in petroleum shipments led the overall increase.

The value of unfilled orders increased 0.7% m/m (6.5% y/y) in November, up from a 0.3% gain in October. Excluding transportation, unfilled orders rose 0.8% m/m (15.3% y/y) following a 0.7% m/m increase in October. The November increase was led by gains of 1.0% m/m in machinery, 1.4% m/m in computers and electronic equipment and 1.2% m/m in electrical equipment and appliances.

Inventories rose 0.7% m/m (9.0% y/y) in November, their smallest rise in three months, following a 0.9% m/m gain in October. Both durable goods and nondurable goods inventories posted 0.7% m/m increases in November.

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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- Seventh consecutive gain in new orders and largest increase in six months.
- Shipments rose a more modest 0.7% m/m.
- Unfilled orders picked up while inventories slowed.

U.S. Factory Orders and Shipments Rose in November

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The ADP National Employment Report indicated that nonfarm private sector payrolls rose 807,000 (5.2% y/y during December following a 505,000 November increase, revised from 534,000. A 360,000 December rise had been expected in the Action Economics Forecast Survey. The three-month average gain rose to 625,000. That was the strongest since July and up from 386,000 as of September. October payrolls increased 563,000, revised from 570,000.

Large-sized payrolls led last month's increase with a 389,000 increase (4.4% y/y) after increasing 244,000 in November. It was the strongest advance since June 2020. Medium-sized payrolls increased 214,000 last month (6.9% y/y) following a 147,000 November rise. It was the largest increase since June of this year. Small-sized payrolls added 204,000 persons in December (5.2% y/y) following a 114,000 November gain. It was the largest increase also since June 2021.

Within industry sectors, private services employment continued to lead the month's increase with a 669,000 surge (5.4% y/y) in December after rising 401,000 in November. It was the largest increase since June. Leisure & hospitality jobs grew by 246,000 (18.4% y/y) which doubled the November increase. The number of trade, transportation & utilities jobs rose 138,000 (3.3% y/y), the largest increase since September of last year. Professional & business services jobs followed with a 130,000 gain (4.0% y/y), improved from the 24,000 increase in December 2020. The number of education & health services jobs rose 85,000 (3.6% y/y), the strongest increase in six months and up from a 20,000 low in December of last year. Employment in financial services improved 24,000 (1.6% y/y) after increasing 13,000 in November. The number of information sector jobs rose 12,000 (2.0% y/y) following a 9,000 November increase.

Employment amongst goods-producing firms increased 138,000 (4.0% y/y) last month following a 104,000 November rise. The three-month average monthly increase of 117,000 was the largest since August of last year. The number of factory sector jobs rose 74,000 last month (3.1% y/y) after increasing 47,000 in November. The size of construction sector payrolls rose an improved 62,000 (5.0% y/y), the largest increase since June of last year. Employment in the natural resource & mining sector rose 2,000 (9.2% y/y) but monthly increases have slowed consistently since May.

The Automatic Data Processing Research Institute survey covers 411,000 companies and includes about one-fifth of U.S. private payroll employment. The data are processed by Moody's Analytics Inc., then calibrated and aligned with the BLS establishment survey data. The ADP data cover private sector employment only.

The ADP National Employment Report data can be found in Haver's **USECON** database. Historical figures date back to 2001 for private employment and the industry breakdown, and 2005 for the business size breakout. The expectation figure is available in Haver's **AS1REPNA** database.

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* **Robust gains are exhibited across payroll size.**
* **Construction & factory sectors firm.**
* **Leisure & hospitality again lead service-sector growth.**

U.S. ADP Nonfarm Private Payrolls Show Surprising Strength in December

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

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The **Industrial Materials Price Index** from the Foundation for International Business and Economic Research (FIBER) declined 1.7% during the last four weeks, after easing 0.4% in the prior four weeks. Together, these declines left prices unchanged during the last twelve months. During July, factory sector production rose an improved 1.4% y/y.

**Crude Oil & Benzene** group costs led the overall price weakening as they moved 3.3% lower (-12.6% y/y) in the latest four week period. The price of West Texas Intermediate crude oil declined 5.0% to $62.94 per barrel and remained 14.7% lower y/y. It had fallen to a low of $58.50 per barrel in the second week of May. The cost of the petrol-chemical benzene, used for making plastics & synthetic fibers, weakened 7.0% (-32.3% y/y). Excluding crude oil, the industrial commodity price index weakened 1.5% (+1.0% y/y) during the last four weeks.

Lower **Miscellaneous** group prices followed with a 2.9% weakening in the latest four week period, but prices remained up 4.0% y/y. Lumber prices fell 9.9% (+15.2% y/y) during the last four weeks. Natural rubber prices also were fairly weak as they fell 6.9% (-11.5% y/y) in four weeks. Working higher, tallow costs (used in the soap industry) improved 0.6% (32.9% y/y) over the last four weeks.

**Metals** group prices fell 1.2% (+1.1% y/y) over four weeks. Lead prices declined 2.6% (-4.3% y/y) while copper scrap prices weakened 1.6% (+5.9% y/y). Aluminum prices were off 1.5% in four weeks (+7.5% y/y), and the cost of zinc declined 1.4% (+0.5% y/y). Tin prices eased 0.4% (+4.4% y/y), but steel scrap costs edged 0.2% higher (-6.7% y/y) over four weeks.

Prices in the **Textile** group moved 0.3% higher (2.0% y/y) during the last four weeks. Burlap costs improved 3.9% (15.9% y/y), but cotton prices fell 0.9% (+2.3% y/y) in four weeks.

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

**Monetary Policy and the Fed’s Framework Review** is the title of today’s speech by Fed Chair Jerome H. Powell, and it can be found [here](https://www.federalreserve.gov/newsevents/speech/powell20250822a.htm).

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- Decline reverses earlier strength.
- Crude oil costs lead the weakening.
- Lumber & metals prices follow, but textile costs rise.

FIBER: Industrial Commodity Prices Decline Sharply in Latest Four Weeks

Andrew Cates

**The US housing market**
This first chart below highlights the growing downside risks to the US economic outlook stemming from the housing market. The S&P Case-Shiller home price index has slowed sharply from the pandemic-era surge, while the NAHB (National Association of Homebuilders) housing market index has weakened to levels historically associated with falling home prices. Housing matters because it is not just a cyclical sector but also a key transmission channel for the broader economy: consumer confidence, household balance sheets and credit conditions are all heavily influenced by shifts in the housing market.

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**China’s economy**
The latest run of data from China has also reinforced downside risks for the broader world economy. As the Citigroup Economic Surprise Indices show below, China-specific data have more consistently undershot expectations in recent days. China’s July releases in particular disappointed: retail sales growth slowed to just 3.7% y/y, with weakness in autos and furniture hinting that earlier policy-driven boosts are fading. Industrial output and fixed-asset investment also came in below consensus, while property prices continued to fall and retail sector investment contracted by double digits. Even the labour market showed strain, with unemployment edging higher. The worry is not just China’s slowdown in isolation, but the spillovers. Softer Chinese demand feeds directly into global supply chains, commodity markets, and regional trade partners. Combined with tariff and non-tariff headwinds from the US, the risk is that China’s structural challenges spill into weaker global growth momentum.

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**UK inflation** 
Persistently high services inflation remains one of the biggest headaches for UK monetary policy - and the UK is far from unique in that regard. Services are wage- and demand-sensitive, and their stickiness complicates the calibration of monetary policy even as broader disinflation takes hold. This week’s July upside surprise to UK services inflation was driven in no small part by airfares, which spiked 30% month-on-month – the largest July rise on record. While such volatility may prove temporary, it nonetheless lifted year-on-year services inflation to 5.0%, well above comfort levels. Still, the offsets are important: stripping out airfares and other volatile components, underlying services momentum appears to have eased, while broader data on wages, employment, and activity point to cooling demand. Nevertheless, this tension – headline stickiness versus softer underlying trends – underscores why the Bank of England is treading carefully.

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**Inflation expectations and energy**
US medium-term inflation expectations have been unusually decoupling from oil prices in recent weeks. Normally, falling oil prices would help anchor breakevens, yet the 5-year forward inflation rate has edged higher of late even as WTI has slipped. This probably reflects US tariff policies that are shifting inflation dynamics away from energy and toward trade-related costs. At the same time, a weaker dollar has lifted imported prices, and the upward creep in expectations suggests markets may be more actively questioning whether the Fed’s “higher for longer” stance is sufficient to contain medium-term inflation risks.

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**Clean energy**
Pivoting to more structural issues, the stark divergence between the global clean energy equity market index and the broader S&P 500 underlines the mounting challenges facing the renewables sector at present. While US equities have pushed to record highs, clean energy stocks have languished, weighed down by policy uncertainty, higher financing costs, and a more sceptical public mood. In the US, shifting political winds and uneven implementation of green subsidies have clouded the outlook for investment, while globally, resistance to renewables has grown as consumers and businesses grapple with high energy bills. Rising interest rates have further undermined the economics of capital-intensive clean energy projects, eroding returns and delaying investment pipelines. At the same time, bottlenecks in transmission infrastructure, permitting delays, and questions over the pace of the net-zero transition have all dented confidence. The result is a sector underperforming dramatically even as the urgency of the climate challenge grows.

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**Renewables versus non-renewables**
Global energy consumption data show how limited—and in some respects, stalled—the transition away from fossil fuels has become. Oil, gas, and coal still dominate the energy mix, with shares that have proven remarkably resilient over the past several years. In fact, coal use has ticked higher of late as countries turned back to cheaper, more secure supplies amid energy price spikes and supply disruptions. While renewables have grown rapidly in percentage terms, their absolute contribution remains small compared with the scale of fossil fuel demand. Nuclear and hydro have also struggled to gain ground, leaving the overall mix looking more like a story of continuity than transformation. The result is a global transition that has not just slowed but, in key areas, has partially reversed—highlighting the gulf between climate ambitions and energy realities.

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Recent financial market gains have been underpinned by resilient global data, AI-fuelled optimism, and hopes that most central banks will continue to loosen monetary policy. Yet beneath the surface, a more complicated picture may be emerging. In the US, housing indicators are flashing warnings about household balance sheets and credit channels (chart 1), while China’s latest data—covering retail sales, industrial output, and property—underscore persistent weakness (chart 2). In the UK, this week’s data showing sticky services inflation is complicating the Bank of England’s easing path (chat 3), while back in the US, medium-term inflation expectations have been rising despite softer oil prices (chart 4), hinting at a more disruptive role for trade policy. Against this cyclical backdrop sit deeper structural challenges: global energy consumption remains overwhelmingly dependent on fossil fuels, the clean energy sector has lost momentum amid high costs and policy uncertainty, and equity markets have punished renewables even as climate imperatives intensify (charts 5 and 6). Together, these dynamics suggest that while markets continue to trade on optimism, the mix of weak housing signals, patchy Chinese demand, sticky inflation, and an uneven energy transition potentially leaves the global outlook more fragile than headline performance implies.

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Charts of the Week: Cracks Beneath The Shine

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Existing home sales rose 2.0% (0.8% y/y) to 4.01 million (SAAR) in July after falling 2.7% in June to an unrevised to 3.93 million and rising 1.0% to 4.04 million in May, according to the National Association of Realtors (NAR). The Action Economics Forecast Survey expected 3.91 million unit sales in July. Last month’s sales decline accompanied a decline in the effective 30-year mortgage interest rate to 6.72% from 6.82% in June. The sales figures are based on closings of sales signed over the past couple of months.

Existing single-family home sales rose 2.0% (1.1% y/y) during July to 3.64 million units after a 3.0% decline to 3.57 million in June and a 1.4% May rise to 3.68 million. Sales of condos and co-ops rose 2.8% (-2.6% y/y) to 370,000 after holding steady in June.

Sales were mixed across the country last month. Sales in the Northeast increased 8.7% (2.0% y/y) to 500,000 following an 8.0% June decline. Sales in the South improved 2.2% both m/m and y/y to 1.85 million, after falling 2.2% in June. Sales in the West rose 1.4% (-4.0% y/y) to 720,000 after a 1.4% June gain. Falling by 1.1% (+1.1% y/y) to 940,000 were sales in the Midwest after falling 4.0% in June.

The median price of all existing homes (NSA) in July weakened 2.4% (+0.2% y/y) from the June record to $422,400. The median price of an existing single-family home fell 2.3% (+0.3% y/y) to $428,500 in July, and the median price of condos & co-ops declined 3.1% (-1.2% y/y) to $362,600 last month. Prices for homes in the West declined 1.1% (-1.4% y/y) to $620,700 while prices in the Northeast fell 6.3% (+0.8% y/y) to $509,300. In the South, prices were off 1.8% (-0.6% y/y) to $367,400 while in the Midwest, home prices fell 1.1% (+3.9% y/y) to $333,800.

The number of existing homes for sale (NSA) rose 0.6% (15.7% y/y) to 1.55 million units in July. The supply of homes on the market at the current selling rate (NSA) slipped to 4.6 months, still nearly the highest level in nine years, up from a low of 1.6 months in January 2022.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. Mortgage interest rates can be found in the **WEEKLY** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

The minutes to the latest **FOMC** meeting can be found [here](https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20250730.pdf).

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- Home sales remain below recent high in December.
- Sales are slightly higher m/m in most of country.
- Median sales price slips from record high.

U.S. Existing Home Sales Rise Slightly in July; Home Prices Decline

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The Current Activity Diffusion Index from the latest Manufacturing Business Outlook Survey (MBOS) conducted by the Federal Reserve Bank of Philadelphia, fell more than 16 points to -0.3 in August from 15.9 in July. The index has posted negative readings, which indicate that activity is declining, in four of the previous five months. A reading of +5.0 for August had been expected by the Action Economics Forecast Survey. Nearly 30% of respondents reported an increase in activity in August, down from 31.7% in July, while 30% reported a decline, up markedly from 16% in July. Responses to this month's survey were collected from August 11 to August 18.

The headline index reflects the answer to a single question on activity. Haver Analytics calculates an ISM-adjusted current activity diffusion index from five key components using the methodology employed in constructing the national ISM index. That calculated index fell to 49.1 in August, the first reading below the critical 50 level that separates expansion from contraction since April, from 51.2 in July.

Looking at the component indexes, both new orders and shipments posted significant declines in August with orders plummeting into negative territory at -1.9 versus 18.4 in July. This was the first negative reading for new orders since the tariff-induced plunge in April. Thirty-four percent of respondents reported an increase in orders in August, little changed from 35% in July. In contrast, 36% reported a decline in orders in August, up markedly from 17% in July. Shipments also declined significantly in August although they remained in positive territory at 4.5 versus 23.7 in July. Twenty-nine percent of respondents reported an increase in shipments, down slightly from 32% in July. In contrast, 24% reported a decline, up markedly from 9% in July.

Firms continued to report overall increases in employment, but at a slower pace. The employment index fell 4 points to 5.9 in August from 10.3 in July. Most firms continued to report no change in employment levels (74%), while the share of firms reporting increases (16%) exceeded the share reporting decreases (10%, up from 7% in July). The average workweek index rose from 0.4 in July to 4.7 in August, its highest reading since March.

There was still no indication that increased tariffs have damaged supply chains. The delivery times index slipped further below zero to -5.4 in August, the fourth negative reading in five months indicating that delivery times are shortening, from -4.7 in July. Thirteen percent of respondents reported an increase in delivery times in August, up from 8% in July, while 18% reported a decrease versus 13% in July.

Inflation indicators continued to rise in August. The prices paid index jumped to 66.8 in August, its highest reading since May 2022, from an already elevated 58.8 in July. Nearly 67% of respondents reported an increase in input prices while no respondent reported a decline. The prices received index edged up to 36.1 in August, its highest reading in three months, from 34.8 in July. In the answer to a special question, firms expected a 4.1% increase in the prices of their own products over the coming year, up from 3.8% when this question was last asked in the May survey.

The outlook for the next six months brightened marginally in August with the Future Activity Index rising to 25.0 following an increase to 21.5 in July. Forty-one percent of respondents expect activity to increase over the coming six months, the same as in July, while 16% expect it to decline, down from 20% in July. The pace of increase in both new orders and shipments is expected to pick up. Delivery times are expected to increase only slightly. Employment growth is expected to slow. The outlook for capital expenditures rose markedly to 38.4 in August, the highest reading since January.

The Manufacturing Business Outlook Survey (MBOS), conducted by the Federal Reserve Bank of Philadelphia, is a monthly survey of manufacturers in the Third Federal Reserve District. Participants indicate the direction of change in overall business activity and in the various measures of activity at their plants. The diffusion indexes in the MBOS represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. The series from the survey dating back to May 1968 can be found in Haver's **SURVEYS** database. The expectations forecast figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- The headline index fell more than 16 points to -0.3, led by outsized declines in both new orders and shipments.
- The ISM-adjusted composite fell below the critical 50 level for the first time in four months, also pointing to a decline in activity.
- Delivery times shortened further while both prices paid and prices received indexes posted gains.

U.S. Philly Fed Manufacturing Index Dipped Below Zero in August

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Initial claims for unemployment insurance rose to 235,000 during the week ended August 16 after falling to an unrevised 224,000 in the prior week. The Action Economics Forecast Survey expected 226,000 initial claims for last week. The four-week moving average of initial claims increased to 226,250 from 221,750. It was the highest level since the second week of July.

In the week ended August 9, the total number of unemployment insurance beneficiaries – also known as “continuing claims” – rose to 1.972 million from 1.942 million in the prior week, revised from 1.953 million. The four-week moving average rose to 1.955 million, the highest level in five weeks.

In the week ending August 9, the insured rate of unemployment (the number of beneficiaries as a percent of covered employment) was 1.3% for the eleventh straight week.

The insured unemployment rate varied greatly across individual states and territories. In the week ended August 2, the highest unemployment rates were in New Jersey (2.74%), Puerto Rico (2.62%), Rhode Island (2.52%), California (2.14%), Minnesota (2.20%) and Massachusetts (2.15%). The lowest were in South Dakota (0.27%), Florida (0.39%), North Carolina (0.47%), Kansas (0.58%), Georgia (0.59%) and Louisiana (0.61%). Rates in other notable states include Pennsylvania (1.90%), Illinois (1.72%), New York (1.73%), Texas (1.25%) and Michigan (1.17%). 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. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Initial claims surge to highest level in eight weeks.
- Continuing claims extend upward trend.
- Insured unemployment rate holds steady.

Economy in Brief: 2022

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