Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006c.jpg" width="353">
Three Central and Eastern European nations reported September CPI data today. There are hints throughout of easing inflation pressures, although these performances remain uneven.
In Estonia, the CPI, seasonally adjusted by Haver Analytics, actually fell in the month, by 0.3%. This followed at 1.1% increase in August and helped pull the year-on-year rate from 5.0% in August to 3.8% for September. Transportation and recreation were the main contributors to the softening. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006d.jpg" width="353">
Slovenia&#39;s CPI rose 0.3%, but this was notably less than August&#39;s 1.5% advance. The weaker September result pulled the year/year pace down to 2.5%, after stronger figures in four of the previous five months. Here too, transportation contributed to the slowing.
In the Ukraine, inflation remains strong and accelerated through last year, when it was up 13.5% on average over 2004&#39;s level. In September, the CPI was up 2.2%, hardly a slower pace at 29.2% annualized, but the year-on-year rates have come down considerably from last year&#39;s amounts. The Ukraine experiences wide swings in individual CPI categories, so identifying major forces on the total is an indeterminate process. This country, however, is the one among these three that did not see fuel prices ease in September. They were still going up. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006e.jpg" width="353">
In Estonia and Slovenia, transportation costs declined outright; this included falling motor fuel prices in Slovenia and we assume also in Estonia. In Slovenia, which reports more detail (in the form of the EU&#39;s HICP array), airfares also fell. As oil prices begin to drop, we note that such declines benefit every energy-consuming country. We see already how this helps in these two small nations, which are among the earliest to publish their September CPI data. A week ago, Eurostat published its &quot;flash&quot; estimate for the entire EuroZone, and at 1.8% year-on-year, it indicated a notable slowing from prior months, which have been well over 2%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGECW/@EQ/@EQ5/@EQ501/@EQ501.HTM">Consumer Price Indexes</a></th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</th>
<th scope="col">2005*</th>
<th scope="col">2004*</th>
<th scope="col">2003*</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Estonia, SA, 1997=100</td>
<td>146.2</td>
<td>146.6</td>
<td>138.4</td>
<td>133.0</td>
<td>129.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Mo/Mo</td>
<td>-0.3</td>
<td>1.1</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr*</td>
<td>3.8</td>
<td>5.0</td>
<td>4.1</td>
<td>3.0</td>
<td>1.3</td>
</tr>
<tr>
<td class="firstcol">Slovenia, SA, 2005=100</td>
<td>103.8</td>
<td>103.5</td>
<td>100.0</td>
<td>97.6</td>
<td>94.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mo/Mo</td>
<td>0.3</td>
<td>1.5</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr*</td>
<td>2.5</td>
<td>3.3</td>
<td>2.5</td>
<td>3.6</td>
<td>5.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Ukraine, SA, 2005= 100</td>
<td>112.4</td>
<td>110.0</td>
<td>100.0</td>
<td>88.1</td>
<td>80.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Mo/Mo</td>
<td>2.2</td>
<td>1.3</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr*</td>
<td>9.1</td>
<td>7.4</td>
<td>13.5</td>
<td>9.0</td>
<td>5.2</td>
</tr>
</tbody>
</table>
</body>
</html>

Three Central and Eastern European nations reported September CPI data today. There are hints throughout of easing inflation pressures, although these performances remain uneven. In Estonia, the CPI, seasonally adjusted by Haver [...]

Eastern Europe CPI Uneven, but Coming Under Control; Energy Plays a Part

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006a.jpg" width="353">
Nonfarm payrolls last month rose just 51,000. The gain fell well below Consensus expectations for a 121,000 rise and the increase was the slowest since last October, when Hurricane Katrina hit the jobs figures.
Salvaging the dim report was an upward revision to August&#39;s gain to 188,000 from 128,000, reported initially. That left the three month average increase in jobs at 121,000, down just modestly from the nine month average of 137,000. Nevertheless, the recent increases are below an average monthly gain of 165,000 last year and an average 175,000 during 2004.
From the household survey the unemployment rate fell again to 4.6%, a level recently hit in May &amp; June. Employment rose 271,000 (1.7% y/y) after a 250,000 increase during August. The labor force increased 101,000 (1.1% y/y) and the labor force participation rate held for the fourth month at 66.2%.
Suggestive of moderation in hiring activity, the breadth of one month gain in private payrolls fell to 51.4% in September from 55.6% in August. The three month diffusion index also fell to 53.2%, the lowest level in nearly one year. In the factory sector the one month breadth of gain fell further below break even to 40.5% from 43.5% in August. The three month diffusion index fell to 36.9%, also it&#39;s lowest in nearly a year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006b.jpg" width="353">
Factory sector payrolls dropped 19,000 for the sixth m/m decline this year. Job declines in machinery (+2.4% y/y), electrical equipment (+3.0% y/y), furniture (-3.2% y/y), primary metals (0.3% y/y) and nondurables (-0.9% y/y) were offset by m/m increases in the motor vehicle &amp; parts industries (-2.3% y/y) and computers &amp; electronics (+0.6 y/y).
Private service-producing jobs rose just 62,000 (1.3%) after an August gain that was taken up to 170,000 from 101,000 reported last month. Financial sector jobs were firm and rose 16,000 (2.1% y/y) while professional &amp; business services employment rose 12,000 (2.4% y/y). Temporary help services jobs fell 11,300 (0.7% y/y) and retail trade sector jobs continued weak, falling another 11,900 (-0.5% y/y). Government sector jobs fell 8,000 (+0.6% y/y).
Construction employment increased 8,000 (2.9% y/y) after a 23,000 gain during August.
Average hourly earnings rose the same 0.2% as during an upwardly revised August but fell short of expectations for a 0.3% rise. Factory sector earnings fell 0.1% (+1.3% y/y).
The workweek was stable m/m but the index of aggregate weekly hours worked in private industries fell 0.1% for the second month. During 3Q the average level of the index rose 0.9% (AR) after a 2.6% gain during 2Q. During the last ten years there has been an 81% correlation between the y/y change in aggregate hours worked and real GDP growth.
The Price Puzzle: An Update and a Lesson from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20061001/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>51,000</td>
<td>188,000</td>
<td>1.3%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-19,000</td>
<td>-7,000</td>
<td>0.2%</td>
<td>-0.6%</td>
<td>-1.3%</td>
<td>-4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.8</td>
<td>33.8</td>
<td>33.8 (Sept. &#39;05)</td>
<td>33.8</td>
<td>33.7</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.2%</td>
<td>0.2%</td>
<td>4.0%</td>
<td>2.8%</td>
<td>2.1%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.6%</td>
<td>4.7%</td>
<td>5.1% (Sept. &#39;05)</td>
<td>5.1%</td>
<td>5.5%</td>
<td>6.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

Nonfarm payrolls last month rose just 51,000. The gain fell well below Consensus expectations for a 121,000 rise and the increase was the slowest since last October, when Hurricane Katrina hit the jobs figures. Salvaging the dim [...]

Upward Revision Salvages Weak September U.S. Payroll Report

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006a.jpg" width="353">
Nonfarm payrolls last month rose just 51,000. The gain fell well below Consensus expectations for a 121,000 rise and the increase was the slowest since last October, when Hurricane Katrina hit the jobs figures.
Salvaging the dim report was an upward revision to August&#39;s gain to 188,000 from 128,000, reported initially. That left the three month average increase in jobs at 121,000, down just modestly from the nine month average of 137,000. Nevertheless, the recent increases are below an average monthly gain of 165,000 last year and an average 175,000 during 2004.
From the household survey the unemployment rate fell again to 4.6%, a level recently hit in May &amp; June. Employment rose 271,000 (1.7% y/y) after a 250,000 increase during August. The labor force increased 101,000 (1.1% y/y) and the labor force participation rate held for the fourth month at 66.2%.
Suggestive of moderation in hiring activity, the breadth of one month gain in private payrolls fell to 51.4% in September from 55.6% in August. The three month diffusion index also fell to 53.2%, the lowest level in nearly one year. In the factory sector the one month breadth of gain fell further below break even to 40.5% from 43.5% in August. The three month diffusion index fell to 36.9%, also it&#39;s lowest in nearly a year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006b.jpg" width="353">
Factory sector payrolls dropped 19,000 for the sixth m/m decline this year. Job declines in machinery (+2.4% y/y), electrical equipment (+3.0% y/y), furniture (-3.2% y/y), primary metals (0.3% y/y) and nondurables (-0.9% y/y) were offset by m/m increases in the motor vehicle &amp; parts industries (-2.3% y/y) and computers &amp; electronics (+0.6 y/y).
Private service-producing jobs rose just 62,000 (1.3%) after an August gain that was taken up to 170,000 from 101,000 reported last month. Financial sector jobs were firm and rose 16,000 (2.1% y/y) while professional &amp; business services employment rose 12,000 (2.4% y/y). Temporary help services jobs fell 11,300 (0.7% y/y) and retail trade sector jobs continued weak, falling another 11,900 (-0.5% y/y). Government sector jobs fell 8,000 (+0.6% y/y).
Construction employment increased 8,000 (2.9% y/y) after a 23,000 gain during August.
Average hourly earnings rose the same 0.2% as during an upwardly revised August but fell short of expectations for a 0.3% rise. Factory sector earnings fell 0.1% (+1.3% y/y).
The workweek was stable m/m but the index of aggregate weekly hours worked in private industries fell 0.1% for the second month. During 3Q the average level of the index rose 0.9% (AR) after a 2.6% gain during 2Q. During the last ten years there has been an 81% correlation between the y/y change in aggregate hours worked and real GDP growth.
The Price Puzzle: An Update and a Lesson from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20061001/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>51,000</td>
<td>188,000</td>
<td>1.3%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-19,000</td>
<td>-7,000</td>
<td>0.2%</td>
<td>-0.6%</td>
<td>-1.3%</td>
<td>-4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.8</td>
<td>33.8</td>
<td>33.8 (Sept. &#39;05)</td>
<td>33.8</td>
<td>33.7</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.2%</td>
<td>0.2%</td>
<td>4.0%</td>
<td>2.8%</td>
<td>2.1%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.6%</td>
<td>4.7%</td>
<td>5.1% (Sept. &#39;05)</td>
<td>5.1%</td>
<td>5.5%</td>
<td>6.0%</td>
</tr>
</tbody>
</table>
Eastern Europe CPI Uneven, but Coming Under Control; Energy Plays a Part 
by <a href="/comment/Stone.html">Carol Stone</a> October 6, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006c.jpg" width="353">
Three Central and Eastern European nations reported September CPI data today. There are hints throughout of easing inflation pressures, although these performances remain uneven.
In Estonia, the CPI, seasonally adjusted by Haver Analytics, actually fell in the month, by 0.3%. This followed at 1.1% increase in August and helped pull the year-on-year rate from 5.0% in August to 3.8% for September. Transportation and recreation were the main contributors to the softening. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006d.jpg" width="353">
Slovenia&#39;s CPI rose 0.3%, but this was notably less than August&#39;s 1.5% advance. The weaker September result pulled the year/year pace down to 2.5%, after stronger figures in four of the previous five months. Here too, transportation contributed to the slowing.
In the Ukraine, inflation remains strong and accelerated through last year, when it was up 13.5% on average over 2004&#39;s level. In September, the CPI was up 2.2%, hardly a slower pace at 29.2% annualized, but the year-on-year rates have come down considerably from last year&#39;s amounts. The Ukraine experiences wide swings in individual CPI categories, so identifying major forces on the total is an indeterminate process. This country, however, is the one among these three that did not see fuel prices ease in September. They were still going up.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006e.jpg" width="353">
In Estonia and Slovenia, transportation costs declined outright; this included falling motor fuel prices in Slovenia and we assume also in Estonia. In Slovenia, which reports more detail (in the form of the EU&#39;s HICP array), airfares also fell. As oil prices begin to drop, we note that such declines benefit every energy-consuming country. We see already how this helps in these two small nations, which are among the earliest to publish their September CPI data. A week ago, Eurostat published its &quot;flash&quot; estimate for the entire EuroZone, and at 1.8% year-on-year, it indicated a notable slowing from prior months, which have been well over 2%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGECW/@EQ/@EQ5/@EQ501/@EQ501.HTM">Consumer Price Indexes</a></th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</th>
<th scope="col">2005*</th>
<th scope="col">2004*</th>
<th scope="col">2003*</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Estonia, SA, 1997=100</td>
<td>146.2</td>
<td>146.6</td>
<td>138.4</td>
<td>133.0</td>
<td>129.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Mo/Mo</td>
<td>-0.3</td>
<td>1.1</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr*</td>
<td>3.8</td>
<td>5.0</td>
<td>4.1</td>
<td>3.0</td>
<td>1.3</td>
</tr>
<tr>
<td class="firstcol">Slovenia, SA, 2005=100</td>
<td>103.8</td>
<td>103.5</td>
<td>100.0</td>
<td>97.6</td>
<td>94.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mo/Mo</td>
<td>0.3</td>
<td>1.5</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr*</td>
<td>2.5</td>
<td>3.3</td>
<td>2.5</td>
<td>3.6</td>
<td>5.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Ukraine, SA, 2005= 100</td>
<td>112.4</td>
<td>110.0</td>
<td>100.0</td>
<td>88.1</td>
<td>80.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Mo/Mo</td>
<td>2.2</td>
<td>1.3</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr*</td>
<td>9.1</td>
<td>7.4</td>
<td>13.5</td>
<td>9.0</td>
<td>5.2</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005c.jpg" width="353">
Industrial production in Brazil rose 0.7% in August, according to the official Institute for Brazilian Geography and Statistics (IBGE), in a report out this morning. This followed a similar 0.7% gain in July, more than offsetting a 1.1% decline in June.
In the August result, capital goods and consumer durables were the sources of strength, the former up 2.8% and the latter, 1.6%. Intermediate goods output increased 0.6% as did the combined semi-durable and nondurable consumer goods.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005d.jpg" width="353">
Press coverage of these data was contradictory, giving an almost comedic vision of the &quot;two-handed economist&quot;. One news service, which conducts a forecast survey, said the 0.7% total increase was &quot;stronger than expected&quot; by its survey, which looked to a 0.5% rise. This service highlighted the favorable impact on the real economy of much lower interest rates. Indeed, the overnight &quot;Selic&quot; interest rate averaged 14.66% in August, down from 19.75% a year ago and the lowest in the 20-year history of this money-market rate.
&quot;On the other hand&quot;, another prominent wire-service bemoaned &quot;slowing growth&quot;, noting that the year-on-year gain in August IP was &quot;just&quot; 3.2%, less than July&#39;s 3.5%. Various other time span comparisons can also be construed as suggesting the onset of less vigorous growth. This news service &quot;blamed&quot; the strengthening of the currency which makes Brazil&#39;s products less competitive; indeed, the JP Morgan real effective exchange rate averaged 141.1 (2000=100) in September, among the highest single monthly values in the series, which extends back to 1970.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005e.jpg" width="353">
Differing interpretations can support either of these views. What does seem apparent to us is that Brazilian output swings widely: the recent pattern in industrial production can be seen as slow relative to double-digit gains in mid-2004 or stronger than the nearly stagnant performance in mid-2005. However, through this recent period, interest rates have been declining, the currency has been stronger (albeit with smaller gains than last year), and the stock market has corrected modestly after a steep run-up. This financial backdrop is yielding an inflow of capital funds for investment even as the current account remains in comfortable surplus. This sounds fairly attractive to us. The Brazilian people seem to agree: the National Confederation of Industry released its quarterly consumer confidence survey this morning as well. Its index of consumer expectations surged 5.8 points to a record in Q3 as respondents&#39; assessments of nearly every macroeconomic measure were increasingly favorable. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Aug 2006</th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>116.12</td>
<td>115.30</td>
<td>114.48</td>
<td>112.63</td>
<td>111.71</td>
<td>108.36</td>
<td>100.05</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.7</td>
<td>0.7</td>
<td>-1.1</td>
<td>3.2</td>
<td>3.1</td>
<td>8.3</td>
<td>0.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Goods</td>
<td>2.8</td>
<td>1.2</td>
<td>-0.5</td>
<td>7.4</td>
<td>3.6</td>
<td>19.7</td>
<td>2.2</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>0.6</td>
<td>1.2</td>
<td>-1.5</td>
<td>3.4</td>
<td>0.9</td>
<td>7.4</td>
<td>2.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Durable Goods</td>
<td>1.6</td>
<td>-0.2</td>
<td>-0.9</td>
<td>5.4</td>
<td>11.4</td>
<td>21.8</td>
<td>3.0</td>
</tr>
<tr>
<td class="firstcol">Consumer Semi- durable &amp; Nondurable Goods</td>
<td>0.6</td>
<td>3.0</td>
<td>1.7</td>
<td>1.2</td>
<td>4.6</td>
<td>4.0</td>
<td>-3.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Industrial production in Brazil rose 0.7% in August, according to the official Institute for Brazilian Geography and Statistics (IBGE), in a report out this morning. This followed a similar 0.7% gain in July, more than offsetting a [...]

Brazil's Industry Strengthening or Slowing, Depending on Who You Ask, But Consumer Expectations at High

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005a.jpg" width="353">
Initial claims for jobless insurance dropped 17,000 to 302,000, following the 3,000 decline the prior week which was slightly shallower than initially reported. Consensus expectations had been for 315,000 claims.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims fell slightly to 313,500 (-20.4% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005b.jpg" width="353">
Continuing claims for unemployment insurance fell 8,000 after a 38,000 drop the prior week that was deeper than initially reported.
The insured rate of unemployment was steady at 1.9% where it has been since February.
Economic Outlook, last night&#39;s remarks by Fed Vice Chairman Donald L. Kohn, can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/200610042/default.htm"> here</a>. Chairman Bernanke&#39;s comments on The Coming Demographic Transition can be found with yesterday&#39;s ADP write-up.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">9/30/06</th>
<th scope="col">9/23/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>302</td>
<td>319</td>
<td>-20.3%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,448</td>
<td>-13.9%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
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Initial claims for jobless insurance dropped 17,000 to 302,000, following the 3,000 decline the prior week which was slightly shallower than initially reported. Consensus expectations had been for 315,000 claims. During the last ten [...]

Initial Claims for Jobless Insurance At Ten Week Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005a.jpg" width="353">
Initial claims for jobless insurance dropped 17,000 to 302,000, following the 3,000 decline the prior week which was slightly shallower than initially reported. Consensus expectations had been for 315,000 claims.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims fell slightly to 313,500 (-20.4% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005b.jpg" width="353">
Continuing claims for unemployment insurance fell 8,000 after a 38,000 drop the prior week that was deeper than initially reported.
The insured rate of unemployment was steady at 1.9% where it has been since February.
Economic Outlook, last night&#39;s remarks by Fed Vice Chairman Donald L. Kohn, can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/200610042/default.htm"> here</a>. Chairman Bernanke&#39;s comments on The Coming Demographic Transition can be found with yesterday&#39;s ADP write-up.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">9/30/06</th>
<th scope="col">9/23/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>302</td>
<td>319</td>
<td>-20.3%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,448</td>
<td>-13.9%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
Brazil's Industry Strengthening or Slowing, Depending on Who You Ask, But Consumer Expectations at High 
by <a href="/comment/Stone.html">Carol Stone</a> October 5, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005c.jpg" width="353">
Industrial production in Brazil rose 0.7% in August, according to the official Institute for Brazilian Geography and Statistics (IBGE), in a report out this morning. This followed a similar 0.7% gain in July, more than offsetting a 1.1% decline in June.
In the August result, capital goods and consumer durables were the sources of strength, the former up 2.8% and the latter, 1.6%. Intermediate goods output increased 0.6% as did the combined semi-durable and nondurable consumer goods.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005d.jpg" width="353">
Press coverage of these data was contradictory, giving an almost comedic vision of the &quot;two-handed economist&quot;. One news service, which conducts a forecast survey, said the 0.7% total increase was &quot;stronger than expected&quot; by its survey, which looked to a 0.5% rise. This service highlighted the favorable impact on the real economy of much lower interest rates. Indeed, the overnight &quot;Selic&quot; interest rate averaged 14.66% in August, down from 19.75% a year ago and the lowest in the 20-year history of this money-market rate.
&quot;On the other hand&quot;, another prominent wire-service bemoaned &quot;slowing growth&quot;, noting that the year-on-year gain in August IP was &quot;just&quot; 3.2%, less than July&#39;s 3.5%. Various other time span comparisons can also be construed as suggesting the onset of less vigorous growth. This news service &quot;blamed&quot; the strengthening of the currency which makes Brazil&#39;s products less competitive; indeed, the JP Morgan real effective exchange rate averaged 141.1 (2000=100) in September, among the highest single monthly values in the series, which extends back to 1970.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005e.jpg" width="353">
Differing interpretations can support either of these views. What does seem apparent to us is that Brazilian output swings widely: the recent pattern in industrial production can be seen as slow relative to double-digit gains in mid-2004 or stronger than the nearly stagnant performance in mid-2005. However, through this recent period, interest rates have been declining, the currency has been stronger (albeit with smaller gains than last year), and the stock market has corrected modestly after a steep run-up. This financial backdrop is yielding an inflow of capital funds for investment even as the current account remains in comfortable surplus. This sounds fairly attractive to us. The Brazilian people seem to agree: the National Confederation of Industry released its quarterly consumer confidence survey this morning as well. Its index of consumer expectations surged 5.8 points to a record in Q3 as respondents&#39; assessments of nearly every macroeconomic measure were increasingly favorable. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Aug 2006</th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>116.12</td>
<td>115.30</td>
<td>114.48</td>
<td>112.63</td>
<td>111.71</td>
<td>108.36</td>
<td>100.05</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.7</td>
<td>0.7</td>
<td>-1.1</td>
<td>3.2</td>
<td>3.1</td>
<td>8.3</td>
<td>0.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Goods</td>
<td>2.8</td>
<td>1.2</td>
<td>-0.5</td>
<td>7.4</td>
<td>3.6</td>
<td>19.7</td>
<td>2.2</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>0.6</td>
<td>1.2</td>
<td>-1.5</td>
<td>3.4</td>
<td>0.9</td>
<td>7.4</td>
<td>2.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Durable Goods</td>
<td>1.6</td>
<td>-0.2</td>
<td>-0.9</td>
<td>5.4</td>
<td>11.4</td>
<td>21.8</td>
<td>3.0</td>
</tr>
<tr>
<td class="firstcol">Consumer Semi- durable &amp; Nondurable Goods</td>
<td>0.6</td>
<td>3.0</td>
<td>1.7</td>
<td>1.2</td>
<td>4.6</td>
<td>4.0</td>
<td>-3.9</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004j.jpg" width="353">
Unlike in the US, the property market in the UK is still strong. Home prices published today by the Halifax Royal Bank of Scotland (HBOS) showed a 1.0% monthly increase in September, seasonally adjusted. August was revised upward to 1.3% from 1.0% reported initially. September&#39;s price stood 8.2% above a year ago; the growth rate in the three-month moving average most frequently cited by the bank was 8.0%. This is less than in the prior four months, but firmer than what prevailed across 2005.
For comparison, we can look at the price in US dollars; it was $342,000. A slight firming in the dollar diminished September&#39;s sterling price gain in to 0.4% in the US currency, but that followed a 4.0% surge in August when the dollar had fallen 2.6% again the pound.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004k.jpg" width="353">
The firmness in UK house prices is presently accompanying firm demand for houses in the UK, suggested by the positive readings in the RICS housing market survey. Data on actual counts of home sales transactions lag a couple of months. But this survey by Chartered Surveyors gives the balance of respondents showing more &quot;newly agreed sales&quot; over fewer sales at +21% in August, the second highest since early 2004.
Analysts were impressed with the strength in home prices, even as interest rates are also moving up. In early August, the Bank of England raised its base rate 25 basis points to 4.75%. This appears not yet fully reflected in available data on mortgage rates, which show the &quot;standard variable rate&quot; inching up just 2 basis points in August to 6.50% from 6.48% in July. The &quot;base-rate tracker&quot; mortgage rate rose in August to 5.30% from 5.16% in July. The higher house prices suggest that rising mortgage rates didn&#39;t discourage buyers in September -- or perhaps they stimulated buyers in the reverse way: &quot;let&#39;s get our house and our mortgage now before rates go up more&quot;, they may have thought, which circumstance would point to a slowdown in coming months.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U4/@U4.HTM">UK House Prices</a></th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</th>
<th scope="col">July 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Average House Price (SA*, &pound;000)</td>
<td>181.2</td>
<td>179.5</td>
<td>177.2</td>
<td>167.5</td>
<td>165.3</td>
<td>157.0</td>
<td>132.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Chg</td>
<td>1.0</td>
<td>1.3</td>
<td>0.3</td>
<td>8.2</td>
<td>5.3</td>
<td>18.8</td>
<td>19.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; US $ (000)</td>
<td>341.5</td>
<td>340.0</td>
<td>326.9</td>
<td>302.9</td>
<td>300.7</td>
<td>287.6</td>
<td>216.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; % Chg</td>
<td>0.4</td>
<td>4.0</td>
<td>0.4</td>
<td>12.8</td>
<td>4.6</td>
<td>32.9</td>
<td>29.2</td>
</tr>
<tr class="odd">
<td class="firstcol">RICS Newly Agreed Sales**</td>
<td>--</td>
<td>+21%</td>
<td>+12%</td>
<td>+12%</td>
<td>+2%</td>
<td>-9%</td>
<td>-2%</td>
</tr>
<tr>
<td class="firstcol">Mortgage Rate***</td>
<td>--</td>
<td>6.50%</td>
<td>6.48%</td>
<td>6.71%</td>
<td>6.63%</td>
<td>6.25%</td>
<td>5.61%</td>
</tr>
</tbody>
</table>
</body>
</html>

Unlike in the US, the property market in the UK is still strong. Home prices published today by the Halifax Royal Bank of Scotland (HBOS) showed a 1.0% monthly increase in September, seasonally adjusted. August was revised upward to [...]

UK House Prices Still Strong in September

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004e.jpg" width="353">
According to the Mortgage Bankers Association. the total number of mortgage applications surged 11.9% last week. It was the strongest w/w increase since June 2005. The gain lifted applications for the month 5.6% above the August average.
Applications to refinance surged 17.5% after the prior week&#39;s 4.1% decline. The average level of refis in September rose 8.7% from August which surged 13.3% m/m from July.
Purchase applications recovered 7.6% after the prior week&#39;s 5.5% decline. The increase raised the month&#39;s average 3.2% from August, only the first rise in the last five months. The latest level was 23.1% below the peak during May of 2005.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004d.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose six basis points to 6.39% to 6.45% and averaged 6.50% last month versus 6.64% in August. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing ticked just slightly w/w to 6.11% and averaged 6.20% last month. The peak rate was 6.75%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">09/29/06</th>
<th scope="col">09/22/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>633.9</td>
<td>566.5</td>
<td>-11.2%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>404.6</td>
<td>375.9</td>
<td>-14.6%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,970.8</td>
<td>1,677.5</td>
<td>-6.5%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
</html>

According to the Mortgage Bankers Association. the total number of mortgage applications surged 11.9% last week. It was the strongest w/w increase since June 2005. The gain lifted applications for the month 5.6% above the August [...]

Mortgage Applications Surged

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

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

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Andrew Cates

**The US labour market**
The latest data highlight a growing sense of fragility in the US labour market. The unemployment rate, while still relatively low by historical standards, has been edging higher through the course of this year. More telling, however, is the signal from this week’s consumer confidence survey from Conference Board and specifically the labour market differential — the gap between the share of consumers saying jobs are plentiful versus those saying jobs are hard to get. That balance has narrowed sharply, moving back toward levels historically associated with softer labour demand and rising unemployment.

250828Z1.jpg

**Goods and services inflation** 
Haver’s breakdown of goods and services CPI inflation in the advanced economies highlights where fresh risks are emerging. Goods inflation, which had been receding sharply after the pandemic supply shocks, has recently shown signs of firming again. Some of this probably reflects the impact of US tariff policies, which are raising import costs and putting renewed upward pressure on traded goods prices. While services inflation remains the more stubborn component in most advanced economies, the risk is that tariffs could reintroduce stickiness into goods prices, slowing the overall disinflation process.

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**China, Europe and US trade policy**
A consequence of US tariff policies has been a sharp contraction in Chinese exports to the US market, with much of the surplus redirected elsewhere. Europe in particular has recorded near double-digit import growth in recent months, raising concerns that Beijing is deflecting its industrial overcapacity problem rather than resolving it, effectively transferring the pressure onto trading partners. China’s authorities, however, have begun to push back, introducing measures to curb excess supply and rein in so-called “involution,” including clampdowns on price wars across several industries.

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**China’s excess capacity and Europe**
A closer look at Europe–China trade shows that electric vehicles remain a key flashpoint. Import volumes from China have continued to rise even as per-unit prices fall sharply from a year ago —evidence suggesting that industrial overcapacity persists, with low-cost Chinese EVs increasingly challenging European automakers. The surge has carried on despite EU tariffs of up to 45% on battery EVs, as Chinese producers have adapted by pushing plug-in hybrids and expanding onshore production in Europe to bypass duties and defend market share.

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**Wage growth in the US and Europe** 
Turning back to inflation dynamics, the UK stands out for its persistent wage pressures. While posted wage growth has cooled across the US and euro area, the UK measure has remained elevated at around 6% year-on-year, well above pre-pandemic norms. This stickiness reflects a still-tight labour market in key service sectors, even as broader activity has slowed and unemployment has edged higher. For the Bank of England, it underscores the dilemma: headline inflation is easing, but underlying pay growth risks keeping services inflation uncomfortably high, complicating the timing and scale of policy easing.

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**The UK economy**
The UK’s net international investment position has deteriorated noticeably in recent years, with both direct investment and portfolio flows showing persistent weakness. The latest data underline how net FDI has turned increasingly negative, while the portfolio investment balance has also eroded, leaving the UK more reliant on volatile short-term funding sources. This deterioration comes against a backdrop of heightened investor unease about the riskiness of UK debt markets, where elevated gilt yields and rising debt-servicing costs have amplified concerns over fiscal sustainability. Taken together, these trends underscore the vulnerability of the UK’s external position at a time when global capital is arguably proving more selective and risk sensitive.

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Global markets have continued to rally into late summer, buoyed by AI optimism, dovish signals from central bankers at Jackson Hole, and expectations of easier policy ahead. Yet beneath the surface, risks to the world economy are accumulating. In the US, labour market indicators point to softening conditions (chart 1), while tariff-driven pressures are beginning to push goods prices higher (chart 2). Global trade flows are being reshaped by US policy, with China’s excess capacity increasingly diverted toward Europe, most visibly through surging exports of electric vehicles (EVs) (charts 3 and 4). At the same time, wage growth remains stubbornly elevated in the UK, complicating disinflation (chart 5), while concerns are mounting over the country’s external vulnerabilities as net FDI and portfolio positions weaken against the backdrop of jittery debt markets (chart 6). Together, these dynamics highlight the tension between buoyant market performance and a global economy still grappling with structural fragilities.

Charts of the Week: Riskbusters

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Real GDP grew 3.3% (SAAR) during the second quarter of 2025, revised from a 3.0% gain reported initially. The increase followed an unrevised 0.5% decline in Q1. A 3.1% rise had been expected in the Action Economics Forecast Survey. Growth during the last four quarters of 2.1% compared to 2.0% y/y in Q1, and remained below its most recent high of 3.2% in Q4 2023.

After-tax corporate profits without IVA & CCA adjustment increased 1.4% (7.0% y/y) last quarter after easing 0.8% in Q1. Before-tax earnings with IVA & CCA rose 1.7% (4.3% y/y) after falling 2.3% in Q1. Financial sector earnings rose 1.4% (15.3% y/y) after rising 2.3% in Q1. Nonfinancial corporate profits rose 2.2% (2.5% y/y) after falling 2.5% in Q1. Earnings from abroad eased 0.7% (-0.4% y/y) following a 7.3% Q1 decline.

Foreign trade balance improvement added 4.95 percentage points to growth last quarter after subtracting 4.61 percentage points in Q1. Imports fell 29.8% (+1.3% y/y) after surging 38.0% in Q1. Exports declined 1.3% (+2.0% y/y) after improving 0.4% in Q1. Inventories subtracted 3.29 percentage points from growth after adding 2.59 percentage point to Q1 growth.

Real final sales to domestic purchasers grew 1.6% (2.4% y/y), revised from 1.1%, in Q2 after rising 1.5% in Q1. Personal consumption expenditures rose 1.6% (2.4% y/y), revised from 1.4%, following a 0.5% gain. Durable goods spending rose 2.6% (4.6% y/y) after falling 3.7% in Q1. Motor vehicle purchases strengthened 11.7% (6.7% y/y) after declining 11.2% in Q1. Spending on home furnishings & appliances weakened 2.1% (+3.5% y/y) following a 1.5% rise. Recreational goods & vehicle outlays fell 3.5% (+4.3% y/y) last quarter after a 0.4% Q1 gain.

Nondurable goods outlays in constant dollars rose 2.3% (3.0% y/y) following 2.1% growth in Q1. Apparel spending increased 5.4% (4.8% y/y) following a 7.0% rise. Food & beverage buying gained 0.3% (1.5% y/y) after a 1.0% increase. Gasoline & fuel oil purchases weakened 1.4% (+0.9% y/y) after gaining 3.6% in Q1.

Real spending on services increased 1.2% (1.9% y/y) after a 0.6% gain. Outlays on housing & utilities eased 0.4% (+1.1% y/y) after rising 2.9% in Q1. Health care expenditures rose 4.2% (4.8% y/y) after a 3.1% increase. Transportation outlays declined 2.9% (-0.6% y/y) after a 1.4% rise, while recreation spending rose 3.6% (0.7% y/y) following a 5.1% decline. Restaurant & hotel expenditures increased 5.1% (1.9% y/y) after falling 1.8%. Financial services expenditures rose 1.9% (2.3% y/y) following a 0.1% Q1 increase.

Business fixed investment in constant dollars increased 5.7% last quarter (4.2% y/y), revised from 1.9%, following a 10.3% surge in Q1. Expenditures on structures declined 8.9% (-3.4% y/y), after falling 2.4% in Q1. Expenditures on producers’ durable equipment increased 7.4% (7.7% y/y), revised from 4.8%, after surging 23.7% in Q1. Outlays on information processing equipment rose 10.1% (20.1% y/y), revised from 5.5%, after soaring 72.8% during Q1. Industrial equipment investment rose 6.7% (4.0% y/y) after a 4.7% rise. Transportation equipment investment surged 20.4% (6.8% y/y) after a 6.9% gain. Intellectual property product spending rose 12.8% last quarter (5.2% y/y) following a 6.0% rise.

Residential structures investment in real terms declined a little-revised 4.7% (-1.3% y/y), the fourth decline in the last five quarters.

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Government spending eased 0.2%, revised from up 0.5% in Q2 (+1.8% y/y) after a 0.6% decline. Federal government expenditures declined 4.7% (+0.7% y/y) after falling 4.6% in Q1. National defense expenditures increased 1.4% (3.0% y/y) after declining 7.1% in Q1. State & local government spending rose 2.6% (2.5% y/y) following a 2.0% rise.

The GDP chain price index rose an unrevised and expected 2.0% last quarter (2.5% y/y) after increasing 3.8% in Q1. The PCE chain price index increased 2.0% (2.4% y/y) following a 3.7% rise. The PCE price index excluding food and energy rose 2.5% (2.7% y/y) after increasing 3.5% in Q1. The business fixed investment price index edged 0.5% lower (+1.1% y/y) after a 0.4% rise. The residential price index rose 1.1% (2.6% y/y) after a 4.1% rise while the government price index increased 3.3% (3.1% y/y) following a 4.6% rise.

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

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- Business investment strengthens & consumer spending firms.
- U.S. business earnings reverse Q1 decline.
- Increase in price index is unrevised, remaining roughly half of Q1’s gain.

U.S. GDP Q2’25 Growth Revised Up; Profits Improve

Sandy Batten

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The Kansas City Fed manufacturing composite index was unchanged at 1 in August from July. This was the second consecutive month that the index has been positive, indicating the manufacturing in the KC Fed district continue to inch up in August. Prior to the positive reading in July, the index had been negative for 22 consecutive months. The index’s most recent high was 31 reached in both April 2021 and October 2021. The durable manufacturing sector was mostly flat in August, while nondurable manufacturing activity declined slightly driven by printing activities and paper and chemical manufacturing. 

The August survey was open for a six-day period from August 20-25, 2025 and included 103 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and western Missouri.

The ISM-adjusted index calculated by Haver Analytics rose to 51.1 (NSA) in August from 50.2 in July. This was the fifth reading above the critical 50 level that separates expansion from contraction in the past six months, a further indication of expanding manufacturing activity.

For the major component indexes, the production index was 0 in August, but this was up from -3 in July. The new orders index rose to 5 in August, its highest reading since May 2022, from 2 in July. The shipments index increased to 6 in August from 3 in July. The employment index was 0 in August, but this was up from -11 in July. Also, the average workweek index rebounded to 3 in August after having been in negative territory for the previous four months. Supplier delivery times were unchanged at 7 in August. The elevation of this index since April may indicate some incipient supply-chain disruptions from higher tariffs. In contrast, raw materials inventories fell to -7 in August from 8 in July.

On the inflation front, the prices paid for raw materials index remained elevated but fell to 43 in August from 47 in July and a local high of 51 in June. Forty-four percent of respondents reported an increase in raw materials prices in August, down from 48% in July and 53% in June, while only 4% reported a decrease, down from 5% in July and 6% in June. The prices received for finished products index increased to 21 in August from 18 in July. This index has fluctuated in a range between 17 and 21 for the past four months.

Expectations for future activity remained positive, with the composite index rising to 11 from 8, as firms anticipate an improvement in production and new orders. While expectations have been trending up over the past several months, they remain depressed relative to the recent high reading of 17 last December. Capital expenditures expectations remained in negative territory in August for the second consecutive month but edged up to -3 from -4 in July.

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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- Index remained (though barely) in positive territory for the second consecutive month, indicating that manufacturing activity was inching up.
- Prior to last month, the index had been negative for 22 consecutive months.
- Positive readings across most key components.

FRB Kansas City Manufacturing Index Unchanged in August

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The Pending Home Sales Index weakened 0.4% in July (+0.7% y/y) to 71.7 after falling an unrevised 0.8% in June and rising an unrevised 1.8% in May, according to the National Association of Realtors (NAR). The Index remained 42.7% below its most recent peak of 125.1 in October 2021. The index is a forward-looking measure of home sales based on contract signings.

The fall in pending home sales occurred as the average rate on a 30-year mortgage rose to 6.72% in July after holding steady m/m at 6.82% in June. These rates remained well above a low of 5.22% in August 2022 and more than double a record-low 2.68% in December 2020.

Pending home sales were mixed last month in the four major regions of the country. Sales in the Midwest declined 4.0% (+1.3% y/y) in July after easing 0.8% in June. Sales in the Northeast fell 0.6% both m/m and y/y, after holding steady in June. In the South, sales eased 0.1% (+1.8% y/y) following a 0.6% June decline, but sales in the West increased 3.7% (-1.9% y/y), reversing a 3.9% June drop.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- Decline adds to June weakness.
- Regional changes are mixed.


U.S. Pending Home Sales Decline in July

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance declined to 229,000 during the week of August 23, after rising to 234,000 in the week of August 16, revised from 235,000. The Action Economics Forecast Survey expected 230,000 initial claims for last week. The four-week moving average of initial claims increased to 228,500 from 226,000, revised from 226,250. It was the highest level since the second week of July.

In the week ended August 16, the total number of unemployment insurance beneficiaries – also known as “continuing claims” – decreased by 7,000 to 1.954 million from 1.961 million in the prior week, revised down by 11,000 from 1.972 million. The four-week moving average rose to 1.956 million in the week ending August 16, the highest level in six weeks, and up from 1.952 million in the prior week, revised from 1.955 million.

In the week ending August 16, the insured rate of unemployment (the number of beneficiaries as a percent of covered employment) was 1.3% for the twelfth consecutive week.

The insured unemployment rate varied greatly across individual states and territories. In the week ended August 9, the highest unemployment rates were in New Jersey (2.75%), Rhode Island (2.58%), Massachusetts (2.18%), Minnesota (2.17%), California (2.11%), Washington (2.08%), District of Columbia (2.04%), and Puerto Rico (2.02%). The lowest were in South Dakota (0.28%), Florida (0.42%), and Alabama and North Carolina (both 0.47%). Rates in other notable states include Pennsylvania (1.92%), New York (1.73%), Illinois (1.72%), and Texas (1.24%). 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 declined in latest week after a surge in the prior week.
- Continuing claims declined.
- Insured unemployment rate holds steady.

Economy in Brief: October 2006

Jump to:

Eastern Europe CPI Uneven, but Coming Under Control; Energy Plays a Part

Upward Revision Salvages Weak September U.S. Payroll Report

Upward Revision Salvages Weak September U.S. Payroll Report

Brazil's Industry Strengthening or Slowing, Depending on Who You Ask, But Consumer Expectations at High

Initial Claims for Jobless Insurance At Ten Week Low

Initial Claims for Jobless Insurance At Ten Week Low

UK House Prices Still Strong in September

Mortgage Applications Surged