Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080312g.jpg" align="left" border="0" height="265" width="353">
French headline inflation began to level off in February of
2008. The 12-month rate that rose to 3.2% in January from 2.8% in
December held steady at that 3.2% pace in February. The ECB has a
ceiling objective only for the inflation&#8217;s headline. At 3.2% France&#8217;s
own pace is well above that 2% ceiling. Still it is something that
year/year acceleration has stopped, for now. The core inflation reading
is not available but the HICP core rate edged above the 2% mark last
month.
As to the various inflation categories we can turn to France&#8217;s
domestic inflation measure that has slightly different ingredients form
the HICP. France&#8217;s overall inflation on that measure is up by 2.9%
year/year the same as it was last month. The French domestic core
inflation rate is at 2.1% in February up from 2% in January. Inflation
overall, at 2.9%, is higher than it was 12 months ago (1.1%). Not
surprisingly the diffusion condition based that result is high at 72.7%.
This diffusion reading is a US ISM type measure that counts
all inflation accelerating categories in the CPI as a value of &#8216;one.&#8217;
If inflation is steady period to period it counts as 0.5. The category
results are totaled and taken as a percentage of the total number of
categories. Roughly this means that above 50% inflation is accelerating
and below 50% inflation is decelerating. For the year ago comparison we
find that inflation accelerated year/year in 72% of the categories. And
that seems bad. But over six months, although the inflation rate was
higher-still at a 3.6% pace, inflation diffusion was only 36%. Over
three months inflation is at 3% and diffusion is at 27%. So inflation
is not accelerating on a broader patch, but rather on a narrower one,
if at all.
The overall inflation rate, while still high, has come down.
You can see it in the core domestic French rate that is 2.1% year/year,
2.3% over 6 months and 1.9% over 3 months. Inflation is not getting out
of hand in France despite the ugly headlines. Food costs are a problem,
surging and steadily accelerating over the past year until those costs
are up at an 8% pace over the most recent three months. In addition,
energy prices have been rising and spot oil is still higher than it was
in January and February on average.
Inflation is still a &#8216;threat&#8217; but the detailed trends from
France suggest that the ECB and the strong euro are helping to keep
inflation from spreading. France has the fourth best record in EMU on
keeping core inflation in check from 2000 to date. Finland has the best
record, Germany the second best for that period. Greece has the worst
record followed by Ireland and Spain.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> France
HICP and CPI details</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo %</td>
<td colspan="3">Saar %</td>
<td>Yr/Yr</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Feb-08</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">HICP Total</td>
<td>0.0%</td>
<td>0.3%</td>
<td>0.4%</td>
<td>3.0%</td>
<td>4.1%</td>
<td>3.2%</td>
<td>1.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.3%</td>
<td>0.3%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.4%</td>
</tr>
<tr>
<td colspan="8" class="firstcol">CPI</td>
</tr>
<tr class="odd">
<td class="firstcol">All</td>
<td>0.0%</td>
<td>0.4%</td>
<td>0.3%</td>
<td>3.0%</td>
<td>3.6%</td>
<td>2.9%</td>
<td>1.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI ex Food &amp; Energy</td>
<td>0.1%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>1.9%</td>
<td>2.3%</td>
<td>2.1%</td>
<td>1.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food</td>
<td>0.2%</td>
<td>1.2%</td>
<td>0.6%</td>
<td>8.0%</td>
<td>7.2%</td>
<td>5.1%</td>
<td>0.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Alcohol</td>
<td>0.3%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.9%</td>
<td>2.5%</td>
<td>4.7%</td>
<td>0.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Clothing &amp; Shoes</td>
<td>-0.2%</td>
<td>-0.7%</td>
<td>0.1%</td>
<td>-2.8%</td>
<td>-0.8%</td>
<td>0.6%</td>
<td>0.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Rent&nbsp;
&amp;Utilities</td>
<td>0.2%</td>
<td>0.5%</td>
<td>0.6%</td>
<td>4.9%</td>
<td>6.7%</td>
<td>4.6%</td>
<td>3.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Health Care</td>
<td>0.0%</td>
<td>0.1%</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Transport</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.0%</td>
<td>5.1%</td>
<td>8.2%</td>
<td>5.8%</td>
<td>1.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Communication</td>
<td>-1.4%</td>
<td>-0.4%</td>
<td>-0.3%</td>
<td>-8.0%</td>
<td>-3.1%</td>
<td>-2.1%</td>
<td>-1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Recreation &amp; Culture</td>
<td>-0.2%</td>
<td>0.0%</td>
<td>-0.3%</td>
<td>-2.1%</td>
<td>-1.7%</td>
<td>-1.3%</td>
<td>-2.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Education</td>
<td>0.2%</td>
<td>0.5%</td>
<td>0.2%</td>
<td>3.6%</td>
<td>3.6%</td>
<td>3.0%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Restaurant &amp; Hotel</td>
<td>0.2%</td>
<td>0.4%</td>
<td>0.3%</td>
<td>3.3%</td>
<td>0.8%</td>
<td>2.8%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Other</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.2%</td>
<td>0.7%</td>
<td>1.6%</td>
<td>1.8%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Diffusion Type</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>27.3%</td>
<td>36.4%</td>
<td>72.7%</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="4">Compared to</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Yr-Ago</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body></html>

French headline inflation began to level off in February of 2008. The 12-month rate that rose to 3.2% in January from 2.8% in December held steady at that 3.2% pace in February. The ECB has a ceiling objective only for the inflation’s [...]

French Inflation Begins to Level Off in February

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080312e.jpg" width="353">
The Bureau of Labor Statistics reported in the Job Openings &amp; Labor Turnover Survey (JOLTS) that the January &#39;08 job openings rate was unchanged from the prior month at 2.8%. That level was, however, down from early 2007. Past year&#39;s figures were revised. The job openings rate is the number of job openings on the last business day of the month as a percent of total employment plus job openings. In private industries the rate fell in January to 2.9% from 3.0% in December and from 3.2% in 2006.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080312f.jpg" width="353">
The actual number of total job openings fell 1.2% m/m to 3.925 million and the number of job openings was down 8.9% from one year earlier. Job openings in retail trade fell 16.7% y/y. They were down 34.6% in construction and down 14.0% in manufacturing. Education &amp; health services jobs fell 3.1% y/y and leisure &amp; hospitality job openings fell 7.1%. Only openings in the professional &amp; business services industry rose, by 3.4% y/y.
The hires rate also fell m/m to 3.3% to its lowest level since 2004. The hires rate is the number of hires during the month divided by employment.The decline was across most industries. The actual number of January hires fell 3.6% (-9.0% y/y) to 4.545 million.
The job separations rate in January fell to 3.1% from 3.2% at yearend 2007 and from 3.3% at yearend 2006. Separations include quits, layoffs, discharges, and other separations as well as retirements. The level of job separations fell 4.1% since yearend 2006.
The JOLTS survey dates only to December 2000 but has since followed the movement in nonfarm payrolls, though the actual correlation between the two series is low.
A description of the Jolts survey and the latest release from the U.S. Department of Labor is available <a href="http://www.bls.gov/news.release/jolts.nr0.htm">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/@EB14/@EB14.HTM">JOLTS</a> (Job Openings &amp; Labor &nbsp;Turnover Survey)</th>
<th scope="col">January</th>
<th scope="col">December</th>
<th scope="col">January &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Job Openings, Total&nbsp;&nbsp;</td>
<td></td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>2.8</td>
<td>2.8</td>
<td>3.0</td>
<td>2.8</td>
<td>3.0</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>3,925</td>
<td>3,974</td>
<td>4,307</td>
<td>3,974</td>
<td>4,272</td>
<td>3,863</td>
</tr>
<tr class="odd">
<td class="firstcol">Hires, Total </td>
<td>&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>3.3</td>
<td>3.4</td>
<td>3.6</td>
<td>41.9</td>
<td>43.4</td>
<td>43.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Total (000s)</td>
<td>4,545</td>
<td>4,717</td>
<td>4,992</td>
<td>57,771</td>
<td>59,153</td>
<td>57,501</td>
</tr>
</tbody>
</table>
</body>
</html>

The Bureau of Labor Statistics reported in the Job Openings & Labor Turnover Survey (JOLTS) that the January '08 job openings rate was unchanged from the prior month at 2.8%. That level was, however, down from early 2007. Past year's [...]

JOLTS: Job Openings Broadly Down Early in 2008

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080312c.jpg" width="353">
The Mortgage Bankers&#39; Association reported that during the 4th quarter of 2007, foreclosures were started on .83% of all mortgages outstanding. That was by far the highest foreclosure rate on record. Moreover, it raised the total for the full year to 2.84% of the number outstanding.Foreclosure rates on both prime and subprime mortgages rose sharply last year.
Foreclosures on all prime mortgage loans rose to 0.41% by yearend and totaled 1.30% of those outstanding for the full year. That was nearly double the rate during the prior nine years. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080312d.jpg" width="353">
Though rates for prime fixed rate mortgages held steady at yearend at 0.22% of loans outstanding, the foreclosure rate for the year of 0.79% was a record and it was up from 0.56% during 2006. There were 25.8 million of these loans outstanding last year. Of the 6.5 million prime adjustable rate mortgages during 4Q, the foreclosure rate rose to 1.06%. That pulled the full year rate of foreclosures up to 3.23% which was nearly triple the rate during 2006.
As bad as the above data on prime debt was, the figures on subprime mortgage debt were far worse. Though short-term interest rates fell slightly during the year the average level of rates was double that a few years earlier. In total, the rate of foreclosure on subprime mortgages rose to 3.44% of outstanding loans during 4Q &#39;07. The rise pulled foreclosures for the full year to 11.71% of loans outstanding.
The foreclosure rate on subprime fixed rate debt rose to 1.52% of loans outstanding. That was up by half from the quarterly running rate in early 2006 and the rate for the year jumped to 5.55%.There were 2.5 million of these loans outstanding last year. On variable rate subprime debt, however, foreclosures soared to 5.29% of loans outstanding from 4.72% during 3Q. Seventeen percent of these loans were foreclosed on last year and there were 2.9 million of these loans on the books.
By the country&#39;s regions the Northeast saw an increase in the overall rate of foreclosure to 2.29% last year from 1.59% during 2006. In the Midwest that rate rose to 3.44% from 2.71%. The West saw an increase to 2.68% of loans outstanding from 1.18% in 2006 and in the South foreclosures were started last year on 2.69% of loans versus 1.73% in 2006.
The Rise and Fall of Subprime Mortgages from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/eclett/2007/el0711.pd">here</a>.
These data series are available in Haver&#39;s MBAMTG database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Mortgages in Foreclosure (%)</th>
<th scope="col">4Q &#39;07</th>
<th scope="col">3Q &#39;07</th>
<th scope="col">4Q &#39;06</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">All Mortgages</td>
<td>0.83</td>
<td>0.78</td>
<td>0.54</td>
<td>2.84</td>
<td>1.84</td>
<td>1.64</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Conventional Prime</td>
<td>0.41</td>
<td>0.37</td>
<td>0.24</td>
<td>1.30</td>
<td>0.77</td>
<td>0.72</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Fixed Rate</td>
<td>0.22</td>
<td>0.22</td>
<td>0.16</td>
<td>0.79</td>
<td>0.56</td>
<td>0.61</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; ARM</td>
<td>1.06</td>
<td>1.02</td>
<td>0.41</td>
<td>3.23</td>
<td>1.19</td>
<td>0.75</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Subprime</td>
<td>3.44</td>
<td>3.12</td>
<td>2.00</td>
<td>11.71</td>
<td>7.23</td>
<td>5.66</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; Fixed Rate</td>
<td>1.52</td>
<td>1.38</td>
<td>1.09</td>
<td>5.55</td>
<td>4.24</td>
<td>4.33</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp; ARM</td>
<td>5.29</td>
<td>4.72</td>
<td>2.70</td>
<td>17.08</td>
<td>8.80</td>
<td>6.07</td>
</tr>
</tbody>
</table>
</body>
</html>

The Mortgage Bankers' Association reported that during the 4th quarter of 2007, foreclosures were started on .83% of all mortgages outstanding. That was by far the highest foreclosure rate on record. Moreover, it raised the total for [...]

U.S. Mortgage Foreclosures Continued To Surge

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080312b.jpg" align="left" border="0" height="265" width="353">
In January Euro Area IP rose by a strong 0.9%. MFG output
advanced at a 1.2% pace and even consumer goods output was strong with
a gain of 0.8%. Consumer durables output led the advance within
consumption with a rise of 1.9% in the month. But capital goods
expansion was stronger still, rising by 2.7% in January as intermediate
goods output rose by 0.8%. These figures left Yr/Yr trends strong as
MFG output rose at a 3.2% pace over 12 months and capital equipment
rose at a 7.3% pace. Yr/Yr consumer output was up by just 1.3%.
However, in the new quarter with one month&#8217;s data overall IP is
expanding at a 7.2% pace led by capital equipment which is up at a
15.5% pace. Even consumer output is rising at a strong 4.4% pace in the
new quarter. 
 

As we saw in the country detail IP reports earlier, several
EMU nations experienced some exceptional factors that augmented growth
in January. The Bundesbank is looking for overall German growth to slow
below trend there. There is also the strong euro&#8217;s impact to consider.
While January was a stronger month it is best to be wary of what the
future holds for IP trends in the months ahead. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="8" scope="col"> E-zone and UK IP and MFG</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td colspan="3">Jan-08</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area Detail</td>
<td>Jan-08</td>
<td>Dec-07</td>
<td>Nov-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Qtr-to-Date</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>1.2%</td>
<td>0.2%</td>
<td>-0.4%</td>
<td>3.8%</td>
<td>3.1%</td>
<td>3.2%</td>
<td>7.2%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>0.8%</td>
<td>0.1%</td>
<td>-0.5%</td>
<td>1.7%</td>
<td>1.5%</td>
<td>1.3%</td>
<td>4.4%</td>
</tr>
<tr>
<td class="firstcol">Consumer Durables</td>
<td>1.9%</td>
<td>-0.1%</td>
<td>-1.9%</td>
<td>-0.9%</td>
<td>-0.8%</td>
<td>0.1%</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Consumer Nondurables</td>
<td>0.6%</td>
<td>0.1%</td>
<td>-0.1%</td>
<td>2.4%</td>
<td>1.9%</td>
<td>1.6%</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>0.8%</td>
<td>0.4%</td>
<td>-0.6%</td>
<td>2.0%</td>
<td>1.8%</td>
<td>2.1%</td>
<td>4.9%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>2.7%</td>
<td>-0.3%</td>
<td>-0.1%</td>
<td>9.3%</td>
<td>7.3%</td>
<td>7.3%</td>
<td>15.5%</td>
</tr>
</tbody>
</table>
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In January Euro Area IP rose by a strong 0.9%. MFG output advanced at a 1.2% pace and even consumer goods output was strong with a gain of 0.8%. Consumer durables output led the advance within consumption with a rise of 1.9% in the [...]

Euro-Area IP Rebounds in January

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080312a.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s GDP was revised lower in Q4 on weaker capital
spending. Japan's gross domestic product increased a real 0.9% in the
quarter during the October-December period, or 3.5% in annualized
terms. That was lower than the original estimate made a month ago of an
annualized 3.7% growth. Capital spending was revised down to a 2.0%
on-quarter rise from preliminary 2.9% advance. 
 

Japan&#8217;s GDP picture shows differing trends. The chart shows
that net exports are continuing to push GDP to stronger growth rates.
But real personal consumption trends are decelerating. Exports are
still growing strongly while real imports are being curtailed by
domestic weakness. Domestic demand in general is weakening with a Y/Y
growth rate of just 0.2% in Q4. Gross fixed capital formation is
negative and showing a sharp contraction. Housing is a leading negative
investment sector. Business plant and equipment expenditures have
steadied at a less than a 1% growth pace. In the recent quarter
government spending accelerated sharply hiking the yr/yr pace. Private
consumption did pick up in the quarter but the year/year pace
decelerated nonetheless. With the yen rising Japan will either have to
compete harder in overseas markets or supplement trade-led growth with
stronger domestic demand. 
 

For Japan, several cyclical indicators have become more
positive already. Its own economy watchers index has stopped its
decline but is still weak. Machinery orders have picked up. And, the
OECD composite leading indicators show that Japan&#8217;s index is making a
turn for the better after experiencing the worst slump among OECD
member countries so far in this cycle. But the US leading indicator is
weakening and the US remains an important export market for Japan. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col"> Japan
GDP</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td colspan="3">Consumption</td>
<td colspan="3">Capital 
Formation</td>
<td colspan="3">Trade 
Domestic</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>GDP</td>
<td>Private</td>
<td>Public</td>
<td>Gross 
Fixed 
Capital</td>
<td>Plant&amp; 
Eqpt</td>
<td>Housing</td>
<td>Exp Imp</td>
<td>Exports</td>
<td>Imports</td>
<td>Demand</td>
</tr>
<tr class="grey2">
<td colspan="11" class="firstcol">%
change Q/Q at annual
rates of change; X-M is Q/Q change in Bil of Real Yen</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q4-07</td>
<td>3.5%</td>
<td>0.9%</td>
<td>3.6%</td>
<td>-0.1%</td>
<td>8.1%</td>
<td>-32.3%</td>
<td>2.4</td>
<td>13.2%</td>
<td>2.2%</td>
<td>1.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q3-07</td>
<td>1.2%</td>
<td>0.6%</td>
<td>0.6%</td>
<td>-3.9%</td>
<td>3.7%</td>
<td>-29.4%</td>
<td>2.6</td>
<td>12.2%</td>
<td>-0.5%</td>
<td>-0.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q2-07</td>
<td>-1.5%</td>
<td>0.6%</td>
<td>1.2%</td>
<td>-9.6%</td>
<td>-6.4%</td>
<td>-16.4%</td>
<td>0.6</td>
<td>4.6%</td>
<td>2.1%</td>
<td>-2.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q1-07</td>
<td>3.8%</td>
<td>2.5%</td>
<td>0.8%</td>
<td>1.5%</td>
<td>-1.8%</td>
<td>-5.0%</td>
<td>2.3</td>
<td>14.8%</td>
<td>4.1%</td>
<td>2.1%</td>
</tr>
<tr class="grey2">
<td colspan="11" class="firstcol">%
change Yr/Yr; X-M is
Yr/Yr change in Gap in Bil of Real Yen</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q4-07</td>
<td>1.7%</td>
<td>1.1%</td>
<td>1.6%</td>
<td>-3.1%</td>
<td>0.8%</td>
<td>-21.5%</td>
<td>7.9</td>
<td>11.1%</td>
<td>2.0%</td>
<td>0.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q3-07</td>
<td>1.9%</td>
<td>2.0%</td>
<td>0.3%</td>
<td>-1.2%</td>
<td>0.6%</td>
<td>-11.4%</td>
<td>6.1</td>
<td>8.6%</td>
<td>1.5%</td>
<td>0.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q2-07</td>
<td>1.7%</td>
<td>1.0%</td>
<td>0.6%</td>
<td>-0.6%</td>
<td>0.3%</td>
<td>-3.0%</td>
<td>5.4</td>
<td>7.9%</td>
<td>1.4%</td>
<td>0.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q1-07</td>
<td>2.9%</td>
<td>1.7%</td>
<td>0.8%</td>
<td>3.3%</td>
<td>7.1%</td>
<td>-1.1%</td>
<td>4.9</td>
<td>7.6%</td>
<td>1.9%</td>
<td>2.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">5-Yrs</td>
<td>2.1%</td>
<td>1.4%</td>
<td>1.3%</td>
<td>0.8%</td>
<td>5.2%</td>
<td>-4.2%</td>
<td>n.a.</td>
<td>9.6%</td>
<td>4.2%</td>
<td>1.3%</td>
</tr>
</tbody>
</table>
</body></html>

Japan’s GDP was revised lower in Q4 on weaker capital spending. Japan's gross domestic product increased a real 0.9% in the quarter during the October-December period, or 3.5% in annualized terms. That was lower than the original [...]

Japan GDP is Revised Lower

The Mortgage Bankers' Association reported that during 4Q07, foreclosures were started on .83% of all mortgages outstanding. That was by far the highest foreclosure rate on record. Moreover, it raised the total for the full year to [...]

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080311i.jpg" width="353">
According to the National Federation of Independent Business (NFIB), small business optimism recovered a modest 1.2% during February after the prior month&#39;s 3.0% decline. Optimism remained near the lowest level since during the recession of 1990.
During the last ten years there has been a 70% correlation between the level of the NFIB index and the two quarter change in real GDP.
Nine percent fewer respondents expected the economy to improve following sharp declines during the prior four months. None of the respondents expected higher real sales in six months. In addition, none of the respondents indicated that now was a good time to expand the business.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080311j.jpg" width="353">
The percent planning to increase employment ticked up slightly from the lowest level since early 2006 and the percentage with one or more job openings reversed all of the prior month&#39;s improvement. During the last ten years there has been a 72% correlation between the NFIB percentage and the y/y change in nonfarm payrolls.
The percentage of firms planning to increase capital expenditures rose m/m to 26% but that remained below the average of 29% last year, 30% in 2006 and 32% in 2005.
The percentage of firms actually raising prices rose m/m but, at 13%, remained below last year&#39;s average of 15%. During the last ten years there has been a 60% correlation between the change in the producer price index and the level of the NFIB price index. The percentage of firms planning to raise prices also fell to 22% versus last year&#39;s average 23% and 27% in 2006.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

<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/SURVEYS/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">February</th>
<th scope="col">January</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>92.9</td>
<td>91.8</td>
<td>-5.4%</td>
<td>96.7</td>
<td>98.9</td>
<td>101.6</td>
</tr>
</tbody>
</table>
</body>
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According to the National Federation of Independent Business (NFIB), small business optimism recovered a modest 1.2% during February after the prior month's 3.0% decline. Optimism remained near the lowest level since during the [...]

Small Business Optimism Ticked Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080311k.jpg" width="353">
The International Council of Shopping Centers ICSC-UBS Chain Store survey indicated that chain store sales, last week, recovered just 0.3% of the prior period&#39;s 0.6% decline. The latest level of sales was about equal to the February average.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080311l.jpg" width="353">
During the latest week the leading indicator of chain store sales from ICSC-UBS recovered 1.0% after sharp declines during the prior two months.The index has trended steadily lower since early January.
Retail gasoline prices last week jumped seven cents to a new high of $3.23 per gallon, according to the U.S. Department of Energy survey.The gain was pushed by the increase in the wholesale price of gasoline which was up another ten cents yesterday from last week&#39;s average.
Strength in crude oil prices has driven gasoline prices. Yesterday&#39;s price of $107.90was well up from last week&#39;s average $103.43 which had risen nearly three dollars from early this month.

<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/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">03/07/08</th>
<th scope="col">02/29/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>488.3</td>
<td>487.0</td>
<td>1.6%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
<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/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">03/10/08</th>
<th scope="col">03/03/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Retail Gasoline ($ per Gallon)</td>
<td>3.23</td>
<td>3.16</td>
<td>26.0%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>103.43</td>
<td>100.88</td>
<td>70.0%</td>
<td>94.00</td>
<td>61.11</td>
<td>58.16</td>
</tr>
</tbody>
</table>


</html>

The International Council of Shopping Centers ICSC-UBS Chain Store survey indicated that chain store sales, last week, recovered just 0.3% of the prior period's 0.6% decline. The latest level of sales was about equal to the February [...]

U.S. Chain Store Sales Weak As Gasoline Price Surged

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

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

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250808F5.jpg

250808G5.jpg

Consumer credit outstanding increased $7.4 billion (2.1% y/y) during June after rising an unrevised $5.1 billion in May, and strengthening $16.4 billion in April, revised from $16.9 billion. A $9.0 billion June rise had been expected in the Action Economics Forecast Survey. As a percentage of disposable personal income, consumer credit of 22.4% in June compared to 22.5% in May and 22.9% one year earlier. It reached a high of 26.4% during all of 2017. The figures are reported by the Federal Reserve Board.

Nonrevolving credit outstanding rose $8.4 billion (1.9% y/y) during June after rising $8.9 billion in May, revised from $8.6 billion and an unrevised $9.4 billion in April. Nonrevolving credit held by depository institutions declined 6.8% y/y in June after falling 7.2% y/y in May. Finance company debt holdings eased 0.4% y/y after slipping 0.2% y/y in May, while credit union holdings rose 11.2% y/y in June after a 10.8% y/y May strengthening. Nonrevolving debt of the federal government rose 4.1% y/y in June following a 4.0% y/y rise in May.

In June, revolving credit outstanding, which includes credit cards, fell $1.0 billion (+2.5% y/y) after declining $3.8 billion in May, revised from -$3.5 billion and rising 7.0 billion in April, revised from $7.5 billion. Revolving credit outstanding held by depository institutions fell a steady 2.9% y/y. Revolving credit held by finance companies fell 15.0% y/y after a 14.3% y/y drop in May, while credit union debt rose a fairly steady 4.1% y/y in June.

In Q2’25, student loans rose $8.2 billion (4.2% y/y) while motor loans increased $5.1 billion (0.3% y/y).

The consumer credit figures from the Federal Reserve Board 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 data from the Census and the 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 forecast figures are contained in the **AS1REPNA** database.

250808H5.jpg

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- Moderate increases in last two months follow strong April gain.
- Nonrevolving credit usage strengthens as revolving credit eases.

U.S. Consumer Credit Picks Up in June

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Japan's economy watchers index is showing some rebound after a period of weakness. The economy is not breaking out into sharply improved readings; however, the monthly readings have now increased and improved for three months in a row for both the current and the future indexes. The increase for the current index over three months is 2.6 diffusion points; for the future index it's 4.6 diffusion points. Over 12 months, both readings are still lower on balance.

**Percentile standings-rankings**
Both headline readings are still below their historic medians, but the current index has a 34.8 percentile standing and the future index has a 39.5 percentile standing. The headline queue standings in both cases are below 50%- a reading below 50% indicates a reading below its historic median.

**Diffusion readings**
Current index components all have diffusion readings below their respective 50 marks, which tells us that they're all showing contraction. The surveys show a headline reading of 45.2 for the current index in July, compared to 47.3 for the future index in July. For the current index, all of the component rankings are below 50 for July, June and May. For the future index, there are three readings above 50 in July and none for June or May.

**July’s Future Index improvement**
The improvement in July for the future index is concentrated in eating and drinking places, services, and employment – all are households or individual-linked readings. That may reflect some sense of relief that Japan’s tariff negotiations with the United States were progressing and finally a deal was struck. The future index, in addition to having several diffusion readings above 50 in July, shows three readings that have queue standings, above the 50th percentile, putting them above their historic medians. Those are readings for eating and drinking places, services, and for housing. The reading for housing takes on a 59.3 percentile queue standing even though its diffusion index remains below 50 at 47. In July it moved up to 47, making a relatively sharp gain from a reading of 42.7 in June.

There is, therefore, relatively more evidence of improvement going on in the future index compared to the current index where monthly gains were generally smaller.

**The breadth of improvement**
Month-to-month the current index improved in 60% of the categories in July compared to 70% in May and June. The future index components improved across the board in July, 80% of them improved in June, and gains were across the board again in May. Looking at the changes over three months, six months, and 12 months according to average data, over three months 60% of the current categories improved compared to none over six months and 80% over 12 months. For average future data, 100% improve over three months, none improve over six months and 60% improve over 12 months.

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**Summing up**
The improvement in the most recent months is clear cut, whether it can be sustained is another matter. It likely reflects some release of anxiety over the tension created by the tariff negotiations with the United States; however, the Bank of Japan is still trying to corral inflation, and on the political side the LDP lost its upper house election and Japanese politics is being reorganized. As far as consumer confidence and expectations are concerned, we can expect that a lot is still in flux in Japan.

Japan

Japan’s Economy Watchers Index Rebounds

Andrew Cates

**Capacity pressures in the US and Europe**
Output gaps in advanced economies (the US and euro area) are estimated to have narrowed sharply in recent months and could be on the verge of turning negative. This reflects a prior period of weaker growth and a growing degree of slack in the economy—conditions that typically translate into softer inflation and heightened pressure on central banks to ease policy. Labour markets are certainly showing greater signs of weakness in the US. A big caveat to this is that estimating output gaps is inherently difficult, especially after recent supply shocks and structural shifts in labour markets. Still, most real-time indicators now suggest aggregate demand is slipping below potential. And that, alongside weakening job data, is strengthening the case for further policy easing and hints at continued disinflation in the months ahead.

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**The US housing market**
US housing has long been a bellwether for broader economic conditions, largely because of its deep ties to credit creation, household balance sheets, and interest rates. That’s why the latest data showing a renewed slump in builder sentiment and a more sustained drop in house price momentum has been of note. With mortgage rates still elevated and lending standards – as we discuss below – still tight, the housing sector looks increasingly fragile—raising fresh concerns about the durability of US growth.

250807Z2.jpg

**US bank lending standards**
This week’s latest Fed Senior Loan Officer Survey confirms that US credit conditions remain restrictive. Banks are still tightening lending standards for companies and consumers while loan demand continues to weaken—a pattern historically associated with periods of economic downturn. Although the net percentage of banks tightening standards has eased somewhat from 2023 peaks (see chart below), it remains elevated, and credit demand is now falling across most categories, from small business to commercial real estate. This tightening in credit supply and fall in demand suggests that monetary policy is still transmitting forcefully through the banking sector.

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**Global growth momentum** 
Until recently, global economic surprises and sentiment surveys were broadly supportive, suggesting the global cycle still had momentum. But this week’s Sentix survey revealed a renewed drop in expectations for August. That decline, coupled with a fading Citi Economic Surprise Index, hints that global momentum may be weakening again. As forward-looking indicators start to roll over, investors and policymakers alike should be alert to a potential shift toward a more pronounced downturn.

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**Global shipping costs and supply chain pressures** 
One additional area of heightened investor concern of late has been the potential inflationary fallout from recent US tariff measures. But so far, there is little evidence – at the global level - to suggest that global supply chains or freight costs have been meaningfully disrupted. The Baltic Exchange Dry Index and the NY Fed’s Global Supply Chain Pressure Index both remain relatively subdued, indicating that logistics bottlenecks have not re-emerged.

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**China’s excess capacity**
China’s economic influence remains pivotal in shaping global goods inflation. The latest data show that producer prices in China continue to contract, extending a prolonged period of deflation that reflects both domestic weakness and excess industrial capacity. This ongoing slack not only suppresses China’s export prices but also exerts downward pressure on global manufacturing input costs. At a time when central banks (most notably in the US) are weighing the risk of reacceleration in inflation, China’s persistent deflation in upstream prices acts as a powerful counterforce—reinforcing the view that goods inflation risks could remain subdued for now.

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Last week’s weaker-than-expected US labour market report—marked by sluggish payroll growth, rising unemployment, and downward revisions to prior months—sparked a notable shift in financial markets. Bond yields fell sharply as investors repriced the outlook for Fed easing, with rate cut expectations brought forward. This recalibration arguably reflects growing awareness of mounting downside risks across the US and broader global economy. Several indicators reinforce this view. Output gaps in many major economies are narrowing or turning negative, signalling that demand is falling short of potential (chart 1). The US housing market looks fragile, amidst weak builder sentiment and falling prices (chart 2). US bank lending standards are still restrictive, with implications for credit availability, household and business investment, and overall economic momentum (chart 3). Some (though not all) global sentiment surveys have softened, and positive growth surprises are now fading. Meanwhile, and despite earlier fears, US tariffs have not triggered renewed supply chain stress or inflationary pressures (chart 5). Add to that the ongoing deflation in China’s producer prices, and the macro narrative could be tilting more decisively toward slower growth and diminishing inflation risks—leaving policymakers with more space to continue easing monetary policy (chart 6).

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Charts of the Week: Downside Risks

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Wholesale inventories increased 0.1% (1.3% y/y) during June after falling an unrevised 0.3% decline in May. The rise was revised from a 0.3% increase in the advance release issued last week and matched expectations in the Informa Global Markets survey. Durable goods inventories rose 0.1% during June (0.2% y/y) after falling 0.7% in May. Furniture & home furnishings inventories eased slightly (+4.9% y/y) after weakening 2.1% in May. Professional & business equipment inventories were off 0.5% (+6.4% y/y) after falling 2.1% in May. Motor vehicle & parts inventories were off 1.2% (-4.7% y/y) for the second consecutive month. Machinery inventories also slipped m/m (-2.4% y/y), after falling 0.8%. Electrical equipment inventories jumped 2.6% (0.7% y/y) after increasing 0.6% in May. Hardware & plumbing equipment inventories rose 0.3% (8.4% y/y) following a 1.2% increase.

Inventories of nondurable goods also edged 0.1% higher during June (3.3% y/y) after rising 0.4% in May. Drug inventories increased 0.6% (5.8% y/y) after a 1.9% gain but apparel inventories declined 2.6% (-3.9% y/y) following a 0.4% fall. Grocery inventories increased 0.7% (10.4% y/y) after no change in May. Paper inventories were off 0.7% (+5.0% y/y) following a 0.2% rise while chemical inventories rose 1.9% (-1.0% y/y), the third straight month of sharp decline. Petroleum & petroleum product inventories rose 6.0% (-3.2% y/y) following a 2.9% increase.

Wholesale sales increased 0.3% (5.5% y/y) in June after falling 0.4% in May. A 0.2% increase had been expected in the Action Economics Forecast Survey. Sales of durable goods rose 0.5% (7.6% y/y) in June after rising 0.2% in May. Auto sales fell 0.7% (+4.3% y/y) after a 3.5% rise. Sales of electrical equipment improved 0.2% (15.3% y/y) following a 1.1% rise. Metals & minerals sales gained 0.6% (4.3% y/y) following a 1.2% gain. Furniture sales declined 2.2% (-3.0% y/y) after falling 2.3%. Professional equipment sales improved 0.3% (7.6% y/y) following a 0.3% decline. Machinery sales rose 0.8% (6.5% y/y) after declining 0.9% in May.

Sales of nondurable goods edged 0.1% higher (3.5% y/y) during June after falling 1.0% in May. Paper sales slumped 1.4% (+0.3% y/y) after falling 1.0% in May. Drug sales rose 0.8% (11.2% y/y) after falling 0.3% in May. Petroleum sales increased 0.9% (-7.4% y/y) after declining 3.0%. Sales of apparel rose 0.9% (9.3% y/y) after rising 1.9%. Grocery store sales decreased 	0.7% (+5.1% y/y) after rising 0.7% in May.

The June inventory-to-sales ratio in the wholesale sector stood at 1.3 for the fifth straight month. The durable goods I/S ratio eased to 1.66, down from the 1.81 high in March of last year. The ratio ranged from 2.84 for machinery to 0.98 for electrical equipment. The nondurable goods I/S ratio held at 0.95. The I/S ratio for apparel was 2.03 in June while for petroleum it was 0.35.

The wholesale trade figures are available in Haver's **USECON** database. The expectations figure for inventories is contained in the **MMSAMER** database. Expectations for sales are from the **AS1REPNA** database.

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- Slight inventory gain masks divergent industry patterns.
- Sales increase is first since March.
- I/S ratio steadies at three-year low.

U.S. Wholesale Inventories Edge Higher in June

Sandy Batten

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Nonfarm business labor productivity (output per hour) rebounded in Q2, increasing 2.4% q/q (SAAR) after having fallen 1.8% in Q1 (revised down from -1.5%). A 2.0% quarterly increase in Q2 was expected by the Action Economics Forecast Survey. Compared to a year ago, productivity growth edged up to 1.3% in Q2 from 1.2% in Q1.

Real value added (output) advanced 3.7% q/q in Q2 after declining 0.6% in Q1. Hours worked increased 1.3% q/q, up only marginally from a 1.2% gain in Q1. Compensation growth slowed to 4.0% q/q in Q2 from 5.0% in Q1 and 5.5% in last year’s Q4. As a result, unit labor costs advanced only 1.6% q/q in Q2, down markedly from a 6.9% quarterly gain in Q1. However, on a y/y basis, unit labor costs increased 2.6% y/y in Q2 versus 2.0% in Q1. Annual unit labor costs have been on an uptrend since the middle of last year.

Factory sector productivity slowed to 2.1% q/q (SAAR) in Q2 from a downwardly revised 3.3% in Q1 (previously 4.4%). Compared with a year ago, manufacturing productivity increased 1.5% in Q2, its fastest annual advance since Q2 2021. Manufacturing compensation growth slowed to 3.8% q/q in Q2 from 6.3% in Q1. Accordingly, unit labor cost growth slowed to 1.7% q/q in Q1, its slowest pace in four quarters, from 2.9% in Q1.

The productivity and labor cost data are available in Haver’s **USECON** database. The Action Economics expectations figures are in the **AS1REPNA** database.

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- Nonfarm business productivity increased 2.4% q/q annualized in Q2, more than reversing the 1.8% quarterly decline in Q1.
- Compensation growth slowed to 4.0% from 5.0% in Q1.
- Consequently, unit labor cost growth slowed markedly to 1.6% from 6.9% in Q1.

Economy in Brief: March 2008

Jump to:

French Inflation Begins to Level Off in February

JOLTS: Job Openings Broadly Down Early in 2008

U.S. Mortgage Foreclosures Continued To Surge

Euro-Area IP Rebounds in January

Japan GDP is Revised Lower

U.S. Mortgage Foreclosures Continued To Surge

Small Business Optimism Ticked Up

U.S. Chain Store Sales Weak As Gasoline Price Surged