Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060710a.jpg" width="353">
The Leading Index of the major 7 OECD economies slipped 0.1% during May and reversed a downwardly revised 0.1% gain the prior month. It was the first decline in the index since April of last year and it lowered the index&#39;s six month growth rate to 2.6%, the slowest since November.
During the last ten years there has been a 64% correlation between the change in the leading index and the q/q change in the GDP Volume Index for the Big Seven OECD countries.
A 0.6% decline in the U.S. leaders followed a 0.1% April dip and dropped the six month growth rate to 2.3%, its lowest since October. Consumer sentiment slipped and interest rate spreads remained quite negative. The correlation between the leaders&#39; growth rate and real GDP growth has been a high 73% during the last ten years.
The Canadian leaders fell 0.9%. This fourth consecutive down month dropped the index&#39;s six month growth rate to -1.9%, the worst in year. The correlation of the leaders&#39; growth with Canadian real GDP has been 49% during the last ten years.
The leading index for the European Union (15 countries) improved another 0.4%, about its monthly rate of advance since last Summer. The gain lifted the index&#39;s six month growth rate to 5.0%, the best in two years. During the last ten years there has been a 59% correlation between the change in the leading index and the quarterly change in the European Union GDP volume index.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060710b.jpg" width="353">
The German leading index rose 0.6% after an upwardly revised 0.7% April increase. The six month growth rate, consequently, held at a firm 8.0%. During the last ten years there has been a 32% correlation between the change in the German leading index and the quarterly change in GDP volume.
The Italian leading index jumped 0.6%, the third strong monthly increase this year. It lifted the series&#39; six month growth rate to 2.7% as the future tendency of production and new orders rose while consumer confidence was less negative.
A 0.1% increase in the leaders in France left the series&#39; six month growth rate stable at a moderate, but improved, 2.8%.
The UK leaders ticked up 0.1% in May after a downwardly revised no change in April. The six month growth rate slipped to a modest 1.4% as consumer confidence fell.
The leading index in Japan gained 0.2% but April&#39;s previously reported sharp increase was revised down to 0.1%. The index&#39;s six month growth rate held at a moderate 1.7%. The leaders&#39; correlation with Japan&#39;s real economic growth has been a meaningful 40% during the last ten years.
The latest OECD Leading Indicator report is available <a href="http://www.oecd.org/document/35/0,2340,en_2825_293564_37075875_1_1_1_1,00.html">here</a>.
Rising health costs put pressure on public finances, finds OECD can be found <a href="http://www.oecd.org/document/37/0,2340,en_2649_201185_36986213_1_1_1_1,00.html"> 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/OECDMEI/OECDMEI.HTM">OECD</a></th>
<th scope="col">May</th>
<th scope="col">April</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">Composite Leading Index&nbsp;</td>
<td>105.27</td>
<td>105.42</td>
<td>3.2%</td>
<td>102.85</td>
<td>102.38</td>
<td>97.99</td>
</tr>
<tr>
<td class="firstcol">&nbsp;6 Month Growth Rate</td>
<td>2.6%</td>
<td>3.4%</td>
<td>&nbsp;</td>
<td>0.7%</td>
<td>3.5%</td>
<td>2.6%</td>
</tr>
</tbody>
</table>
 May Industrial Production Up Sharply in France and Greece, Less So in Sweden and Turkey, but the Latter Two Show Greater Long Term Growth  
by <a href="/comment/Curley.html">Louise Curley</a> July 10, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060710c.jpg" width="353">
Four counties--France, Greece, Sweden and Turkey--released industrial production data for May this morning. France and Sweden are more highly developed in an economic sense than Greece and Turkey.
In France, where industrial production is only slightly higher than it was in 2000, industrial production rose from 101.7 in April to 103.7 in May. While Sweden showed a smaller increase from 111.8 in April to 112.7 in May, the level of production in Sweden is almost 13% above its 2000 level. The stronger trend in Sweden&#39;s industrial production compared with that of France is shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060710d.jpg" width="353">
Industrial production trends in Greece and Turkey show similar trends with Greece showing little growth since 2000 and Turkey, substantial growth. (The reported data for Turkey are based on 1997=100. We have adjusted these data to 2000=100) by changing the index base in the advanced function menu.) Production in Greece increased 4.7% in May from April, but was only 2.5% above May of 2005. Production in Turkey increased only 0.9% in May from April, but was 9.0% above May, 2005. Industrial production data for Greece and Turkey are shown in the second chart.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Industrial Production (2000=100)</th>
<th scope="col">May&nbsp; 06</th>
<th scope="col">Apr 06</th>
<th scope="col">Mar 05</th>
<th scope="col">M/M%</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">France&nbsp;</td>
<td>103.7</td>
<td>101.7</td>
<td>101.0</td>
<td>1.96</td>
<td>2.67</td>
<td>101.8</td>
<td>101.6</td>
<td>99.6</td>
</tr>
<tr>
<td class="firstcol">Sweden</td>
<td>112.7</td>
<td>111.8</td>
<td>106.3</td>
<td>0.81</td>
<td>6.02</td>
<td>107.9</td>
<td>106.2</td>
<td>103.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Greece</td>
<td>100.2</td>
<td>95.6</td>
<td>99.7</td>
<td>4.77</td>
<td>0.49</td>
<td>99.4</td>
<td>100.5</td>
<td>99.3</td>
</tr>
<tr>
<td class="firstcol">Turkey</td>
<td>135.7</td>
<td>134.4</td>
<td>124.4</td>
<td>0.94</td>
<td>9.01</td>
<td>125.7</td>
<td>119.3</td>
<td>108.7</td>
</tr>
</tbody>
</table>
</body>
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The Leading Index of the major 7 OECD economies slipped 0.1% during May and reversed a downwardly revised 0.1% gain the prior month. It was the first decline in the index since April of last year and it lowered the index's six month [...]

OECD Leaders Slip, North America Down

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/060707c.jpg" width="353">
The recent construction boom in the US and accelerated economic development in China, India and other countries have increased demand for and prices of copper, which is by far the main export of Chile. In trade data reported today and within the last 10 days, it is evident that this has brought much revenue into the Chilean economy. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060707d.jpg" width="353">
The trade surplus for June on an fob/fob basis (&quot;freight-on-board&quot;: that is, just the value of the merchandise) was $1,784.3 million, nearly double the $963.3 million of June 2005. The central Bank of Chile reports individual import items on a &quot;cif&quot; basis, that is, including &quot;cost, insurance, and freight&quot;, so imports are always higher on this basis; the latest actual cif import figure for May was $3,125.3 million compared with an fob number of $3,089.7 million. We estimated June&#39;s cif from the recent behavior of the differential ratio that accounts for the insurance and freight components. The resulting fob/cif trade surplus is $1,543.2 million, which compares with $834.3 million a year ago, again, nearly double. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060707e.jpg" width="353">
Both exports and imports have grown greatly over the past year. Exports are 40.4% larger and imports 26.4%. In the table below, we see that copper is a substantial portion of Chile&#39;s total exports. From June 2005 through May 2006, the value of copper exports had more than doubled, and copper increased to about 56% of exports. This is obviously related to world prices of copper, which we show in the accompanying chart, using the COMEX spot price. For the month of May alone, when prices spiked above $3.76 a pound, copper was 60.8% of Chile&#39;s exports. Some bit of price decline occurred in June, and while the details are not available, Chile&#39;s total exports fell back by about $430 million.
Among imports, consumer goods are expanding with a strong and consistent uptrend. Intermediate goods other than petroleum are also. Capital goods were gaining sharply, but have fallen back since the beginning of this year. Overall, even as Chile is enjoying its growing trade surplus, it also appears to be spending some of the added revenue on the people and products of the country. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Chile: SA, Millions of US$</th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">Apr 2006</th>
<th scope="col">June 2005</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">Trade Balance, fob/cif</td>
<td>1543.2E*</td>
<td>2199.6</td>
<td>822.5</td>
<td>834.3</td>
<td>8163.0</td>
<td>7490.7</td>
<td>2296.9</td>
</tr>
<tr>
<td class="firstcol">Exports, fob</td>
<td>4894.7</td>
<td>5324.9</td>
<td>3617.5</td>
<td>3485.4</td>
<td>40583.8</td>
<td>32226.6</td>
<td>21660.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Copper</td>
<td>--</td>
<td>3237.9</td>
<td>1844.4</td>
<td>1529.2</td>
<td>18307.7</td>
<td>14887.0</td>
<td>7815.5</td>
</tr>
<tr>
<td class="firstcol">Imports, cif</td>
<td>3351.5E*</td>
<td>3125.3</td>
<td>2795.0</td>
<td>2651.1</td>
<td>32420.8</td>
<td>24735.9</td>
<td>19363.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Petroleum</td>
<td>--</td>
<td>578.9</td>
<td>298.9</td>
<td>332.6</td>
<td>3779.3</td>
<td>2874.6</td>
<td>2125.6</td>
</tr>
<tr>
<td class="firstcol">Copper Price**</td>
<td>3.3963</td>
<td>3.7609</td>
<td>2.9641</td>
<td>1.6219</td>
<td>1.6825</td>
<td>1.2898</td>
<td>0.8105</td>
</tr>
</tbody>
</table>
</body>
</html>

The recent construction boom in the US and accelerated economic development in China, India and other countries have increased demand for and prices of copper, which is by far the main export of Chile. In trade data reported today and [...]

Chile & Copper: Higher Prices Boost Exports & Trade Balance

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060707a.jpg" width="353">
A 121,000 gain in June nonfarm payrolls fell short of Consensus expectations for a 155,000 increase. Disappointment should be mitigated, however, by details within the jobs report that indicate continuing, moderate expansion of the U.S. labor market.
Revisions raised the gain in May payrolls to 92,000 and a 15,000 worker June gain factory sector payrolls pulled the y/y growth positive (barely) for the first time since 2000.
From the household survey, the unemployment rate remained low at an expected 4.6% due to a whopping 387,000 (1.8% y/y) gain in employment while the labor force rose 330,000 (1.4% y/y). The labor force participation rate rose to 66.2%, its highest level in three years, though the rate for males over 20 dropped to a low 75.7%. That decline was offset by a rise in the participation rate for females over 20 to 60.6%.
Lengthening of the workweek to an average 33.9 hours raised aggregate weekly hours worked in private industry by 0.4%. That was enough to raise the 2Q level 2.3% (AR) versus a 1Q increase of 3.0%. Both figures are improved versus 2.2% average growth during the second half of last year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060707b.jpg" width="353">
Average hourly earnings jumped 0.5% versus an expected 0.3% increase and an unrevised 0.1% May up tick. The 3.9% y/y gain is the strongest since 2001. Private service-producing wages rose 0.4% (4.3% y/y) while factory sector earnings rose 0.2% (1.6% y/y).
The breadth of one month gain in private payrolls fell to 55.4% in June versus a high 61% in January and 61.7% last November. For the factory sector, a 54.8% one month breadth of gain was improved from 42.7% during all of last year.
Factory sector payrolls advanced for the second month in the last three due to growth in the electrical equipment &amp; appliance (2.6% y/y) industry as well as in computer &amp; electronic products (0.7% y/y), machinery (1.8% y/y) and chemical (1.3% y/y) sectors. Growth in most other nondurable goods industries continued negative.
Private service-producing jobs rose a modest 75,000 (1.5% y/y) last month, about the same as in May. The per month average gain of 69,000 during 2Q was the weakest since 3Q 2004. Retail trade sector jobs fell 6,600 (-0.2% y/y), the third decline in the last four months. Financial sector jobs rose 3,000 (2.5% y/y) and professional &amp; business services employment rose 25,000 (2.6% y/y). Temporary help services jobs fell by 7,900 (+3.2% y/y). It was the fourth m/m decline this year though May was revised to show an increase. Jobs in education &amp; health services rose 26,000 (2.2% y/y).
Construction employment reversed all of an upwardly revised 4,000 May increase (3.1% y/y).
Is the United States Bankrupt? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/06/07/Kotlikoff.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">June</th>
<th scope="col">May</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>121,000</td>
<td>92,000</td>
<td>1.4%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>15,000</td>
<td>-8,000</td>
<td>0.1%</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>33.9</td>
<td>33.8</td>
<td>33.7 (June &#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>0.5%</td>
<td>0.1%</td>
<td>3.9%</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>4.6%</td>
<td>5.0% (June &#39;05)</td>
<td>5.1%</td>
<td>5.5%</td>
<td>6.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

A 121,000 gain in June nonfarm payrolls fell short of Consensus expectations for a 155,000 increase. Disappointment should be mitigated, however, by details within the jobs report that indicate continuing, moderate expansion of the [...]

Growth in U.S. Payrolls Moderate, Wages Jump

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060707a.jpg" width="353">
A 121,000 gain in June nonfarm payrolls fell short of Consensus expectations for a 155,000 increase. Disappointment should be mitigated, however, by details within the jobs report that indicate continuing, moderate expansion of the U.S. labor market.
Revisions raised the gain in May payrolls to 92,000 and a 15,000 worker June gain factory sector payrolls pulled the y/y growth positive (barely) for the first time since 2000.
From the household survey, the unemployment rate remained low at an expected 4.6% due to a whopping 387,000 (1.8% y/y) gain in employment while the labor force rose 330,000 (1.4% y/y). The labor force participation rate rose to 66.2%, its highest level in three years, though the rate for males over 20 dropped to a low 75.7%. That decline was offset by a rise in the participation rate for females over 20 to 60.6%.
Lengthening of the workweek to an average 33.9 hours raised aggregate weekly hours worked in private industry by 0.4%. That was enough to raise the 2Q level 2.3% (AR) versus a 1Q increase of 3.0%. Both figures are improved versus 2.2% average growth during the second half of last year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060707b.jpg" width="353">
Average hourly earnings jumped 0.5% versus an expected 0.3% increase and an unrevised 0.1% May up tick. The 3.9% y/y gain is the strongest since 2001. Private service-producing wages rose 0.4% (4.3% y/y) while factory sector earnings rose 0.2% (1.6% y/y).
The breadth of one month gain in private payrolls fell to 55.4% in June versus a high 61% in January and 61.7% last November. For the factory sector, a 54.8% one month breadth of gain was improved from 42.7% during all of last year.
Factory sector payrolls advanced for the second month in the last three due to growth in the electrical equipment &amp; appliance (2.6% y/y) industry as well as in computer &amp; electronic products (0.7% y/y), machinery (1.8% y/y) and chemical (1.3% y/y) sectors. Growth in most other nondurable goods industries continued negative.
Private service-producing jobs rose a modest 75,000 (1.5% y/y) last month, about the same as in May. The per month average gain of 69,000 during 2Q was the weakest since 3Q 2004. Retail trade sector jobs fell 6,600 (-0.2% y/y), the third decline in the last four months. Financial sector jobs rose 3,000 (2.5% y/y) and professional &amp; business services employment rose 25,000 (2.6% y/y). Temporary help services jobs fell by 7,900 (+3.2% y/y). It was the fourth m/m decline this year though May was revised to show an increase. Jobs in education &amp; health services rose 26,000 (2.2% y/y).
Construction employment reversed all of an upwardly revised 4,000 May increase (3.1% y/y).
Is the United States Bankrupt? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/06/07/Kotlikoff.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">June</th>
<th scope="col">May</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>121,000</td>
<td>92,000</td>
<td>1.4%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>15,000</td>
<td>-8,000</td>
<td>0.1%</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>33.9</td>
<td>33.8</td>
<td>33.7 (June &#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>0.5%</td>
<td>0.1%</td>
<td>3.9%</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>4.6%</td>
<td>5.0% (June &#39;05)</td>
<td>5.1%</td>
<td>5.5%</td>
<td>6.0%</td>
</tr>
</tbody>
</table>
Chile & Copper: Higher Prices Boost Exports & Trade Balance 
by <a href="/comment/Stone.html">Carol Stone</a> July 7, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060707c.jpg" width="353">
The recent construction boom in the US and accelerated economic development in China, India and other countries have increased demand for and prices of copper, which is by far the main export of Chile. In trade data reported today and within the last 10 days, it is evident that this has brought much revenue into the Chilean economy. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060707d.jpg" width="353">
The trade surplus for June on an fob/fob basis (&quot;freight-on-board&quot;: that is, just the value of the merchandise) was $1,784.3 million, nearly double the $963.3 million of June 2005. The central Bank of Chile reports individual import items on a &quot;cif&quot; basis, that is, including &quot;cost, insurance, and freight&quot;, so imports are always higher on this basis; the latest actual cif import figure for May was $3,125.3 million compared with an fob number of $3,089.7 million. We estimated June&#39;s cif from the recent behavior of the differential ratio that accounts for the insurance and freight components. The resulting fob/cif trade surplus is $1,543.2 million, which compares with $834.3 million a year ago, again, nearly double. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060707e.jpg" width="353">
Both exports and imports have grown greatly over the past year. Exports are 40.4% larger and imports 26.4%. In the table below, we see that copper is a substantial portion of Chile&#39;s total exports. From June 2005 through May 2006, the value of copper exports had more than doubled, and copper increased to about 56% of exports. This is obviously related to world prices of copper, which we show in the accompanying chart, using the COMEX spot price. For the month of May alone, when prices spiked above $3.76 a pound, copper was 60.8% of Chile&#39;s exports. Some bit of price decline occurred in June, and while the details are not available, Chile&#39;s total exports fell back by about $430 million.
Among imports, consumer goods are expanding with a strong and consistent uptrend. Intermediate goods other than petroleum are also. Capital goods were gaining sharply, but have fallen back since the beginning of this year. Overall, even as Chile is enjoying its growing trade surplus, it also appears to be spending some of the added revenue on the people and products of the country. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Chile: SA, Millions of US$</th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">Apr 2006</th>
<th scope="col">June 2005</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">Trade Balance, fob/cif</td>
<td>1543.2E*</td>
<td>2199.6</td>
<td>822.5</td>
<td>834.3</td>
<td>8163.0</td>
<td>7490.7</td>
<td>2296.9</td>
</tr>
<tr>
<td class="firstcol">Exports, fob</td>
<td>4894.7</td>
<td>5324.9</td>
<td>3617.5</td>
<td>3485.4</td>
<td>40583.8</td>
<td>32226.6</td>
<td>21660.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Copper</td>
<td>--</td>
<td>3237.9</td>
<td>1844.4</td>
<td>1529.2</td>
<td>18307.7</td>
<td>14887.0</td>
<td>7815.5</td>
</tr>
<tr>
<td class="firstcol">Imports, cif</td>
<td>3351.5E*</td>
<td>3125.3</td>
<td>2795.0</td>
<td>2651.1</td>
<td>32420.8</td>
<td>24735.9</td>
<td>19363.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Petroleum</td>
<td>--</td>
<td>578.9</td>
<td>298.9</td>
<td>332.6</td>
<td>3779.3</td>
<td>2874.6</td>
<td>2125.6</td>
</tr>
<tr>
<td class="firstcol">Copper Price**</td>
<td>3.3963</td>
<td>3.7609</td>
<td>2.9641</td>
<td>1.6219</td>
<td>1.6825</td>
<td>1.2898</td>
<td>0.8105</td>
</tr>
</tbody>
</table>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060706i.jpg" width="353">
Mortgage equity withdrawal in the UK picked up in Q1, according to data reported today by the Bank of England. It came to &pound;12,509 million, up from &pound;12,121 million in Q4 and &pound;6,478 million in the year-ago period. The Bank of England originated this concept about five years ago and gave it the name &quot;mortgage equity withdrawal&quot;. It represents the borrowing by consumers on their homes which exceeds the amount necessary to finance the investment in the house itself. Because of recent strength in home prices over construction values, homeowners have considerable equity, and they have been leveraging that toward any number of unrelated purchases. This borrowing in the UK was equivalent to 5.8% of consumers&#39; post-tax income in Q1. In 2003 and 2004, house prices were stronger and mortgage equity withdrawal was greater; 2003 was the peak year, with a total of &pound;57,233 million, a quarterly average of &pound;14,308 million and 7.5% of consumer income. [The relationship of MEW to HBOS (Halifax) house prices, which were also reported today through June, can be seen in the first graph.]<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060706j.jpg" width="353">
As we have discussed here previously, the same phenomenon has been occurring in the US, and we are struck by -- indeed, amazed -- at the similarity in the trends of this practice in each country. The volume of what we prefer to call &quot;home equity withdrawal&quot; also increased in Q1, recovering to $664.3 billion after falling in Q4 2005 to $619.3 billion. The peak quarter was $712.0 billion in Q3 2005. The series we cite is calculated by Haver, based on the value of residential investment by households, including improvements. [The Fed calculates a series based on the value of home sales and does not cover funding of improvements.] The Haver data, our series MEW1, equaled 7.2% of disposable income in Q1, compared with 6.7% in Q4 and 7.9% in Q3. 2005 was the big year for home equity withdrawal in the US, as easily noted in the accompanying graphs.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060706k.jpg" width="353">
Comparing the trends in the UK and the US, we see in the second graph, there is an extraordinary 87% correlation between equity withdrawal in the two countries. The period of softness in the mid-1990s, with modest equity buildup (that is, negative MEW), was repeated in both economies. But MEW grew rapidly in both places in the late 1990s. The patterns diverge a bit in 2003, but continue to tell essentially the same story of homeowners&#39; significant borrowing on their homes to finance other activity. The final graph shows a 66% correlation in the ratios of this borrowing to disposable income in each country, augmenting income resources by some 6% in recent years. Now housing markets are moderating in both countries, with a flattening or notable slowing of price gains and some hesitancy in sales. So it remains to be seen how MEW will behave in both the UK and the US and what the implications of that will be for consumer spending.

<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">Q1 2006</th>
<th scope="col">Q4 2005</th>
<th scope="col">Q3 2005</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">UK: Mortgage Equity Withdrawal(Bil. &pound;)</td>
<td>&pound;12.5</td>
<td>&pound;12.1</td>
<td>&pound;9.2</td>
<td>&pound;6.5</td>
<td>&pound;9.5</td>
<td>&pound;12.4</td>
<td>&pound;14.3</td>
</tr>
<tr>
<td class="firstcol">% of Post-Tax Income</td>
<td>5.8%</td>
<td>5.7%</td>
<td>4.4%</td>
<td>3.2%</td>
<td>4.6%</td>
<td>6.3%</td>
<td>7.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">HBOS House Price (000s &pound;)</td>
<td>June 2006</td>
<td>May 2006</td>
<td>Apr 2006</td>
<td>&pound;163.0</td>
<td>&pound;165.4</td>
<td>&pound;157.0</td>
<td>&pound;132.2</td>
</tr>
<tr>
<td class="firstcol">&pound;176.5</td>
<td>&pound;178.7</td>
<td>&pound;178.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Yr/Yr % Change</td>
<td>8.2%</td>
<td>10.0%</td>
<td>9.9%</td>
<td>--</td>
<td>5.3%</td>
<td>18.8%</td>
<td>19.0%</td>
</tr>
<tr>
<td class="firstcol">US: Home Equity Withdrawal(Bil. $)</td>
<td>Q1 2006</td>
<td>Q4 2005</td>
<td>Q3 2005</td>
<td>$429.1</td>
<td>$591.3</td>
<td>$475.2</td>
<td>$451.8</td>
</tr>
<tr class="odd">
<td class="firstcol">$664.3</td>
<td>$619.3</td>
<td>$712.0</td>
</tr>
<tr>
<td class="firstcol">% of Disp. Income</td>
<td>7.2%</td>
<td>6.7%</td>
<td>7.9%</td>
<td>4.8%</td>
<td>6.5%</td>
<td>5.5%</td>
<td>5.5%</td>
</tr>
</tbody>
</table>
</body>
</html>

Mortgage equity withdrawal in the UK picked up in Q1, according to data reported today by the Bank of England. It came to £12,509 million, up from £12,121 million in Q4 and £6,478 million in the year-ago period. The Bank of England [...]

Mortgage Equity Withdrawal Stages Partial Recovery in Both US and UK; UK House Prices Moderating

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060706h.jpg" width="353">
Factory inventory accumulation stalled during May but that followed an upwardly revised 1.0% April increase. Despite the latest stall, the running rate of inventory accumulation this year matches the gains in 2005.
Inventories of computers &amp; electronic products fell 0.5% (+6.1% y/y) while inventories of electrical equipment dropped 0.3% (+6.5% y/y). Inventories of furniture &amp; related products fell 0.3% (+4.6% y/y), the second down month, and primary metals inventories jumped 2.3% (4.0% y/y).
Total factory orders rose 0.7%, a gain led by a 1.6% jump in nondurables which reflected a 2.3% rise petroleum &amp; coal. Less petroleum, nondurable goods orders (which equal shipments) rose 1.4% (3.1% y/y). Durable goods orders fell 0.2%, little revised from the advance report of a 0.3% slip.
Factory shipments surged 2.2% led higher by a 5.1% jump in transportation. Civilian aircraft shipments rose 19.8% (33.0% y/y). Less transportation shipments also were strong and rose 1.7% (7.7% y/y).
Unfilled orders rose another 0.6% led by a 1.5% (59.4% y/y) jump in civilian aircraft. Less the transportation sector altogether backlogs rose 0.9% (14.3% y/y).<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </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/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">May</th>
<th scope="col">April</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">Inventories</td>
<td>-0.0%</td>
<td>1.0%</td>
<td>3.9%</td>
<td>4.0%</td>
<td>6.9%</td>
<td>-7.4%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>0.7%</td>
<td>-2.0%</td>
<td>4.9%</td>
<td>8.5%</td>
<td>7.5%</td>
<td>0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>2.2%</td>
<td>-0.1%</td>
<td>7.2%</td>
<td>7.1%</td>
<td>6.8%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.6%</td>
<td>1.5%</td>
<td>20.7%</td>
<td>16.3%</td>
<td>4.5%</td>
<td>-1.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

Factory inventory accumulation stalled during May but that followed an upwardly revised 1.0% April increase. Despite the latest stall, the running rate of inventory accumulation this year matches the gains in 2005. Inventories of [...]

U.S. Factory Inventory Accumulation Stalled in May

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060706g.jpg" width="353">
The total number of mortgage applications rose 5.9% last week and recovered about all of the prior week&#39;s sharp decline. For the month of June, the average number of applications fell 1.5% from May.
A 6.5% increase in purchase applications recovered all of the prior week&#39;s decline but nevertheless left the June average 0.8% below May which fell 0.8% from April.
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.
Applications to refinance rose 5.0% after a 7.5% drop the prior week. Refis during all of June were 3.1% below the May average.
The effective interest rate on a conventional 30-year mortgage reversed half of the prior week&#39;s rise with a six basis point decline to 7.02%. The rate on 15-year financing reversed most of the prior week&#39;s gain with a seven basis point decline to 6.68%. 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">06/30/06</th>
<th scope="col">06/23/06</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 class="odd">
<td class="firstcol">Total Market Index</td>
<td>561.0</td>
<td>529.6</td>
<td>-34.3%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>414.2</td>
<td>389.0</td>
<td>-20.5%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,423.9</td>
<td>1,356.0</td>
<td>-48.9%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The total number of mortgage applications rose 5.9% last week and recovered about all of the prior week's sharp decline. For the month of June, the average number of applications fell 1.5% from May. A 6.5% increase in purchase [...]

Mortgage Applications Up, Rates Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060706f.jpg" width="353">
Challenger, Grey &amp; Christmas indicated that announced job cuts rose 25.1% last month (67,176) to the highest level since February.
During the last ten years there has been an 83% (inverse) correlation between the three month moving average level of announced job cuts and the three month change payroll employment.
Increases m/m were pronounced in the automotive (-73.2% y/y), health care (+23.2% y/y), retail (-80.8% y/y), pharmaceutical (-27.5% y/y) and industrial goods (+45.9% y/y) industries.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported a moderate m/m increase in announced hiring plans (-34.6% y/y).

<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/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">June</th>
<th scope="col">May</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">Announced Job Cuts</td>
<td>67,176</td>
<td>53,716</td>
<td>-39.5%</td>
<td>1,072,054</td>
<td>1,039,935</td>
<td>1,236,426</td>
</tr>
</tbody>
</table>
</body>
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Challenger, Grey & Christmas indicated that announced job cuts rose 25.1% last month (67,176) to the highest level since February. During the last ten years there has been an 83% (inverse) correlation between the three month moving [...]

Challenger Layoffs Rose

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.

250828Z2.jpg

**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.

250828Z3.jpg

**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.

250828Z4.jpg

**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: July 2006

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OECD Leaders Slip, North America Down

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Growth in U.S. Payrolls Moderate, Wages Jump

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