Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080808a.jpg" width="353">
Labor productivity in the nonfarm business sector rose 2.2% at an annual rate last quarter. The increase fell short of Consensus expectations for a 2.5% rise while growth during 1Q and for all of last year was revised down.
Output growth last quarter did nearly double from 1Q to a still-modest 1.7% but the y/y rate of increase fell by roughly one percentage point to 1.8%. That was accompanied by a drop in total hours worked at a 0.5% annual rate (-1.0% y/y) which was one-third the 1Q rate of decline.
Growth in compensation per hour did slow to 3.6% from gains during the prior two quarters that were revised up. However, the y/y gain picked up moderately to 4.3% and that exceeded the accelerated rate of increase for all of last year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080808b.jpg" width="353">
Unit labor cost growth fell to 1.3% after the 2.5% gain during 1Q. Year-to-year growth in costs did pick up modestly, however, to 1.5% but that remained down compared to recent years.
In the factory sector, productivity fell at a 1.4% rate during 2Q (2.6% y/y) and the decline lowered year-to-year gain to its weakest since 1Q of last year. The deceleration occurred as y/y output growth slowed to roughly zero. As a result, unit labor costs rose at a 6.1% rate (1.9% y/y) and that q/q increase was the fastest since late 2006.
Multinationals Make the Most of IT from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20080601/cover.pdf"> here</a>.
Creative Destruction, Documented from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/region_focus/weekly_update/index.cfm">here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Nonfarm Business Sector</a> (SAAR, %)</th>
<th scope="col">2Q &#39;08</th>
<th scope="col">1Q &#39;08</th>
<th scope="col">4Q &#39;07</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 class="odd">
<td class="firstcol">Output per Hour</td>
<td>2.2</td>
<td>2.6</td>
<td>0.8</td>
<td>2.8</td>
<td>1.4</td>
<td>1.0</td>
<td>1.7</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>3.6</td>
<td>5.2</td>
<td>5.4</td>
<td>4.3</td>
<td>4.1</td>
<td>3.8</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>1.3</td>
<td>2.5</td>
<td>4.5</td>
<td>1.5</td>
<td>2.7</td>
<td>2.8</td>
<td>2.2</td>
</tr>
</tbody>
</table>
</body>
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Labor productivity in the nonfarm business sector rose 2.2% at an annual rate last quarter. The increase fell short of Consensus expectations for a 2.5% rise while growth during 1Q and for all of last year was revised down. Output [...]

U.S. 2Q Productivity Growth Weakened, Costs Still Under Control

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080808a.jpg" align="left" border="0" height="265" width="353">
Labor productivity in the nonfarm business sector rose 2.2% at
an annual rate last quarter. The increase fell short of Consensus
expectations for a 2.5% rise while growth during 1Q and for all of last
year was revised down.
Output growth last quarter did nearly double from 1Q to a
still-modest 1.7% but the y/y rate of increase fell by roughly one
percentage point to 1.8%. That was accompanied by a drop in total hours
worked at a 0.5% annual rate (-1.0% y/y) which was one-third the 1Q
rate of decline.
Growth in compensation per hour did slow to 3.6% from gains
during the prior two quarters that were revised up. However, the y/y
gain picked up moderately to 4.3% and that exceeded the accelerated
rate of increase for all of last year.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080808b.jpg" align="right" border="0" height="265" width="353">
Unit labor cost growth fell to 1.3% after the 2.5% gain during
1Q. Year-to-year growth in costs did pick up modestly, however, to 1.5%
but that remained down compared to recent years.
In the factory sector, productivity fell at a 1.4% rate during
2Q (2.6% y/y) and the decline lowered year-to-year gain to its weakest
since 1Q of last year. The deceleration occurred as y/y output growth
slowed to roughly zero. As a result, unit labor costs rose at a 6.1%
rate (1.9% y/y) and that q/q increase was the fastest since late 2006.
Multinationals Make the Most of IT from
the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20080601/cover.pdf">
here</a>.
Creative Destruction, Documented from the
Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/region_focus/weekly_update/index.cfm">here</a>. 


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Nonfarm
Business Sector</a> (SAAR, %)</th>
<th scope="col">2Q '08</th>
<th scope="col">1Q '08</th>
<th scope="col">4Q '07</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 class="odd">
<td class="firstcol">Output per
Hour</td>
<td>2.2</td>
<td>2.6</td>
<td>0.8</td>
<td>2.8</td>
<td>1.4</td>
<td>1.0</td>
<td>1.7</td>
</tr>
<tr>
<td class="firstcol">Compensation
per Hour</td>
<td>3.6</td>
<td>5.2</td>
<td>5.4</td>
<td>4.3</td>
<td>4.1</td>
<td>3.8</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor
Costs</td>
<td>1.3</td>
<td>2.5</td>
<td>4.5</td>
<td>1.5</td>
<td>2.7</td>
<td>2.8</td>
<td>2.2</td>
</tr>
</tbody>
</table>
OECD Indicators Do Not Point toGood News 
by <a href="/comment/Brusca.html">Robert
Brusca</a> August 8, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080808d.jpg" align="left" border="0" height="265" width="353">
The OECD Trend-restored LEIs tell a story that is now becoming
familiar in the markets. The US is still weakening. But Europe is
weakening faster. Just today Italy reported a DECLINE in GDP for
2008Q2. Nout Wellink, an ECB board member, said the European growth
would&#8230; &#8220;not look so good.&#8221; Europe has been slow to admit how much its
economy is being impacted by oil and the financial crisis and the
strong euro. Denial has its costs. 
 

I think we have finally heard the last from those poor souls
who argued that there was some sort of de-linkage going on in the
global economy. Europe would still grow, China, India ..etc. But
clearly the slowdown is hitting everyone. The Euro slowdown could
become more severe and that is part of the OECD warning this morning as
it sees a sharper slowing in the cards. OECD finds China and Brazil as
relative bright spots. The OECD said that while its leading indicators
point to slowdowns in the U.S., Japan, Germany, the U.K. and Canada,
they point to "strong" slowdowns in France and Italy. For Russia and
India, the leading indicators point to a downturn. Of course the
definition of downturn is not universal. To a fast growing economy it
could be just a big slowing in the growth rate. For most highly
developed economies it means there will be some decline in GDP. 
 

For now the OECD message is clear and that message is not
welcome. Yet, neither is it a surprise to those who have paid
attention. Europeans have for some time looked at the bright side of
the picture and ignored the encroaching darkness. The ECB was bound and
determined to hike rates due to its horrific inflation overshoot of its
target. The ECB needed to see the strong the side of the economy to
justify a rate hike. 
 

For now it seems to me the central banks have been put in a
very difficult position with a financial crises that crimped their
ability to act boldly. At the same time huge and ongoing increases in
oil prices struck. Exchange rates moved significantly as well. Looking
back, policy seems to have been well calibrated despite headline
inflation overshoot. The question may come to be asked if a core
inflation target might not work better in the future (since if we
assume the central banks more or less were really looking at core,
their actions are easier to understand). The ECB so badly has missed
its target it must have to wonder if wants to ever go though that
again. However, relative to a core inflation target it is has not done
so badly- nor has the Fed. We will have to see what lessons emerge from
this still evolving period. 
 

While policy may have done a good job it nonetheless has not
been able to avoid the scars and scrapes on banks and on the real
sector. Policy has done a good job but has worked no miracles. There is
room for improvement. But first there is a policy to implement in a
still nettlesome business cycle that is building downside strength. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="5" scope="col">OECD
Trend-restored leading Indicators </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td colspan="5" class="firstcol">Growth
progression-SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>3-Mos</td>
<td>6-Mos</td>
<td>12-Mos</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">OECD</td>
<td>-3.5%</td>
<td>-3.0%</td>
<td>-3.1%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">OECD7</td>
<td>-2.3%</td>
<td>-3.1%</td>
<td>-3.8%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol">OECD Europe</td>
<td>-6.3%</td>
<td>-5.2%</td>
<td>-3.7%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">OECD Japan</td>
<td>3.2%</td>
<td>0.7%</td>
<td>-1.6%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">OECD US</td>
<td>-1.2%</td>
<td>-3.0%</td>
<td>-4.1%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td colspan="5" class="firstcol">Six
month readings at 6-Mo
Intervals:</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Recent six</td>
<td>6-Mos Ago</td>
<td>12-Mos Ago</td>
<td>18-Mos Ago</td>
</tr>
<tr>
<td class="firstcol">OECD</td>
<td>-3.0%</td>
<td>-3.1%</td>
<td>2.7%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">OECD7</td>
<td>-3.1%</td>
<td>-4.5%</td>
<td>2.2%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol">OECD Europe</td>
<td>-5.2%</td>
<td>-2.2%</td>
<td>1.0%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">OECD Japan</td>
<td>0.7%</td>
<td>-3.9%</td>
<td>-1.9%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">OECD US</td>
<td>-3.0%</td>
<td>-5.3%</td>
<td>4.1%</td>
<td>1.3%</td>
</tr>
<tr>
<td colspan="5" class="firstcol">Slowdowns
indicated by BOLD RED</td>
</tr>
</tbody>
</table>
Japan&#8217;s Economy Watcher&#8217;s
IndexPlunges 
by <a href="/comment/Brusca.html">Robert
Brusca</a> August 8, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080808c.jpg" align="left" border="0" height="265" width="353">
Too much watching, not enough spending? 
 

Japan&#8217;s economy watchers index has dropped sharply. Its
components are all on 5-Year lows and have been that way for two months
running. The NTC MFG index is on a five year low. The Teikoku industry
readings are on five year lows. Japan&#8217;s own LEI has been weak but in
the OECD treatment the trend restored indices have Japan&#8217;s index on a
rising trend, but steady month-to-month. The readings in these
Japan-based reports are much weaker than the OECD&#8217;s. And Japan is
looking very weak. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Key
Japanese surveys </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="4">Raw readings of each survey</td>
<td colspan="3">Percent of 5Yr range*</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>May-08</td>
<td>Apr-08</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>May-08</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="8">Diffusion</td>
</tr>
<tr>
<td class="firstcol">Economy Watchers</td>
<td>29.3</td>
<td>29.5</td>
<td>32.1</td>
<td>35.5</td>
<td>7.0%</td>
<td>0.0%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Employment</td>
<td>24.1</td>
<td>26.4</td>
<td>31.9</td>
<td>33.6</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Future</td>
<td>30.8</td>
<td>32.1</td>
<td>35.1</td>
<td>36.1</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">NTC MFG</td>
<td>47.1</td>
<td>46.5</td>
<td>47.7</td>
<td>48.6</td>
<td>5.3%</td>
<td>0.0%</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="8">Econ
Trends
(Teikoku'/50 neutral/weighted diffusion)</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>32.9</td>
<td>34.4</td>
<td>35.6</td>
<td>36.9</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>28.3</td>
<td>28.7</td>
<td>31.5</td>
<td>32.1</td>
<td>0.0%</td>
<td>0.0%</td>
<td>1.4%</td>
</tr>
<tr>
<td class="firstcol">Wholesale</td>
<td>31.0</td>
<td>32.4</td>
<td>33.9</td>
<td>34.5</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>36.2</td>
<td>37.5</td>
<td>39.7</td>
<td>40.4</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.0%</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>25.5</td>
<td>26.9</td>
<td>27.1</td>
<td>28.0</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.0%</td>
</tr>
<tr class="grey2">
<td colspan="8" class="firstcol">100 is high;
Zero is low</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/080807g.jpg" width="353">
Consumer credit outstanding rose $14.3B during June following moderate $8.0 and $9.0 billion increases during the prior two months.
On a percentage basis, the change in consumer credit over the last three months averaged 5.0% (AR) and that was roughly stable. The rate of gain was, however, up from 3.3% this passed February.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080807h.jpg" width="353">
Revolving credit outstanding rose $5.5B during June. Here again, the three month rate of growth of 5.0% recently has been stable but reduced from a 7.4% rise during all of last year.
Non-revolving credit, which accounts for nearly two thirds of total consumer credit, rose a sharp $8.9B in June. The three month annualized average growth rate, however, was 5.0% and that was up from a 2.2% growth rate in February, 4.7% growth during all of last year and 3.6% growth in 2004.
These figures are the major input to the Fed&#39;s Flow of Funds accounts for the household sector, released quarterly.
Credit card debt and payment use from the Federal Reserve Bank of Boston can be found <a href="http://www.bos.frb.org/economic/wp/wp2008/wp0802.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">Consumer Credit (m/m Chg, SAAR)</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>$14.3B</td>
<td>&nbsp;$8.0B</td>
<td>5.6%</td>
<td>5.7%</td>
<td>4.5%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Revolving</td>
<td>$5.5B</td>
<td>$6.1B</td>
<td>7.2%</td>
<td>7.4%</td>
<td>6.1%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-revolving</td>
<td>$8.9B</td>
<td>$1.9B</td>
<td>4.6%</td>
<td>4.7%</td>
<td>3.6%</td>
<td>4.9%</td>
</tr>
</tbody>
</table>
</body>
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Consumer credit outstanding rose $14.3B during June following moderate $8.0 and $9.0 billion increases during the prior two months. On a percentage basis, the change in consumer credit over the last three months averaged 5.0% (AR) and [...]

U.S. Consumer Credit Growth Stable in June, Still Stable With 2007

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080807e.jpg" width="353">
The National Association of Realtors reported that the June level of pending sales of existing homes rose 5.3%. That reversed the 4.9% decline during May which was unrevised. The latest increase compared to Consensus expectations for a 1.0% drop.
These figures are analogous to the new home sales data from the Commerce Department in that they measure existing home sales when the sales contract is signed, not at the time the sale is closed. The series dates back to 2001.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080807f.jpg" width="353">
The regional sales figures indicated that sales in the South recovered all of their May decline with a 9.3% increase while sales in the Northeast nearly recovered two months of decline with a 3.4% rise. Sales in the Midwest posted a weak 1.3% rise on the heels of a 6.0% May drop and sales in the West continued to recover. They posted a 4.6% gain to the highest level in twelve months.
The Realtors association indicated in an earlier report that the number of homes on the market &amp; available for sale ticked up a not seasonally adjusted 0.2% (2.8% y/y) after a 1.5% decline during May.
At the current sales rate there was an 11.1 months&#39; supply of homes on the market versus an 8.9 months&#39; average during all of last year, a 6.5 months&#39; supply in 2006 and a 4.5 months&#39; supply in 2005.
The pending home sales data are available in Haver&#39;s PREALTOR database and the number of homes on the market are in the REALTOR database.
Rational Real Estate from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/region_focus/weekly_update/archive/2008/20080604.cfm"> 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/WEEKLY/@W5/@W507/@W507.HTM">Pending Home Sales (2001=100)&nbsp;</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>89.0</td>
<td>&nbsp;84.5</td>
<td>&nbsp;&nbsp; -12.2%</td>
<td>95.7</td>
<td>112.1&nbsp;</td>
<td>124.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Northeast</td>
<td>79.6</td>
<td>77.0</td>
<td>-15.4</td>
<td>85.6</td>
<td>98.5</td>
<td>108.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>79.6</td>
<td>78.6</td>
<td>-13.3</td>
<td>89.6</td>
<td>102.0</td>
<td>116.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South</td>
<td>92.4</td>
<td>84.5</td>
<td>-16.6</td>
<td>107.3</td>
<td>127.3</td>
<td>134.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>101.0</td>
<td>96.6</td>
<td>-1.8</td>
<td>92.1</td>
<td>109.5</td>
<td>128.6</td>
</tr>
</tbody>
</table>
</body>
</html>

The National Association of Realtors reported that the June level of pending sales of existing homes rose 5.3%. That reversed the 4.9% decline during May which was unrevised. The latest increase compared to Consensus expectations for [...]

U.S. Pending Home Sales Unexpectedly Rose

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080807d.jpg" align="left" border="0" height="265" width="353">
Weakness in industrial output is now a growing EU-wide
phenomenon based on the large countries&#8217; results. Among the early
reporting large countries Germany, Italy and the UK show negative
growth rates for real output in 2008-Q2. Only Spain with an
exceptionally wild output series shows a gain in Q2 and that is after
seeing output lower over six months and over 12-months. 
 

Frances results are plotted in the chart above but they lack a
timely update for June. Still the pattern in output is clear. Germany
is having the sharpest current drop. Italy has had the longest period
in which output has been declining (Yr/Yr). France had not had the
degree of output success of the others earlier in the expansion. It has
showed better resilience to declining forces than Italy over the past
year and has only just dropped to show Yr/Yr declines in output. 
 

The services sectors of these countries are showing weakened
performance as well although the monthly report for EMU showed a bit of
resilience. Inflation still dogs Europe &#8211; regardless of the domain of
the central bank. 
While the authorities in Japan have just opened the door to admitting
weakness and have gone so far as to admit that the economy could be in
recession even now, in the Europe a certain confidence is still exuded,
but by increasingly cautious policymakers. Today, German banking
association president Klaus-Peter Mueller said that there is no end in
sight for financial crisis. 2008 will remain a difficult year for all
banks he says. With banks so impeded and the ECB acting slowly (it
refrained from any rate changes at today&#8217;s meeting) Europe is going to
be under increasing downward pressure. The steady decline in the value
of the euro exchange rate speaks to what risks that have put in play. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="11" scope="col">Main E-zone Countries and UK IP in MFG </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo</td>
<td>Jun 08</td>
<td>May 08</td>
<td>Jun 08</td>
<td>May 08</td>
<td>Jun 08</td>
<td>May 08</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG Only</td>
<td>Jun 08</td>
<td>May 08</td>
<td>Apr 08</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q-2 -Date</td>
</tr>
<tr>
<td class="firstcol">Germany:</td>
<td>0.5%</td>
<td>-1.9%</td>
<td>-0.3%</td>
<td>-6.9%</td>
<td>-9.2%</td>
<td>-2.2%</td>
<td>-0.8%</td>
<td>2.2%</td>
<td>1.3%</td>
<td>-6.1%</td>
</tr>
<tr>
<td class="firstcol">France: IP excl Construction</td>
<td>#N/A</td>
<td>-2.6%</td>
<td>1.5%</td>
<td>#N/A</td>
<td>-8.8%</td>
<td>#N/A</td>
<td>-1.7%</td>
<td>#N/A</td>
<td>-1.2%</td>
<td>#N/A</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.2%</td>
<td>-1.5%</td>
<td>0.4%</td>
<td>-3.3%</td>
<td>-4.9%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-2.0%</td>
<td>-2.6%</td>
<td>-2.5%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>-4.9%</td>
<td>-14.8%</td>
<td>27.5%</td>
<td>13.9%</td>
<td>-33.7%</td>
<td>-17.5%</td>
<td>-10.0%</td>
<td>-9.6%</td>
<td>-7.7%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>-0.5%</td>
<td>-0.6%</td>
<td>0.0%</td>
<td>-4.2%</td>
<td>-4.2%</td>
<td>-1.5%</td>
<td>-1.0%</td>
<td>-1.3%</td>
<td>-0.9%</td>
<td>-2.9%</td>
</tr>
</tbody>
</table>
</body></html>

Weakness in industrial output is now a growing EU-wide phenomenon based on the large countries’ results. Among the early reporting large countries Germany, Italy and the UK show negative growth rates for real output in 2008-Q2. Only [...]

Germany's Weakness in IP Does Not Stand Alone

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080807c.jpg" align="left" border="0" height="265" width="353">Larger order drop points to even worse performance in Q3.

Trends in German output are losing momentum across all sectors
despite a small rebound in the current month. Consumer goods output has
been weakening for some time but the softening in capital goods output
is a relatively new phenomenon.&gt;

Output of consumer goods and capital goods rose in June after
falling sporadically in earlier months intermediate goods output that
feeds both sectors, is simply declining. The sequential growth rates in
the table show that that the annual rate of decline is becoming
progressively weaker in the more recent periods- indicating cumulating
weakness across sectors.

In the quarter-to-date (now a complete Q2, but not yet fully
revised Q2), IP is dropping at a 6.4% pace led by a weak consumer
sector (-9.7%) MFG output is dropping at a 6.1% pace. MFG orders are
dropping at an even sharper 15.4% pace in the quarter, an ominous sign
for Q3.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Total
German IP</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td>Jun-08</td>
<td>May-08</td>
<td>Apr-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Quarter -to-Date</td>
</tr>
<tr>
<td class="firstcol">IP total</td>
<td>0.2%</td>
<td>-1.8%</td>
<td>-0.2%</td>
<td>-7.2%</td>
<td>-2.3%</td>
<td>1.6%</td>
<td>-6.4%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>1.0%</td>
<td>-0.3%</td>
<td>-3.0%</td>
<td>-8.9%</td>
<td>-5.8%</td>
<td>-0.2%</td>
<td>-9.7%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>1.4%</td>
<td>-3.7%</td>
<td>2.7%</td>
<td>1.5%</td>
<td>2.1%</td>
<td>4.5%</td>
<td>-4.3%</td>
</tr>
<tr>
<td class="firstcol">Intermediary Goods</td>
<td>-0.6%</td>
<td>-1.0%</td>
<td>-1.9%</td>
<td>-12.9%</td>
<td>-4.5%</td>
<td>1.3%</td>
<td>-6.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>-2.1%</td>
<td>2.4%</td>
<td>-3.5%</td>
<td>-12.3%</td>
<td>-6.4%</td>
<td>0.2%</td>
<td>-28.8%</td>
</tr>
<tr>
<td class="firstcol">MFG IP</td>
<td>0.5%</td>
<td>-1.9%</td>
<td>-0.3%</td>
<td>-6.9%</td>
<td>-2.2%</td>
<td>2.2%</td>
<td>-6.1%</td>
</tr>
<tr>
<td class="firstcol">MFG Orders</td>
<td>-2.9%</td>
<td>-1.4%</td>
<td>-1.7%</td>
<td>-21.7%</td>
<td>-14.6%</td>
<td>-8.4%</td>
<td>-15.4%</td>
</tr>
</tbody>
</table>
</body></html>

Larger order drop points to even worse performance in Q3. Trends in German output are losing momentum across all sectors despite a small rebound in the current month. Consumer goods output has been weakening for some time but the [...]

German IP Falls Sharply in Quarter Despite Rise in June

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080807b.jpg" width="353">
Initial claims for unemployment insurance rose again last week. The 7,000 increase to 455,000 followed the unrevised 45,000 surge during the week earlier. The latest level was the highest since March of 2002 and it surpassed Consensus expectations for a decline to 420,000 claims.
The Labor Department indicated that a program to locate people eligible for jobless benefits played a role in last week&#39;s increase in claims.
As a result of the latest jump in initial claims, the four-week moving average increased to 419,500 (34.5% y/y), the highest level since mid-2003. During July claims averaged 393,000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080807a.jpg" width="353">
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last ten years there has been a (negative) 76% correlation between the level of initial claims and the m/m change in nonfarm payroll employment. Over the longer period of time, the level of claims for jobless insurance has not trended higher with the size of the labor force due to a higher proportion of self-employed workers who are not eligible for benefits.
Continuing claims for unemployment insurance during the latest week rose 31,000 after a little revised 183,000 jump during the prior week. The four-week moving average of continuing claims surged to 3,201 which was its highest level since late-2003.
Continuing claims provide some indication of workers&#39; ability to find employment and they lag the initial claims figures by one week.
The insured rate of unemployment was stable at 2.5%, the highest level since early 2004.
How Much Have U.S. House Prices Fallen from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20080801/netpub.pdf"> here</a>.
Unanchored Expectations? Interpreting the Evidence from Inflation Surveys from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-23.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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">08/02/08</th>
<th scope="col">07/26/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;455</td>
<td>448</td>
<td>43.1%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,311</td>
<td>29.7%</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
</body>
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Initial claims for unemployment insurance rose again last week. The 7,000 increase to 455,000 followed the unrevised 45,000 surge during the week earlier. The latest level was the highest since March of 2002 and it surpassed Consensus [...]

U.S. Unemployment Insurance Claims Rose Further

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080807e.jpg" align="left" border="0" height="265" width="353">
The National Association of Realtors reported that the June
level of pending sales of existing homes rose 5.3%. That reversed the
4.9% decline during May which was unrevised. The latest increase
compared to Consensus expectations for a 1.0% drop.
These figures are analogous to the new home sales data from
the Commerce Department in that they measure existing home sales when
the sales contract is signed, not at the time the sale is closed. The
series dates back to 2001.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080807f.jpg" align="right" border="0" height="265" width="353">
The regional sales figures indicated that sales in the South
recovered all of their May decline with a 9.3% increase while sales in
the Northeast nearly recovered two months of decline with a 3.4% rise.
Sales in the Midwest posted a weak 1.3% rise on the heels of a 6.0% May
drop and sales in the West continued to recover. They posted a 4.6%
gain to the highest level in twelve months.
The Realtors association indicated in an earlier report that
the number of homes on the market &amp; available for sale ticked
up a not seasonally adjusted 0.2% (2.8% y/y) after a 1.5% decline
during May.
At the current sales rate there was an 11.1 months' supply of
homes on the market versus an 8.9 months' average during all of last
year, a 6.5 months' supply in 2006 and a 4.5 months' supply in 2005.
The pending home sales data are available in Haver's PREALTOR
database and the number of homes on the market are in the REALTOR
database.
Rational Real Estate from the Federal
Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/region_focus/weekly_update/archive/2008/20080604.cfm">
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/WEEKLY/@W5/@W507/@W507.HTM">Pending
Home Sales (2001=100)&nbsp;</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>89.0</td>
<td>&nbsp;84.5</td>
<td>&nbsp;&nbsp; -12.2%</td>
<td>95.7</td>
<td>112.1&nbsp;</td>
<td>124.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Northeast</td>
<td>79.6</td>
<td>77.0</td>
<td>-15.4</td>
<td>85.6</td>
<td>98.5</td>
<td>108.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Midwest</td>
<td>79.6</td>
<td>78.6</td>
<td>-13.3</td>
<td>89.6</td>
<td>102.0</td>
<td>116.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; South</td>
<td>92.4</td>
<td>84.5</td>
<td>-16.6</td>
<td>107.3</td>
<td>127.3</td>
<td>134.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; West</td>
<td>101.0</td>
<td>96.6</td>
<td>-1.8</td>
<td>92.1</td>
<td>109.5</td>
<td>128.6</td>
</tr>
</tbody>
</table>
U.S. Consumer Credit Growth Stable
in June, Still Stable With 2007 
by <a href="/comment/Moeller.html">Tom
Moeller</a> August 7, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080807g.jpg" align="left" border="0" height="265" width="353">
Consumer credit outstanding rose $14.3B during June following
moderate $8.0 and $9.0 billion increases during the prior two months.
On a percentage basis, the change in consumer credit over the
last three months averaged 5.0% (AR) and that was roughly stable. The
rate of gain was, however, up from 3.3% this passed February.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080807h.jpg" align="right" border="0" height="265" width="353">
Revolving credit outstanding rose $5.5B during June. Here
again, the three month rate of growth of 5.0% recently has been stable
but reduced from a 7.4% rise during all of last year.
Non-revolving credit, which accounts for nearly two thirds of
total consumer credit, rose a sharp $8.9B in June. The three month
annualized average growth rate, however, was 5.0% and that was up from
a 2.2% growth rate in February, 4.7% growth during all of last year and
3.6% growth in 2004.
These figures are the major input to the Fed's Flow of Funds
accounts for the household sector, released quarterly.
Credit card debt and payment use from the
Federal Reserve Bank of Boston can be found <a href="http://www.bos.frb.org/economic/wp/wp2008/wp0802.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">Consumer
Credit (m/m Chg, SAAR)</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>$14.3B</td>
<td>&nbsp;$8.0B</td>
<td>5.6%</td>
<td>5.7%</td>
<td>4.5%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Revolving</td>
<td>$5.5B</td>
<td>$6.1B</td>
<td>7.2%</td>
<td>7.4%</td>
<td>6.1%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-revolving</td>
<td>$8.9B</td>
<td>$1.9B</td>
<td>4.6%</td>
<td>4.7%</td>
<td>3.6%</td>
<td>4.9%</td>
</tr>
</tbody>
</table>
U.S. Unemployment Insurance Claims
Rose Further 
by <a href="/comment/Moeller.html">Tom
Moeller</a> August 7, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080807b.jpg" align="left" border="0" height="265" width="353">
Initial claims for unemployment insurance rose again last
week. The 7,000 increase to 455,000 followed the unrevised 45,000 surge
during the week earlier. The latest level was the highest since March
of 2002 and it surpassed Consensus expectations for a decline to
420,000 claims.
The Labor Department indicated that a program to locate people
eligible for jobless benefits played a role in last week's increase in
claims.
As a result of the latest jump in initial claims, the
four-week moving average increased to 419,500 (34.5% y/y), the highest
level since mid-2003. During July claims averaged 393,000.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080807a.jpg" align="right" border="0" height="265" width="353">
A claims level below 400,000 typically has been associated
with growth in nonfarm payrolls. During the last ten years there has
been a (negative) 76% correlation between the level of initial claims
and the m/m change in nonfarm payroll employment. Over the longer
period of time, the level of claims for jobless insurance has not
trended higher with the size of the labor force due to a higher
proportion of self-employed workers who are not eligible for benefits.
Continuing claims for unemployment insurance during the latest
week rose 31,000 after a little revised 183,000 jump during the prior
week. The four-week moving average of continuing claims surged to 3,201
which was its highest level since late-2003.
Continuing claims provide some indication of workers' ability
to find employment and they lag the initial claims figures by one week.
The insured rate of unemployment was stable at 2.5%, the
highest level since early 2004.
How Much Have U.S. House Prices Fallen from
the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20080801/netpub.pdf">
here</a>.
Unanchored Expectations? Interpreting the
Evidence from Inflation Surveys from the Federal Reserve
Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-23.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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a>&nbsp;</th>
<th scope="col">08/02/08</th>
<th scope="col">07/26/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;455</td>
<td>448</td>
<td>43.1%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,311</td>
<td>29.7%</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
Germany's Weakness in IP Does NotStand Alone 
by <a href="/comment/Brusca.html">Robert
Brusca</a> August 7, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080807d.jpg" align="left" border="0" height="265" width="353">
Weakness in industrial output is now a growing EU-wide
phenomenon based on the large countries&#8217; results. Among the early
reporting large countries Germany, Italy and the UK show negative
growth rates for real output in 2008-Q2. Only Spain with an
exceptionally wild output series shows a gain in Q2 and that is after
seeing output lower over six months and over 12-months. 
 

Frances results are plotted in the chart above but they lack a
timely update for June. Still the pattern in output is clear. Germany
is having the sharpest current drop. Italy has had the longest period
in which output has been declining (Yr/Yr). France had not had the
degree of output success of the others earlier in the expansion. It has
showed better resilience to declining forces than Italy over the past
year and has only just dropped to show Yr/Yr declines in output. 
 

The services sectors of these countries are showing weakened
performance as well although the monthly report for EMU showed a bit of
resilience. Inflation still dogs Europe &#8211; regardless of the domain of
the central bank. 
While the authorities in Japan have just opened the door to admitting
weakness and have gone so far as to admit that the economy could be in
recession even now, in the Europe a certain confidence is still exuded,
but by increasingly cautious policymakers. Today, German banking
association president Klaus-Peter Mueller said that there is no end in
sight for financial crisis. 2008 will remain a difficult year for all
banks he says. With banks so impeded and the ECB acting slowly (it
refrained from any rate changes at today&#8217;s meeting) Europe is going to
be under increasing downward pressure. The steady decline in the value
of the euro exchange rate speaks to what risks that have put in play. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col">Main
E-zone Countries and UK IP in MFG </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo</td>
<td>Jun 
08</td>
<td>May 
08</td>
<td>Jun 
08</td>
<td>May 
08</td>
<td>Jun 
08</td>
<td>May 
08</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG Only</td>
<td>Jun 
08</td>
<td>May 
08</td>
<td>Apr 
08</td>
<td>3Mo</td>
<td>3Mo</td>
<td>6mo</td>
<td>6mo</td>
<td>12mo</td>
<td>12mo</td>
<td>Q-2 
-Date</td>
</tr>
<tr>
<td class="firstcol">Germany:</td>
<td>0.5%</td>
<td>-1.9%</td>
<td>-0.3%</td>
<td>-6.9%</td>
<td>-9.2%</td>
<td>-2.2%</td>
<td>-0.8%</td>
<td>2.2%</td>
<td>1.3%</td>
<td>-6.1%</td>
</tr>
<tr>
<td class="firstcol">France: IP excl Construction</td>
<td>#N/A</td>
<td>-2.6%</td>
<td>1.5%</td>
<td>#N/A</td>
<td>-8.8%</td>
<td>#N/A</td>
<td>-1.7%</td>
<td>#N/A</td>
<td>-1.2%</td>
<td>#N/A</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>0.2%</td>
<td>-1.5%</td>
<td>0.4%</td>
<td>-3.3%</td>
<td>-4.9%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-2.0%</td>
<td>-2.6%</td>
<td>-2.5%</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>-4.9%</td>
<td>-14.8%</td>
<td>27.5%</td>
<td>13.9%</td>
<td>-33.7%</td>
<td>-17.5%</td>
<td>-10.0%</td>
<td>-9.6%</td>
<td>-7.7%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">UK</td>
<td>-0.5%</td>
<td>-0.6%</td>
<td>0.0%</td>
<td>-4.2%</td>
<td>-4.2%</td>
<td>-1.5%</td>
<td>-1.0%</td>
<td>-1.3%</td>
<td>-0.9%</td>
<td>-2.9%</td>
</tr>
</tbody>
</table>
German IP Falls Sharply in
QuarterDespite Rise in June&nbsp; 
by <a href="/comment/Brusca.html">Robert
Brusca</a> August 7, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080807c.jpg" align="left" border="0" height="265" width="353">Larger order drop points to
even worse performance in Q3.

Trends in German output are losing momentum across all sectors
despite a small rebound in the current month. Consumer goods output has
been weakening for some time but the softening in capital goods output
is a relatively new phenomenon.&gt;

Output of consumer goods and capital goods rose in June after
falling sporadically in earlier months intermediate goods output that
feeds both sectors, is simply declining. The sequential growth rates in
the table show that that the annual rate of decline is becoming
progressively weaker in the more recent periods- indicating cumulating
weakness across sectors.

In the quarter-to-date (now a complete Q2, but not yet fully
revised Q2), IP is dropping at a 6.4% pace led by a weak consumer
sector (-9.7%) MFG output is dropping at a 6.1% pace. MFG orders are
dropping at an even sharper 15.4% pace in the quarter, an ominous sign
for Q3.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> Total
German IP</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Saar except m/m</td>
<td>Jun-08</td>
<td>May-08</td>
<td>Apr-08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
<td>Quarter -to-Date</td>
</tr>
<tr>
<td class="firstcol">IP total</td>
<td>0.2%</td>
<td>-1.8%</td>
<td>-0.2%</td>
<td>-7.2%</td>
<td>-2.3%</td>
<td>1.6%</td>
<td>-6.4%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>1.0%</td>
<td>-0.3%</td>
<td>-3.0%</td>
<td>-8.9%</td>
<td>-5.8%</td>
<td>-0.2%</td>
<td>-9.7%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>1.4%</td>
<td>-3.7%</td>
<td>2.7%</td>
<td>1.5%</td>
<td>2.1%</td>
<td>4.5%</td>
<td>-4.3%</td>
</tr>
<tr>
<td class="firstcol">Intermediary Goods</td>
<td>-0.6%</td>
<td>-1.0%</td>
<td>-1.9%</td>
<td>-12.9%</td>
<td>-4.5%</td>
<td>1.3%</td>
<td>-6.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>-2.1%</td>
<td>2.4%</td>
<td>-3.5%</td>
<td>-12.3%</td>
<td>-6.4%</td>
<td>0.2%</td>
<td>-28.8%</td>
</tr>
<tr>
<td class="firstcol">MFG IP</td>
<td>0.5%</td>
<td>-1.9%</td>
<td>-0.3%</td>
<td>-6.9%</td>
<td>-2.2%</td>
<td>2.2%</td>
<td>-6.1%</td>
</tr>
<tr>
<td class="firstcol">MFG Orders</td>
<td>-2.9%</td>
<td>-1.4%</td>
<td>-1.7%</td>
<td>-21.7%</td>
<td>-14.6%</td>
<td>-8.4%</td>
<td>-15.4%</td>
</tr>
</tbody>
</table>
</body></html>

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

Previous Trump tariffs fading. A boost from new tariffs ahead?

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250804J1.jpg

250804K1.jpg

Total factory orders declined 4.8% (+5.6% y/y) in June after surging 8.3% in May, revised from 8.2%, as reported by the U.S. Census Bureau. A 4.9% decline had been expected in the Action Economics Forecast Survey. A halving in orders for nondefense aircraft accounted for much of the June decline. Factory orders excluding transportation altogether rose 0.4% after increasing 0.3% in May, revised from 0.2%.

Durable goods orders fell 9.4% (+10.9% y/y) in June after 16.5% rise in May. The advance report indicated a 9.3% decline. Transportation orders fell 22.4% (+30.5% y/y). Automobile orders declined 3.1% (-2.7% y/y). Computer & electronic product orders increased 0.6% (5.2% y/y) while electrical equipment, appliances & components rose 0.1% (4.5% y/y). Machinery orders improved 0.3% (3.0% y/y). Furniture & related products increased 0.1% (1.1% y/y). Primary metals orders increased 0.6% (-0.5% y/y) while fabricated metals orders edged 0.1% (3.1% y/y) higher.

Nondurable goods orders, which equal nondurable goods shipments, rose 0.5% (0.6% y/y) in June after edging 0.1% higher in May. Shipments of petroleum & coal products rose 1.4% (-4.5% y/y) and beverage & tobacco products rose 1.5% (4.2% y/y). Food product shipments improved 0.4% (0.9% y/y) and textile product shipments rose a minimal 0.1% (1.9% y/y). To the downside, apparel shipments declined 0.9% (-4.7% y/y) and chemical product shipments eased 0.1% (+3.6% y/y). Paper products declined 0.3% (+0.7% y/y).

Total shipments increased 0.5% (1.8% y/y) in June following a 0.2% May increase. Excluding transportation, shipments rose 0.4% (1.3% y/y) in June after a 0.1% uptick in May. Shipments of durable goods industries rose 0.5% (3.0% y/y) in April, the seventh consecutive m/m rise.  Transportation equipment shipments rose 0.8% (4.3% y/y) as nondefense aircraft shipments fell 6.2% (+13.8% y/y). Machinery shipments rose 1.0% (1.5% y/y), and electrical equipment, appliances & components shipments increased 0.6 (4.6% y/y). Primary metals shipments rose 0.6% (2.4% y/y), fabricated metals shipment rose 0.2% (1.9% y/y), but furniture & related products eased 0.2% (+1.4% y/y).

Unfilled orders rose 1.0% (7.1% y/y) in June after a 3.4% jump in May. Excluding transportation, unfilled orders held steady (+0.8 y/y) after a 0.1% rise in May. Backlogs of durable goods increased 1.0% (7.1% y/y), reflecting a 2.1% rise (14.7% y/y) in nondefense aircraft and a 0.1% decline (-1.8% y/y) in machinery. Electrical equipment, appliances & components backlogs also rose 0.1% (1.0% y/y) while computer & electronic equipment backlogs eased 0.1% both m/m and y/y.
 
Inventories increased 0.2% (1.1% y/y) in June after edging 0.1% higher in May. Excluding transportation, inventories rose 0.2% (1.0% y/y) in June after a 0.1% uptick in May. Durable goods inventories rose 0.2% (1.5% y/y) in June, the same as in May, and rose 0.1% in both of the prior two months. Nondurable goods inventories increased 0.2% 0.5% y/y) after declines in both of the prior two months.

The factory sector data are available in Haver’s **USECON** database. The Action Economics Forecast Survey is in the **AS1REPNA** database.

250804L1.jpg

250804M1.jpg

- Total orders less transportation rise moderately.
- Shipments pick up.  
- Unfilled orders surge as inventories rise modestly.

U.S. Factory Orders Retreat in June, Largely Centered in Aircraft

Tian Yong Woon

This week, we examine the latest wave of trade developments across Asia as the US unveiled a full list of its modified reciprocal tariff rates, set to take effect on August 7. As anticipated, many of the updated rates are now lower than the original tariffs, with Cambodia and Vietnam seeing the sharpest reductions (chart 1). However, from peak tariff levels, China stands out—continuing to benefit from a 10% pause rate, down from triple-digit highs.

South Korea secured a deal just before the deadline, lowering its tariff from 25% to 15%. The new rate also applies to auto exports, offering relief to Korean automakers (chart 2). Thailand and Cambodia followed with US trade agreements after agreeing to an unconditional ceasefire following earlier military clashes. Their US-imposed tariffs dropped from 36% to 19%, highlighting how US trade policy can intersect with geopolitical interests and, in this case, may help reduce trade uncertainty (chart 3).

Malaysia, a key mediator in the ceasefire, also finalized a trade deal, reducing its tariff rate to 19% and gaining exemptions on key exports such as semiconductors (chart 4). Turning to Japan, while its US trade deal helped avert immediate tensions, the vague terms and a headline $550 billion investment—mostly in the form of loans—leave room for future friction (chart 5). China, however, remains a wildcard. Talks to extend its tariff pause are ongoing, but failure could see a return to extreme tariff levels (chart 6). Meanwhile, tech tensions linger, despite eased restrictions on Nvidia AI chip exports.

**Latest US tariff developments**
We gained further clarity on the new reciprocal tariff rates announced by the US administration last week, as the White House released a full list of the modified rates on Thursday. It also announced that the new rates will take effect on August 7, giving partner countries a bit more time to negotiate new terms. Overall, as earlier indications suggested, Trump’s post-pause tariff rates—regardless of whether trade deals were secured—have often ended up lower than the original rates, as shown in chart 1. The largest reductions from original tariff levels have so far come from Cambodia and Vietnam. However, when looking at the steepest reductions from peak tariff rates, China stands out. It continues to benefit from a 10% tariff pause—down sharply from the triple-digit rates imposed at the height of US-China trade tensions earlier this year. On the flipside, a handful of economies—including New Zealand, the Philippines, and Brunei—are now facing modified tariff rates that are actually higher than their original Liberation Day levels. Notably, the Philippines ended up in this group despite having secured a trade deal with the US.

250804T1.jpg

**South Korea**
As for South Korea, the US reduced its tariff rate to 15% just ahead of the August 1 deadline, a significant drop from the original Liberation Day rate of 25%. In return, South Korea committed to, among other terms, $350 billion in investments into the US. Of that total, $150 billion will go specifically toward shipbuilding cooperation—supporting the entry of Korean firms into the US shipbuilding industry—while the remaining $200 billion will be directed toward semiconductors and other sectors. Similar to Japan’s arrangement, the new 15% tariff rate will also apply to South Korean auto exports, likely providing relief to the country’s automakers. As shown in chart 2, South Korea’s vehicle exports—and, by extension, its export-driven growth—have come under pressure, with more recent headwinds stemming from the broad 25% auto tariffs imposed by the US. Notably, South Korea’s dealmaking pace with the US has been considered exceptionally swift, especially given that the country had only recently undergone an administrative transition following its presidential elections, leaving limited time to initiate formal trade negotiations.

250804T2.jpg

**Thailand and Cambodia**
Moving to other parts of Asia, one of the more notable developments last week was the signing of two additional US trade deals—specifically with Thailand and Cambodia. The two countries had recently been engaged in escalating border clashes but agreed to an unconditional ceasefire after mediation by Malaysia and the US. In reality, tensions between Thailand and Cambodia had been simmering for some time, likely driving in part the heightened uncertainty shown in chart 3, though other factors may have played a role. Notably, US President Trump stated that he had made it clear to both governments that no trade deal would be considered while they remained in conflict—an ultimatum that may have incentivized both sides to pursue de-escalation. Ultimately, US trade deals with both countries were announced, reducing their tariff rates from the original Liberation Day level of 36% to 19%. This illustrates how the US approach to dealmaking goes beyond trade, sometimes factoring in broader geopolitical considerations as well.

250804T3.jpg

**Malaysia**
Touching further on Malaysia, which played a key role in mediating the Thailand-Cambodia conflict mentioned earlier, a last-minute US-Malaysia trade deal also materialized shortly after the agreements with Thailand and Cambodia were hinted at. Under the new terms, Malaysia’s tariff rate was reduced to 19%, down from the original 24%. Malaysian Trade Minister Zafrul described the deal as a “win-win,” noting that Malaysia has either reduced or eliminated tariffs on nearly all American products. Notably—and perhaps offering some interim relief—Malaysia also secured tariff exemptions for its exports of semiconductors and pharmaceuticals. This is especially significant, as semiconductor exports account for a substantial share of Malaysia’s shipments to the US, as shown in chart 4.

250804T4.jpg

**Japan**
Turning to Japan, the recent US-Japan trade deal appears to have averted the worst for now. However, many key details remain unclear, particularly regarding Japan’s reported $550 billion investment into the US. While the headline figure is striking, Japan’s chief trade negotiator, Akazawa, later clarified that only 1–2% of the amount would constitute actual investment, with the remainder largely consisting of loans. More critically, the deal—like several other recent US-Asia trade agreements—was not accompanied by formal documentation, leaving its terms vague and, perhaps more concerning, open to future revision. These loose ends present ongoing risks to US-Japan economic relations and could potentially unwind recent market gains driven by trade optimism, as uncertainty remains and may yet resurface (see chart 5). This lingering uncertainty likely contributed to the Bank of Japan’s decision to hold its policy rate steady last week. The central bank adopted a wait-and-see approach before considering further rate hikes, while notably revising its inflation forecasts upward and presenting a slightly improved growth outlook for the fiscal year.

250804T5.jpg

**China**
Amid the recent flurry of US trade deals, one critical issue that may have slipped from the spotlight—but remains central to the global outlook —is China. Ongoing discussions between the two countries aim to extend China’s current tariff pause. If talks break down, US Treasury Secretary Scott Bessent has warned that the existing 10% tariff on Chinese exports could “boomerang” back to its previously exorbitant levels. This could potentially drive the US effective import tariff rate on China well above its already-elevated levels, as shown in chart 6. Meanwhile, the recent reversal of export restrictions by the US on Nvidia’s H20 AI chips may have brought temporary relief to China’s AI sector. However, Chinese authorities have raised national security concerns over the chips’ built-in tracking features and potential remote shutdown capabilities—adding yet another layer of complexity to the already tense US-China trade relationship and broader economic rivalry.

250804T6.jpg

Asia

Economic Letter from Asia: New Duty Roster

250801A4.jpg

250801D4.jpg

Nonfarm payrolls increased 73,000 during July after rising 14,000 in June, revised from 147,000, and 19,000 in May, revised from 144,000. Expectations had been for a 102,000 rise in the Action Economics Forecast Survey. The three-month average change in payrolls of 35,000 compared to 64,000 in June. The Bureau of Labor Statistics indicates that monthly revisions result from additional reports received from businesses and government agencies since the last published estimates.

Average hourly earnings rose an expected 0.3% during July after unrevised gains of 0.2% and 0.4% in June & May. Earnings growth of 3.9% y/y is little changed over twelve months, but has been trending lower from its 5.9% high in March 2022.

The unemployment rate, measured in the household survey, edged up m/m to an expected 4.2% from 4.1% and compared to 4.2% in the previous three months. It reached a low of 3.4% in April 2023. The unemployment rate, including employees working part-time for economic reasons plus all marginally-attached workers, rose to 7.9% last month from 7.7% In June. It was 6.6% in April 2023.

In the **establishment survey**, private-sector employment in July rose 83,000, factory sector jobs declined 11,000, off for the third straight month. Construction sector employment increased 2,000, after rising 3,000 in June. The number of mining & logging industry jobs declined 4,000 after falling in both of the prior two months. 

Private service sector employment increased 96,000 July after improving 16,000 in June. Increases varied greatly amongst service sector categories. Private education & health sector employment rose 79,000 last month, following a 52,000 increase in June. The number of trade, transportation & utilities jobs gained 11,000, following a 22,000 decline and financial activities employment improved 15,000 after a 2,000 drop, while leisure & hospitality employment rose just 5,000 after a 4,000 gain. The number of professional & business services jobs fell 14,000, down for the third straight month.  Information sector employment fell 2,000, after holding steady in June.

Government sector payrolls declined 10,000 last month and revered June’s 11,000 rise. Federal government employment weakened 12,000 and has fallen for six straight months. Local government employment eased 3,000 after rising 10,000 in June while state government payrolls rose 5,000 after increasing 10,000.

Private-sector average hourly earnings rose 0.3% (3.9% y/y) in July. Earnings in the goods-producing sector edged up 0.1% (3.6% y/y). In construction, earnings rose 0.2% (3.7% y/y) following a 0.4% rise, but factory sector earnings eased 0.1% (+3.6% y/y). In the service sector, earnings rose 0.4% (4.0% y/y) in July after increasing 0.2% in June.

250801C4.jpg

The length of the average workweek rose to 34.3 hours in July from 34.2 hours in June. The workweek in the goods-producing sector lengthened to 39.9 hours from 39.7 hours. The construction sector average workweek rose to 39.1 hours from 38.9 while the factory sector workweek held steady at 40.1 hours. The average workweek in the private service sector edged up to 33.2 hours from 33.1 hours.

In the **household survey**, the unemployment rate increased to 4.2% in July after falling to 4.1% as employment fell 260,000 after rising 93,000 in June and the size of the labor force declined 38,000, off for the third straight month. The labor force participation rate eased to 62.2% last month from 62.3% and remained below the high of 63.3% early in 2020. The rate for teenagers declined to 35.0%, after plunging to 35.1%. For workers aged 20-24, the rate declined to 70.9%. For workers aged 25-54, the participation rate eased to 83.4%. For individuals 55 and over, the rate improved slightly to 38.1% but remained near a 20-year low of 38.0% in June.

The employment/population ratio for all workers slipped to 59.6% last month. It remained below the peak reading of 61.1% in February, 2020 just prior to the pandemic. For men, the rate fell to 64.7% in July from 64.9% and for women, the rate eased to 54.7% from 54.8% in June.

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

250801X4.jpg

250801F4.jpg

- Recent job growth reduced by fewer factory & government jobs.
- Earnings gain remains steady y/y.
- Jobless rate reverses June decline.

U.S. Employment Report Shows Weakness in July, While Revisions Reduce Earlier Gains; Jobless Rate Picks Up

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U.S. light vehicle sales increased 7.6% (6.0% y/y) to 16.87 million units (SAAR) in July after falling 0.3% to 15.68 million units in June. The gain followed three straight months of decline. The improvement in July vehicle sales accompanied a 1.7% y/y rise in real disposable income through June, which compared to 2.1% growth last year.

Increases in sales were broad-based last month. Light truck sales rose 7.7% (10.0% y/y) in July to 14.02 million units, after easing 0.2% to 13.02 million in June and weakening 8.7% in May to 13.04 million. Purchases of domestically-made light trucks improved 7.1% (12.0% y/y) to 10.79 million units, after falling 1.0% in June to 10.07 million. Sales of imported light trucks rose 9.8% (3.8% y/y) to 3.24 million units, following a 3.9% rise in June.

Trucks’ record 83.1% share of the light vehicle market last month compared to 83.0% in June and 80.1% in July of last year. The share averaged 80.3% during all of 2024 versus 53.3% ten years earlier.

Auto sales rose 6.4% last month, down 9.8% y/y, to 2.84 million units (SAAR) following a 0.4% June decline. Purchases of domestically-produced cars rebounded 10.1% (-6.4% y/y) last month to 2.18 million units, after declining 2.5% in June. Sales of imported autos fell 2.9% (-20.5% y/y) to 0.66 million units, after a 4.6% June gain.

Imports' 23.1% share of the U.S. light vehicle market edged down from 23.2% in June. These compare to a May 2023 low of 22.9% and a high of 26.3% in November of 2023. Imports' share of the passenger car market fell to 23.2% last month and compared to 26.4% in July of last year. It reached a high of 38.7% in September 2021. Imports' share of the light truck market rose to 23.1% last month after rising to 22.7% in June.

U.S. vehicle sales figures can be found in Haver's **USECON** database. Additional detail by manufacturer is in the **INDUSTRY** database.

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- Both light truck and auto sales recover.
- Domestic and imports each increase.
- Imports' market share steadies.

U.S. Light Vehicle Sales Rebound in July

Winnie Tapasanun

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The ISM U.S. manufacturing PMI fell to 48.0 in July from 49.0 in June and 48.5 in May, according to the Institute for Supply Management. The July manufacturing PMI, below the 50 expansion-contraction dividing line, indicated that the U.S. manufacturing sector contracted for the fifth consecutive month and to the lowest level since October 2024. The July reading, while slightly higher than a low of 46.9 in October and 47.0 in July of last year, was below its recent high of 50.9 in January and a peak of 63.8 in March 2021. A reading of 49.5 for July had been expected in the Action Economics Forecast Survey.

The production index rose to 51.4 in July after rising to 50.3 in June, suggesting production expanded for the second successive month and to the highest level since January; it was up from its most recent low of 44.0 in April but slightly below a high of 53.7 in March 2024. Twenty percent (NSA) of respondents reported higher production in July while 19.2% reported lower.

The new orders index increased to 47.1 in July after falling to 46.4 in June, indicating new orders contracted for the sixth straight month but at a slightly less severe pace. The Index, while below its recent high of 55.1 in January, was up from a low of 42.7 in January 2023. Nearly nineteen percent (NSA) of respondents reported higher new orders in July while 25.9% reported declines. The inventories index, however, fell to 48.9 in July after rising to 49.2 in June, showing inventories contracted for the third consecutive month. The index was down from its recent high of 53.4 in March and a high of 56.5 in July 2022. Meanwhile, the supplier deliveries index fell to 49.3 in July from 54.2 in June, indicating faster delivery performance following seven straight months in slower territory. An 8.7% (NSA) of respondents reported slower delivery speeds in July while an increased 10.2% reported faster speeds.

On the labor front, the employment index fell to 43.4 in July after falling to 45.0 in June, indicating employment contracted for the sixth straight month and to the lowest level since June 2020. The index was down from its recent high of 50.3 in January and a high of 56.5 in March 2022. A 12.6% (NSA) of respondents reported higher employment in July while an increased 25.0% reported less hiring.

On the pricing front, the prices paid index declined to 64.8 (NSA) in July after rising to 69.7 in June, indicating raw materials prices rose for the 10th straight month but at the slowest rising rate since February. The July index remained well above a low of 39.4 in December 2022 but meaningfully below a high of 87.1 in March 2022 and a peak of 92.1 in June 2021. A decreased 35.4% (NSA) of respondents reported higher prices in July while 5.8% reported price declines.

In other ISM series not included in the composite index, the new export orders index slipped to 46.1 in July after increasing to 46.3 in June, indicating new export orders contracted for the fifth straight month. It was down from its recent high of 52.4 in January and a high of 57.1 in February 2022. The imports index edged up to 47.6 in July after rising to 47.4 in June, remaining at a contraction level for the fourth consecutive month; it was down from its recent high of 52.6 in February and a high of 55.4 in February 2022. The order backlog index increased to 46.8 (NSA) in July after declining to 44.3 in June, indicating falling backlog levels since October 2022. It was up from a low of 37.5 in May 2023 but down from a peak of 70.6 in May 2021.

The ISM figures are based on responses from over 400 purchasing and supply executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These data are diffusion indexes where a reading above 50 indicates expansion; below 50 indicates contraction. The ISM Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes (seasonally adjusted) with equal weights: New Orders, Production, Employment, Supplier Deliveries, and Inventories. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- 48.0 in July vs. 49.0 in June; the fifth consecutive month of contraction.
- Production (51.4) expands to a six-month high.
- New orders (47.1) contract for the sixth successive month.
- Employment (43.4) contracts to the lowest level since June ’20.
- Prices Index (64.8) indicates prices rise for the 10th straight month; exports & imports contracting.

Economy in Brief: August 2008

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