Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060105a.jpg" width="353">
The Autodata Corporation reported that December US sales of light vehicles rose 9.1% to 17.17M units. The gain added to a 6.7% m/m rise in November but the increases were from an October level that was the most depressed since 1998. In addition, the increase left sales below December 2004 and the 2005 average of sales rose just 0.3% y/y and the annual level was down 2.8% from the record set in 2000. Consensus expectations had been for December sales of 16.8M.
Gasoline also moved higher at yearend with the average retail price at $2.24 per gallon (25.9% y/y), up four cents from the prior week and up a dime from the early December low. This week in spot market trading, gasoline is up another fourteen cents from the last week in December. The latest figures on the demand for gasoline indicate full recovery from declines during the Fall. 
Gauging the Size of Today&#39;s Price Shocks from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20060101/cover.pdf"> here</a>.
Sales of US made cars &amp; trucks rose 9.3% m/m in December (-5.3% y/y) while the 2005 sales average declined 0.2% from 2004 and fell 7.5% from the 2000 peak. Domestic truck sales rose 17.2% (-3.1% y/y) in December and the 2005 average fell 0.9%. Car sales slid 1.1% (-8.6% y/y) though the annual sales average increased 0.9%.
Sales of imported cars &amp; trucks increased 8.3% m/m (-0.3% y/y) in December and for the year rose 2.1%. Sales of imported trucks rose a sharp 12.5% (-4.7% y/y) and sales of imported autos rose 6.2% (2.3% y/y).
Import&#39;s share of the US light vehicle market slipped m/m in December to 21.0% and for the year increased to a record 20.4% versus 12.9% ten years ago. 

<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/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</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</td>
<td>17.17</td>
<td>15.74</td>
<td>-4.3%</td>
<td>16.92</td>
<td>16.87</td>
<td>16.63</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.64</td>
<td>7.56</td>
<td>1.7%</td>
<td>7.65</td>
<td>7.49</td>
<td>7.62</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>9.53</td>
<td>8.18</td>
<td>-3.3%</td>
<td>9.27</td>
<td>9.37</td>
<td>9.01</td>
</tr>
</tbody>
</table>
ISM: Activity Outside the Factory Sector Recovered 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 5, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060105c.jpg" width="353">
The Business Activity Index for the non-manufacturing sector recovered in December about all that it lost in November. The 1.3 point gain to 59.8 followed an unrevised 1.5 point slip in November. A reading above 50 indicates expansion. The latest reading was firmer than Consensus expectations for a rise to 59.0.
Since the series&#39; inception in 1997 there has been a 53% correlation between the Business Activity Index and the q/q change in real GDP for services plus construction.
The new orders component rose for the third straight month and the employment index added marginally to a 4 point November rise to the highest level since August. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.
Pricing power fell for the third month to the lowest level since August. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP Services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates only to July 1997, therefore its seasonal adjustment should be viewed tentatively.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec &#39;04</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>59.8</td>
<td>58.5</td>
<td>63.9</td>
<td>60.1</td>
<td>62.4</td>
<td>58.2</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>69.5</td>
<td>74.2</td>
<td>73.6</td>
<td>68.2</td>
<td>69.0</td>
<td>56.8</td>
</tr>
</tbody>
</table>
Initial Claims for Unemployment Insurance Lowest Since 2000 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 5, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060105b.jpg" width="353">
Initial claims for unemployment insurance fell a sharp 35,000 to 291,000 in the last week of 2005 following an upwardly revised 7,000 increase the prior period. The latest level was the lowest since September 2000. Consensus expectations had been for 320,000 claims.
During the last ten years there has been a (negative) 75% correlation between the level of initial jobless insurance claims and the m/m change in payroll employment.
The four-week moving average of initial claims fell sharply to 316,750 (-4.0% y/y), the lowest level since August.
Continuing unemployment insurance claims increased 13,000 following the downwardly revised 75,000 spike during the prior week.
The insured rate of unemployment remained at 2.1% for the third week.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">12/31/05</th>
<th scope="col">12/24/05</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>291</td>
<td>326</td>
<td>-15.9%</td>
<td>331</td>
<td>343</td>
<td>402</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,718</td>
<td>-3.3%</td>
<td></td>
<td>2,926</td>
<td>3,531</td>
</tr>
</tbody>
</table>
Chain Store Sales Dipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 5, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060105d.jpg" width="353">
Chain store sales dipped 0.8% during the final week of 2005 according to the International Council of Shopping Centers (ICSC)-UBS survey. The decline, however, followed three weeks of solid increase. Therefore, December sales on average gained 0.4%, double the November increase.
During the last ten years there has been a 51% correlation between the y/y change in chain store sales and the change in non-auto retail sales less gasoline, as published by the US Census Department. Chain store sales correspond directly with roughly 14% of non-auto retail sales less gasoline.
The leading indicator of chain store sales slipped 0.1% in the latest week and the December average was unchanged from November.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The Redbook Research survey of chain store sales painted a weaker picture of yearend selling. In fact, weakness throughout the month left the December average of general merchandise sales 0.2% below November.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">12/31/05</th>
<th scope="col">12/24/05</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">Total Weekly Chain Store Sales</td>
<td>464.0</td>
<td>467.6</td>
<td>2.9%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
UK Corporations' Profitability Still Firm, Led by High Oil Company Returns 
by <a href="/comment/Stone.html">Carol Stone</a> January 5, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060105e.jpg" width="353">
Today, January 5, a wide variety of data was reported by national statistical agencies and private sources all over the world. Some of these reports glean considerable press coverage, particularly if the results are a surprise, such as with German manufacturing orders: these orders grew again in November, when market forecasters had expected them to decline.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060105f.jpg" width="353">
But Haver&#39;s databases, of course, carry far more background material on the economies of myriad countries. For instance, yesterday in this space, we highlighted the CPI of Thailand, a major release in a small country. Today we take the opposite approach, describing a secondary release in a major country, to wit, corporate profitability in the UK. The ONS publishes quarterly rates of return for total private non-financial corporations and some subsets of companies. Most prominently, oil companies are highlighted, referred to as &quot;UK continental shelf companies&quot;. Separately, manufacturing and service sector groups are shown. A few other miscellaneous sectors, such as construction, are not shown individually.
In Q3 2005, all private nonfinancial companies earned a 13.4% net return on their capital. This is down from 13.8% in Q2, but that was a 6-1/2 year high. The average for the last five years is 12.9%. Manufacturing companies earned just 6.2% on assets in Q3, following a somewhat higher 7.9% in Q2. This group has experienced basically flat returns in recent years, averaging about 7% since 2002. Services industries have higher rates of return, averaging 16.3% over the last four years, but these too are trendless, moving back and forth in a saw-tooth pattern.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060105g.jpg" width="353">
The breakout of the petroleum industry is informative. It shows that back in the early 1990s this sector had about the same magnitude return as the rest of UK industry. However, this relationship has changed markedly, with the &quot;Continental Shelf companies&quot; seeing far higher returns now, 36.3% in Q3. Annual data from ONS give some detail on the operating surpluses and capital that generate the return ratio. They indicate that the recent high rates of return are not, as one might think, due totally to higher oil prices. Specifically, since 2000, the UK oil industry has stopped expanding, as capital employed, shown in the third graph, has flattened. At the same time, sharply higher oil prices are surely responsible for 2005&#39;s further escalation of returns into the mid-30% range.
Normally, higher returns might be expected to prompt the renewed expansion of an industry. There are mixed signals about these prospects. Haver&#39;s OGJ database and OGJANN from the &quot;Oil and Gas Journal&quot; contain other broad data on the UK petroleum industry. Petroleum reserves in the UK are decreasing, and daily production of crude oil has fallen even into Q3. However, the so-called &quot;rig count&quot; of operating oil rigs shows a sustained upturn over the last six months. With this mixed picture about specific UK potential, perhaps what the high returns mean is more general, and perhaps they will be used for new kinds of energy development, not just the expansion of local output. 

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U2/@U224/@U224.HTM">United Kingdom: Private Nonfin Corps: Net Rates of Return (%)</a></th>
<th scope="col">Q3 2005</th>
<th scope="col">Q2 2005</th>
<th scope="col">Q1 2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">All PNFCs</td>
<td>13.4</td>
<td>13.8</td>
<td>13.3</td>
<td>13.3</td>
<td>12.9</td>
<td>12.5</td>
</tr>
<tr>
<td class="firstcol">UK Continental Shelf</td>
<td>36.3</td>
<td>34.4</td>
<td>30.6</td>
<td>29.3</td>
<td>29.2</td>
<td>30.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Non-Continental Shelf</td>
<td>12.6</td>
<td>13.0</td>
<td>12.7</td>
<td>12.7</td>
<td>12.2</td>
<td>11.7</td>
</tr>
<tr>
<td class="firstcol">Manufacturing</td>
<td>6.2</td>
<td>7.9</td>
<td>5.8</td>
<td>7.1</td>
<td>6.9</td>
<td>7.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>16.6</td>
<td>16.5</td>
<td>17.3</td>
<td>16.3</td>
<td>16.5</td>
<td>16.1</td>
</tr>
</tbody>
</table>


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The Autodata Corporation reported that December US sales of light vehicles rose 9.1% to 17.17M units. The gain added to a 6.7% m/m rise in November but the increases were from an October level that was the most depressed since 1998. [...]

U.S. Vehicle Sales Recovered at Yearend, Along With Gas Price

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/060104g.jpg" width="353">
The overall CPI for Thailand was flat in December from November, when it had fallen 0.4% from October. But the total index for the year was up 5.8%, exactly double the increase in 2004. The December &quot;core&quot; rate, excluding raw food and energy, was 2.6%, compared with a mere 0.6% in 2004 and zero in 2003. This is the highest core rate for Thailand since the aftermath of the currency crises in 1997-98. Thus, this marked advance in core inflation in 2005, indicates at least one nation where energy prices forced up some other costs enough to show through in core and total inflation outcomes. These data were reported today by the Thai Ministry of Commerce and are contained in Haver&#39;s EMERGEPR database.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104h.jpg" width="353">
As regular readers might be aware, we have monitored consumer prices throughout 2005 for signs of second-round effects of surging energy costs on other prices and have found precious little evidence of this. In the table below, we include data for Italy and the &quot;flash&quot; estimate for the Euro-Zone, which were both released today as well. They show that total inflation was steady or lower in 2005 compared with 2004, and through November, the Euro-Zone core CPI (excludes energy and unprocessed food) was 1.5%, lower than 2.1% across all of 2004.
In Thailand, though, there was apparently some pass-through of energy large enough to impact core inflation. Several categories experienced larger price increases last year, and the most notable was transportation and communication. This sector began to trend upward more rapidly in the spring of 2004 and continued to accelerate during 2005, reaching 13.3% in December, year-on-year. World Bank reports indicate that the government had been subsidizing diesel fuel and discontinued this subsidy; this added to the price increase from the cost of the fuel alone and led to substantially greater diesel costs in 2005, which apparently then generated a sizable rise in transportation costs generally in Thailand. This effect may not spread, especially since it was due to a change in Thai government price policy as well as the raw material cost, so we would conclude in this instance that the pick-up in Thai core inflation is &quot;the exception that proves the rule&quot; that general world-wide inflation has been remarkably impervious to the enormous rises in energy prices. Whether this will last through the winter heating season in the northern hemisphere remains to be seen, however. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGEPR/@P3/@P34/@P34.HTM">Thailand</a></th>
<th scope="col">Dec 2005</th>
<th scope="col">Nov 2005</th>
<th scope="col">Oct 2005</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">All Commodities (SA)</td>
<td>0.0</td>
<td>-0.4</td>
<td>0.4</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr % (NSA)</td>
<td>5.8</td>
<td>5.9</td>
<td>6.2</td>
<td>2.9</td>
<td>1.8</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">Core CPI (SA)</td>
<td>0.2</td>
<td>0.0</td>
<td>0.2</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr % (NSA)</td>
<td>2.6</td>
<td>2.4</td>
<td>2.4</td>
<td>0.6</td>
<td>0.0</td>
<td>0.3</td>
</tr>
<tr>
<td class="firstcol">Transportation &amp; Communication (SA)</td>
<td>0.2</td>
<td>-0.7</td>
<td>0.1</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr % (NSA)</td>
<td>13.3</td>
<td>11.3</td>
<td>13.1</td>
<td>4.1</td>
<td>3.1</td>
<td>4.7</td>
</tr>
<tr>
<td class="firstcol">Memo: Italy CPI (NSA, Yr/Yr %)</td>
<td>2.0</td>
<td>2.2</td>
<td>2.2</td>
<td>2.0</td>
<td>2.5</td>
<td>2.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-Zone CPI &quot;Flash&quot; (NSA, Yr/Yr %)</td>
<td>2.2</td>
<td>2.3</td>
<td>2.5</td>
<td>2.4</td>
<td>2.0</td>
<td>2.3</td>
</tr>
</tbody>
</table>
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The overall CPI for Thailand was flat in December from November, when it had fallen 0.4% from October. But the total index for the year was up 5.8%, exactly double the increase in 2004. The December "core" rate, excluding raw food and [...]

Higher CPI in Thailand Is Rare Instance of Energy Cost Pass-Through

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104d.jpg" width="353">
The total number of mortgage applications fell another 1.5% last week on top of the 6.8% drop the previous week. The decline rounded out 2005 when the average level fell 3.6% y/y after a nearly one third drop during 2004.
Purchase applications have been notably weak during the last several weeks. The 3.4% drop last week pulled the December average of purchase applications down 3.7% from November and the latest week was down 21.0% from the high during June.
During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales
Applications to refinance recovered 8.3% of the prior week&#39;s 11.2% plunge yet the December average fell 13.8% from November.
The Mortgage Bankers Association also reported that through 3Q05, the percentage of mortgage loans past due crept higher to 4.44% versus the 1Q low 4.31%. The increase was due to higher delinquencies in the South. In the Northeast and in the West delinquencies are near or at the series&#39; low. In the Midwest, however, a decline last quarter ran counter to the rising trend of the last ten years when the delinquency rate rose to roughly 5% from 3.6% in 1994.
The effective interest rate on a conventional 30-year mortgage fell slightly for the fourth straight week. At 6.42% the rate was down from 6.58% at the start of the month and averaged 6.48% in December versus a low average 5.81% in June. The effective rate on a 15-year mortgage was 6.05%. The interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
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>.
The minutes to the latest meeting of the Federal Open Market Committee can be found <a href="http://www.federalreserve.gov/fomc/minutes/20051213.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<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">12/30/05</th>
<th scope="col">12/23/05</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>545.9</td>
<td>554.1</td>
<td>-9.9%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>418.3</td>
<td>432.9</td>
<td>0.2%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,363.2</td>
<td>1,259.1</td>
<td>-19.9%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
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The total number of mortgage applications fell another 1.5% last week on top of the 6.8% drop the previous week. The decline rounded out 2005 when the average level fell 3.6% y/y after a nearly one third drop during 2004. Purchase [...]

Mortgage Apps Down With Fewer For Purchase, Delinquencies Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104f.jpg" width="353">
November factory inventories rose 0.2% following an unrevised 0.6% gain in October. Less a 3.2% (+14.4% y/y) decline in petroleum, factory inventories rose 0.3% (3.3% y/y) and that y/y gain is nearly one third the rate of accumulation early in 2005.
The increase in November inventories was paced by a 1.4% (1.3% y/y) gain in computers &amp; electronic products. Machinery inventories also rose a strong 0.5% (5.9% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104e.jpg" width="353">
Factory shipments rose a modest 0.2%, held back by a 5.7% drop in petroleum. Total factory orders surged 2.5% and the advance report of a 4.4% jump in durables goods orders was unrevised.
A 10.6% m/m surge (46.9% y/y) in unfilled orders for nondefense aircraft orders caused the total of unfilled orders to jump 1.6%. Less the transportation sector backlogs continued strong and rose 0.6% (9.6% y/y) while the ratio of total unfilled orders to shipments rose further to the highest level since 2002.<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">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.2%</td>
<td>0.6%</td>
<td>3.8%</td>
<td>7.7%</td>
<td>-1.1%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>2.5%</td>
<td>1.7%</td>
<td>8.7%</td>
<td>9.3%</td>
<td>3.5%</td>
<td>-2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>0.2%</td>
<td>0.7%</td>
<td>5.7%</td>
<td>9.5%</td>
<td>1.5%</td>
<td>-2.5%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>3.0%</td>
<td>1.4%</td>
<td>13.9%</td>
<td>8.4%</td>
<td>8.0%</td>
<td>-8.5%</td>
</tr>
</tbody>
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November factory inventories rose 0.2% following an unrevised 0.6% gain in October. Less a 3.2% (+14.4% y/y) decline in petroleum, factory inventories rose 0.3% (3.3% y/y) and that y/y gain is nearly one third the rate of accumulation [...]

U.S. Factory Inventories and Backlogs Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104f.jpg" width="353">
November factory inventories rose 0.2% following an unrevised 0.6% gain in October. Less a 3.2% (+14.4% y/y) decline in petroleum, factory inventories rose 0.3% (3.3% y/y) and that y/y gain is nearly one third the rate of accumulation early in 2005.
The increase in November inventories was paced by a 1.4% (1.3% y/y) gain in computers &amp; electronic products. Machinery inventories also rose a strong 0.5% (5.9% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104e.jpg" width="353">
Factory shipments rose a modest 0.2%, held back by a 5.7% drop in petroleum. Total factory orders surged 2.5% and the advance report of a 4.4% jump in durables goods orders was unrevised.
A 10.6% m/m surge (46.9% y/y) in unfilled orders for nondefense aircraft orders caused the total of unfilled orders to jump 1.6%. Less the transportation sector backlogs continued strong and rose 0.6% (9.6% y/y) while the ratio of total unfilled orders to shipments rose further to the highest level since 2002.<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">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.2%</td>
<td>0.6%</td>
<td>3.8%</td>
<td>7.7%</td>
<td>-1.1%</td>
<td>-5.4%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>2.5%</td>
<td>1.7%</td>
<td>8.7%</td>
<td>9.3%</td>
<td>3.5%</td>
<td>-2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>0.2%</td>
<td>0.7%</td>
<td>5.7%</td>
<td>9.5%</td>
<td>1.5%</td>
<td>-2.5%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>3.0%</td>
<td>1.4%</td>
<td>13.9%</td>
<td>8.4%</td>
<td>8.0%</td>
<td>-8.5%</td>
</tr>
</tbody>
</table>
Mortgage Apps Down With Fewer For Purchase, Delinquencies Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 4, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104d.jpg" width="353">
The total number of mortgage applications fell another 1.5% last week on top of the 6.8% drop the previous week. The decline rounded out 2005 when the average level fell 3.6% y/y after a nearly one third drop during 2004.
Purchase applications have been notably weak during the last several weeks. The 3.4% drop last week pulled the December average of purchase applications down 3.7% from November and the latest week was down 21.0% from the high during June.
During the last ten years there has been a 50% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales
Applications to refinance recovered 8.3% of the prior week&#39;s 11.2% plunge yet the December average fell 13.8% from November.
The Mortgage Bankers Association also reported that through 3Q05, the percentage of mortgage loans past due crept higher to 4.44% versus the 1Q low 4.31%. The increase was due to higher delinquencies in the South. In the Northeast and in the West delinquencies are near or at the series&#39; low. In the Midwest, however, a decline last quarter ran counter to the rising trend of the last ten years when the delinquency rate rose to roughly 5% from 3.6% in 1994.
The effective interest rate on a conventional 30-year mortgage fell slightly for the fourth straight week. At 6.42% the rate was down from 6.58% at the start of the month and averaged 6.48% in December versus a low average 5.81% in June. The effective rate on a 15-year mortgage was 6.05%. The interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
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>.
The minutes to the latest meeting of the Federal Open Market Committee can be found <a href="http://www.federalreserve.gov/fomc/minutes/20051213.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">12/30/05</th>
<th scope="col">12/23/05</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>545.9</td>
<td>554.1</td>
<td>-9.9%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>418.3</td>
<td>432.9</td>
<td>0.2%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,363.2</td>
<td>1,259.1</td>
<td>-19.9%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
Higher CPI in Thailand Is Rare Instance of Energy Cost Pass-Through 
by <a href="/comment/Stone.html">Carol Stone</a> January 4, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104g.jpg" width="353">
The overall CPI for Thailand was flat in December from November, when it had fallen 0.4% from October. But the total index for the year was up 5.8%, exactly double the increase in 2004. The December &quot;core&quot; rate, excluding raw food and energy, was 2.6%, compared with a mere 0.6% in 2004 and zero in 2003. This is the highest core rate for Thailand since the aftermath of the currency crises in 1997-98. Thus, this marked advance in core inflation in 2005, indicates at least one nation where energy prices forced up some other costs enough to show through in core and total inflation outcomes. These data were reported today by the Thai Ministry of Commerce and are contained in Haver&#39;s EMERGEPR database.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104h.jpg" width="353">
As regular readers might be aware, we have monitored consumer prices throughout 2005 for signs of second-round effects of surging energy costs on other prices and have found precious little evidence of this. In the table below, we include data for Italy and the &quot;flash&quot; estimate for the Euro-Zone, which were both released today as well. They show that total inflation was steady or lower in 2005 compared with 2004, and through November, the Euro-Zone core CPI (excludes energy and unprocessed food) was 1.5%, lower than 2.1% across all of 2004.
In Thailand, though, there was apparently some pass-through of energy large enough to impact core inflation. Several categories experienced larger price increases last year, and the most notable was transportation and communication. This sector began to trend upward more rapidly in the spring of 2004 and continued to accelerate during 2005, reaching 13.3% in December, year-on-year. World Bank reports indicate that the government had been subsidizing diesel fuel and discontinued this subsidy; this added to the price increase from the cost of the fuel alone and led to substantially greater diesel costs in 2005, which apparently then generated a sizable rise in transportation costs generally in Thailand. This effect may not spread, especially since it was due to a change in Thai government price policy as well as the raw material cost, so we would conclude in this instance that the pick-up in Thai core inflation is &quot;the exception that proves the rule&quot; that general world-wide inflation has been remarkably impervious to the enormous rises in energy prices. Whether this will last through the winter heating season in the northern hemisphere remains to be seen, however. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGEPR/@P3/@P34/@P34.HTM">Thailand</a></th>
<th scope="col">Dec 2005</th>
<th scope="col">Nov 2005</th>
<th scope="col">Oct 2005</th>
December/December
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2004</td>
<td>2003</td>
<td>2002</td>
</tr>
<tr>
<td class="firstcol">All Commodities (SA)</td>
<td>0.0</td>
<td>-0.4</td>
<td>0.4</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr % (NSA)</td>
<td>5.8</td>
<td>5.9</td>
<td>6.2</td>
<td>2.9</td>
<td>1.8</td>
<td>1.4</td>
</tr>
<tr>
<td class="firstcol">Core CPI (SA)</td>
<td>0.2</td>
<td>0.0</td>
<td>0.2</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr % (NSA)</td>
<td>2.6</td>
<td>2.4</td>
<td>2.4</td>
<td>0.6</td>
<td>0.0</td>
<td>0.3</td>
</tr>
<tr>
<td class="firstcol">Transportation &amp; Communication (SA)</td>
<td>0.2</td>
<td>-0.7</td>
<td>0.1</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr % (NSA)</td>
<td>13.3</td>
<td>11.3</td>
<td>13.1</td>
<td>4.1</td>
<td>3.1</td>
<td>4.7</td>
</tr>
<tr>
<td class="firstcol">Memo: Italy CPI (NSA, Yr/Yr %)</td>
<td>2.0</td>
<td>2.2</td>
<td>2.2</td>
<td>2.0</td>
<td>2.5</td>
<td>2.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-Zone CPI &quot;Flash&quot; (NSA, Yr/Yr %)</td>
<td>2.2</td>
<td>2.3</td>
<td>2.5</td>
<td>2.4</td>
<td>2.0</td>
<td>2.3</td>
</tr>
</tbody>
</table>
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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104c.jpg" width="353">
Signs of improvement in the German economy have been coming to the fore. The latest bit of good news relates to unemployment conditions. The Federal Labor Agency reported that the number of registered workers without work adjusted for seasonal swings, in December fell by 110,000 to 4.64 million. the biggest drop since reunification. The unemployment rate fell to 11.2% from 11.4%. Registered unemployment in West Germany was 82, 000 lower in December than November, but was still 260,000 above December, 2004. Registered unemployment in East Germany, declined in December by 28,000 from November but was also 115,000 below December, 2004. The first chart shows the year to year changes in the number of registered unemployment in West and East Germany. The unemployment data in Germany were distorted early in 2005 when 200,000 people were added to the unemployment roles under the new definitions introduced by Hartz IV of the labor reforms.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104a.jpg" width="353">
In addition to the data on registered unemployment, the Federal Statistical Office publishes data based on concepts of the the International Labor Office (ILO). These data do not show the early 2005 distortion in the unemployment figures. The second chart compares the unemployment rate as measured by the two agencies. There is no rise in the rate of ILO unemployment in early 2005 comparable to that of the registered unemployment rate. According to the ILO concept, the unemployment rate appears to have shown a somewhat steeper down trend so far this year than the registered data. The latest data are for November. While employment rose by 15,0000 in November on a seasonally adjusted basis to 38,611 million, unemployment also rose by 7,000, taking the unemployment rate to 9.0% from 8.8% in October.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060104b.jpg" width="353">
The ILO data form the basis of Eurostat&#39;s harmonized rates of unemployment for all the Euro Zone countries, but, as can seen in the third chart that compares Germany&#39;s ILO unemployment rate and the Eurostat harmonized rate, further adjustments are made to the harmonized indexes. The latest Eurostat Harmonized Index for Germany is October. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Number of Registered Unemployed, S. A. (000)</th>
<th scope="col">Dec 05&nbsp;</th>
<th scope="col">Nov 05</th>
<th scope="col">Dec 04</th>
<th scope="col">M/M Dif &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </th>
<th scope="col">Y/Y Dif</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Unified Germany&nbsp;&nbsp;</td>
<td>4638</td>
<td>4748</td>
<td>4493</td>
<td>-110</td>
<td>145</td>
<td>4803</td>
<td>4389</td>
<td>4383</td>
<td>4075</td>
</tr>
<tr>
<td class="firstcol">West Germany</td>
<td>3122</td>
<td>3204</td>
<td>2862</td>
<td>-82</td>
<td>266</td>
<td>3201</td>
<td>2789</td>
<td>2759</td>
<td>2509</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;East Germany</td>
<td>1516</td>
<td>1544</td>
<td>1631</td>
<td>-28</td>
<td>-115</td>
<td>1612</td>
<td>1600</td>
<td>1624</td>
<td>1585</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate</td>
<td>11.2</td>
<td>11.4</td>
<td>10.8</td>
<td>-0.2</td>
<td>0.4</td>
<td>11.6</td>
<td>10.5</td>
<td>10.5</td>
<td>9.8</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">ILO Concept S. A. (000)</td>
<td>Nov 05</td>
<td>Oct 05</td>
<td>Nov 04&nbsp;</td>
<td>M/M Dif &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </td>
<td>Y/Y Dif &nbsp;&nbsp;</td>
<td>&nbsp;&nbsp;&nbsp;&nbsp; </td>
<td>2004 &nbsp;&nbsp;</td>
<td>2003</td>
<td>2002&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>38611</td>
<td>38596</td>
<td>38826</td>
<td>15</td>
<td>-215</td>
<td></td>
<td>38779</td>
<td>38632</td>
<td>383992</td>
</tr>
<tr>
<td class="firstcol">Unemployment</td>
<td>3800</td>
<td>3730</td>
<td>3910</td>
<td>70</td>
<td>110</td>
<td></td>
<td>3930</td>
<td>3710</td>
<td>3240</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>&nbsp;9.0</td>
<td>8.8</td>
<td>9.2&nbsp;</td>
<td>0.2&nbsp;</td>
<td>-0.2&nbsp;</td>
<td>&nbsp;</td>
<td>9.2&nbsp;</td>
<td>8.8</td>
<td>7.7</td>
</tr>
<tr>
<td class="firstcol">Eurostat Harmonized Rate for Germany</td>
<td>&nbsp;n.a</td>
<td>9.1&nbsp;</td>
<td>9.5&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;9.5</td>
<td>9.1</td>
<td>8.2</td>
</tr>
</tbody>
</table>
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Signs of improvement in the German economy have been coming to the fore. The latest bit of good news relates to unemployment conditions. The Federal Labor Agency reported that the number of registered workers without work adjusted for [...]

Good News on German Unemployment

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060103c.jpg" width="353">
The value of construction put in place rose a modest 0.2% in November following a 0.8% October increase and fell far short of Consensus expectations for a 0.7% rise.
Residential building dropped modestly for the first decline since June. The decline reflected a 4.1% plunge in the value of improvements (-5.7% y/y) and a 0.6% fall in new multi-family residential (+20.5% y/y). New single family building posted a strong 1.5% gain (14.8% y/y) which was on a par with increases during the prior ten months.
Nonresidential building recovered all of the previous month&#39;s 0.6% drop helped by a 2.4% gain in office construction (7.4% y/y) and a 2.7% rise in commercial (10.15 y/y).
Public construction spending rose 0.3% following a revised 1.7% increase during October. Construction activity on highways &amp; streets, nearly one third of the value of public construction spending, rose 1.6% (8.1% y/y).
These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

<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/@E9/@E907/@E90701/@E90701.HTM">Construction Put-in-place</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.2%</td>
<td>0.8%</td>
<td>7.8%</td>
<td>10.9%</td>
<td>5.4%</td>
<td>1.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.2%</td>
<td>0.5%</td>
<td>7.8%</td>
<td>13.6%</td>
<td>6.3%</td>
<td>-0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-0.0%</td>
<td>0.9%</td>
<td>9.7%</td>
<td>18.2%</td>
<td>12.9%</td>
<td>8.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>0.6%</td>
<td>-0.6%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>-5.4%</td>
<td>-13.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.3%</td>
<td>1.7%</td>
<td>7.8%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>5.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

The value of construction put in place rose a modest 0.2% in November following a 0.8% October increase and fell far short of Consensus expectations for a 0.7% rise. Residential building dropped modestly for the first decline since [...]

U.S. Construction Gain Eased, Single Family Still Strong

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060103b.jpg" width="353">
The Institute of Supply Management (ISM) reported that the December Composite Index of activity in the manufacturing sector fell for the fourth month in the last five. The sharp 3.9 point decline to 54.2 was the largest since 2002, dropped the index to the lowest level since August and exceeded Consensus expectations for a more moderate decline to 57.4.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three month growth in factory sector industrial production.
Each of the index&#39;s five components fell last month. The 4.3 point drop in new orders was to the lowest level since July and the 3.6 point drop in production was the fourth in the last five months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060103a.jpg" width="353">
The 3.9 point decline in the employment index reversed about all of the gains during the prior three months. During the last twenty years there has been a 67% correlation between the level of the ISM Employment Index and the three month growth in factory sector employment.
Prices continued to rise, though an eleven point decline in the index level added to the ten point drop in November. Widespread increases in commodities prices were offset by limited declines in diesel fuel and resins. Commodities in short supply were caustic soda, plastics, resins, and steel.
The Diffusion of Personal Computers across the U.S. from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-37.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/@EF/@EF02/@EF02.HTM">ISM Manufacturing Survey</a></th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Dec &#39;04</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">Composite Index</td>
<td>54.2</td>
<td>58.1</td>
<td>57.3</td>
<td>55.5</td>
<td>60.5</td>
<td>53.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>55.5</td>
<td>59.8</td>
<td>62.6</td>
<td>57.5</td>
<td>63.5</td>
<td>57.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>63.0</td>
<td>74.0</td>
<td>72.0</td>
<td>66.4</td>
<td>79.8</td>
<td>59.6</td>
</tr>
</tbody>
</table>


</html>

The Institute of Supply Management (ISM) reported that the December Composite Index of activity in the manufacturing sector fell for the fourth month in the last five. The sharp 3.9 point decline to 54.2 was the largest since 2002, [...]

ISM Index Fell Further

Job openings less than the number unemployed in July for first time since 2021

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

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Nonfarm payrolls increased 22,000 during August after rising 79,000 in July, revised from 73,000 and falling 13,000 during June, revised from a 14,000 increase. Expectations had been for an 83,000 rise in the Action Economics Forecast Survey. The three-month average change in payrolls of 29,300 compared to 28,300 in July, but stood far below its high of 231,700 in January.

Average hourly earnings rose an expected 0.3% in August after unrevised gains of 0.3% in July and 0.2% in June. Earnings growth of 3.7% y/y equals that in June which is the lowest since July 2024, 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 4.3% from 4.2% in July and 4.1% in June. 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 8.1% last month from 7.9% In July. It was 6.6% in April 2023.

In the **establishment survey**, private-sector employment in August rose 38,000 after rising 77,000 in July.  Factory sector jobs declined 12,000, off for the fourth straight month. Durable goods employment fell 19,000 after rising 5,000, as motor vehicle & parts hiring declined 7,300 after a 2,000 July gain. Nondurables employment rose 7,000, reversing a 7,000 July decline. Construction sector employment weakened 7,000, down for the third straight month. The number of mining & logging industry jobs declined 6,000, also registering the fourth consecutive month of decline.

Private service-sector employment increased 63,000 during August after improving 85,000 in July. Increases varied greatly amongst service-sector categories. Private education & health sector employment rose 46,000 last month, following a 77,000 increase in July. The number of leisure & hospitality jobs rose 28,000 after a 6,000 gain. Trade, transportation & utilities employment gained 2,000, following a 5,000 increase, but financial activities employment weakened 3,000 after increasing 9,000 in July. The number of professional & business services jobs fell 17,000, down for the fourth straight month as temporary help employment declined 9,800, also off for the fourth month in a row. Information sector employment declined 5,000, after falling 7,000 in July and 3,000 in June. Transportation & warehousing hiring weakened 3,600 last month following a 6,300 drop.

Government sector payrolls declined 16,000 last month following a 2,000 rise. Federal government employment weakened 15,000 and has fallen for seven straight months. State government payrolls declined 13,000 after falling in each of the prior three months. To the upside, local government hiring rose 12,000 following a 17,000 July increase.

Private-sector average hourly earnings rose 0.3% (3.7% y/y) in August, the same as in July. Earnings in the goods-producing sector increased 0.4% (4.0% y/y) in August, double the July rise. In construction, earnings rose 0.6% (4.2% y/y) following a 0.3% rise, while factory sector earnings improved 0.3% (3.9% y/y) after a 0.2% gain. In the service sector, earnings rose 0.3% (3.6% y/y) in August, the same as in July. Professional & business services pay increased 0.4% (5.0% y/y) for the second consecutive month while leisure & hospitality earnings also increased 0.4% (3.7% y/y) after two straight months of 0.3% increase. Information earnings rose 0.2% (4.6% y/y) for the second straight month.

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The length of the average workweek was 34.2 hours in August for the third straight month. The workweek in the goods-producing sector eased to 39.8 hours from 39.9 hours in July. The construction sector average workweek held at 39.0 hours while the factory sector workweek eased to 40.0 hours from 40.2 hours. The average workweek in the private service sector held at 33.2 hours. Information sector hours edged up to 37.0 from 36.9. Financial activities hours held at 37.6. Private education & health services hours eased to 32.7 from 32.8 in July.

In the **household survey**, the unemployment rate increased to 4.3% in August after rising to 4.2% in July from 4.1% in June as employment rose 288,000 after falling 260,000 in July and the size of the labor force increased 436,000 after three straight months of decline. The labor force participation rate rose to 62.3% last month from 62.2%, remaining well below the high of 63.3% early in 2020. The rate for teenagers eased to 34.8%, a five-year low. For workers aged 20-24, the rate plunged to 70.2%, a four year-low. For workers aged 25-54, the participation rate increased to 83.7%, an eleven-month high. For individuals 55 and over, the rate held steady at 38.1% but remained near a 20-year low of 38.0% in June.

The employment/population ratio for all workers steadied at 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 rose to 65.0% from 64.7% in July and for women, the rate eased to 54.5 % on the heels of a slip to 54.7% in July.

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.

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- Hiring weakens broadly; factory, construction & government jobs decline.
- Earnings gain slows y/y.
- Unemployment rate increases as job growth lags rise in labor force.

U.S. Payroll Employment Report Reveals Unexpected Weakness in August; Earnings Rise Steadily, but Jobless Rate Increases

Robert Brusca

250905E.jpg

Germany's factory orders declined for the third straight month in July. Real new orders fell 2.9% month-on-month in July, against expectations for a small increase. The drop was sharper than a 0.2% decrease in June; foreign orders declined 3.1% in July, as orders from the euro area contracted 3.8%, and orders from outside the euro area fell by 2.8%. These metrics suggest that demand both inside and outside the euro area remains weak. Domestic orders dropped 2.5% in July, an exact offset to their gain in June. When ranked on growth rates over the last 30 years, all three sector growth rates are below their medians (below a ranking of 50%). However, when ranked on the real index number level, total orders rank at their 55.6 percentile, foreign orders rank at their 79.5 percentile and domestic orders rank at their 15.2 percentile. All-in-all it’s an unimpressive report.

**Orders sequentially and QTD:** Sequential trends are ambivalent but still clearly weak. Sequential growth rates do not show a clear acceleration/deceleration pattern. But for total, foreign and domestic real orders, both 3-month and 12-month growth rates are negative (one exception: foreign orders over 12 months). Domestic orders show negative growth over 6 months as well. Quarter-to-date growth rates are negative for all sectors.

**Sales trends:** Real sales are mixed in July, rising 0.9% overall on declines in two sectors: consumer durables and intermediate goods. Sector sales mostly maintain growth as manufacturing sales are positive based on growth rates over 12 months, 6 months, and 3 months. Consumer goods and intermediate goods sales show deceleration and ongoing contraction. Consumer durable goods and intermediate goods show QTD declines. On the manufacturing & mining to total, manufacturing and capital goods show index standings above their respective 50% on 30 years of data. That also shows above-median growth rates on annual data along with consumer goods and consumer nondurable goods.

**Industrial confidence:** Industrial confidence measures for Germany, France, Italy, and Spain, the four largest EMU members, show improved (but still net negative readings) in July compared to June. Over three months and six months, Germany and Italy show some improvement; France still shows steady deterioration. Spain shows improvement over 3 months and it is only slight improvement. The queue standings for the industrial reading over 30 years of data show Spain with an above-median reading in July. Germany and France are exceptionally weak and Italy has been weaker only 26% of the time based on the queue standing measure. Not only are German orders and demand weak and faltering but the broad EU Commission measures of industrial confidence show broadly weak readings for the largest economies in the EMU.

250905.jpg

Germany

German Factory Orders Plunge on Domestic Weakness

Andrew Cates

**Gold prices and trade policy uncertainty**
This week’s record-breaking surge in gold prices has coincided with renewed volatility in trade policy uncertainty, reflecting the market’s heightened sensitivity to political and legal developments in Washington. A series of legislative challenges to the administration’s latest tariff measures has raised the prospect that parts of the policy framework could be overturned or significantly diluted. That possibility has injected another layer of uncertainty into an already fragile trade environment, amplifying demand for gold as a hedge. Investors appear to be weighing not only the inflationary risks of tariffs that remain in place but also the destabilizing effects of unpredictable policy reversals, leaving gold prices at historic highs and the trade policy uncertainty index elevated.

250904Z1.jpg

**US Tariffs**
Although the data in this chart extend only through June 2025, they clearly illustrate which trading partners would gain the most if US tariff policies were to be reversed. China stands out as the most heavily penalised, with effective tariff rates rising by more than 25 percentage points in just six months. Japan and South Korea have also faced significant tariff hikes, suggesting that their exporters would benefit substantially from any policy rollback. Taiwan, India, and the EU also feature prominently, though at more moderate levels. By contrast, ASEAN economies, Australia, and the UK have seen relatively smaller increases, leaving them less exposed. In aggregate, a broad reversal of tariffs would most immediately alleviate the pressure on East Asian exporters—particularly China—while also reducing costs for US importers and consumers who have been disproportionately affected by higher prices on goods from the region.

250904Z2.jpg

**The Indian economy and US trade policy** 
India faces a particularly sharp squeeze from the latest wave of US tariff hikes, given that the US now absorbs nearly one-fifth of its exports. The imposition of higher barriers has dealt a direct blow to key sectors, such as textiles and jewellery, while also undermining investor confidence. That pressure is clearly visible in the sharp depreciation of India’s trade-weighted currency, which has accelerated in 2025. Rather than offering a competitiveness boost, the weaker rupee has compounded difficulties by lifting import costs and stoking inflation at home. The result is that tariffs have both curtailed India’s export earnings and strained its domestic economy, leaving policymakers with limited options beyond seeking trade diversification and targeted support measures.

250904Z3.jpg

**Global monetary policy** 
The latest Blue Chip Financial Forecasts survey helps explain why equity markets have remained upbeat despite escalating geopolitical and trade tensions. The survey points to an expected sizeable policy easing over the coming year, particularly in the US and UK where forecasters anticipate close to a full percentage point of rate cuts. Australia and Canada are also projected to deliver meaningful reductions, while the euro area is expected to ease more modestly. Japan stands out as the exception, with expectations tilted toward further tightening. For equities, these projections of broad-based rate cuts provide a crucial cushion—supporting valuations, lowering discount rates, and reinforcing the sense that policymakers are prepared to offset the drag from tariffs and slowing global growth.

250904Z4.jpg

**Euro area inflation** 
By contrast with the US and UK, where forecasters in the latest Blue Chip Financial Forecasts survey anticipate close to a full percentage point of rate cuts, expectations for the ECB are more restrained. This reflects the fact that the ECB has already delivered a relatively large degree of policy easing, while headline inflation has now fallen back to levels close to its target. Even so, further rate reductions remain likely if underlying price pressures continue to moderate. As the chart shows, services inflation has begun to move lower in line with a clear decline in wage growth, suggesting that disinflationary momentum is building. Should this trend persist, the ECB will have scope to add to its easing cycle, though at a slower and more cautious pace than peers such as the Fed or the Bank of England.

250904Z5.jpg

**Prices and cost pressures in the US corporate sector** 
Corporate profitability has long been one of the best leading signals for US equity cycles, and the measure here (Non-financial corporate profits per unit of output – i.e. profit margins) has slipped from its late-2023 peak and moved sideways for much of the past year. That’s not a collapse, but it does raise questions about how long equities can keep rising without stronger profit momentum. The recent Q2 uptick—a 1.8% annualised gain—came despite a hefty rise in non-labour costs, with margins protected by modest pricing power and a notable 2.2% drop in unit labour costs. Whether that labour relief reflects softer wage pressures or a structural productivity boost—potentially tied to AI—will be crucial in determining if profits can remain resilient, or if this plateau is the prelude to a downturn.

250904Z6.jpg

Equity markets have lost a little ground in recent days and bond markets have been more jittery, as legal challenges to US tariff policies add to a tense backdrop of geopolitical meetings between China, Russia, and India. Gold’s surge to record highs arguably captures the search for safe havens amid this uncertainty (chart 1), while the possibility of tariff reversals keeps alive the prospect of relief for the most affected exporters, notably China, Japan, and South Korea (chart 2). India’s position looks more precarious, with its reliance on the US market colliding with a weakening trade-weighted currency as tariffs bite into growth and investor confidence (chart 3). Monetary policy expectations, however, continue to offer some support, with the latest Blue Chip Financial Forecasts survey pointing to sizeable easing in the US and UK (chart 4). The ECB is expected to tread more cautiously after earlier cuts and with headline inflation now near target. Still, if inflation continues to ease, further action remains possible (chart 5). In the US, corporate resilience is also helping offset some of the gloom: despite tariff-driven spikes in non-labour costs, falling unit labour costs—possibly aided by AI productivity gains—and firmer prices allowed profits per unit of output to rise in Q2 (chart 6).

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/0sd6yLt6aGEGOdVpZ2VZbW?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: A Few Cuts More

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The U.S. ISM Services PMI increased to 52.0 in August after falling to 50.1 in July from 50.8 in June, according to the Institute for Supply Management. The index had been declining since it reached 53.5 in February. The index hit a recent high of 55.8 in October of last year and remains below the all-time high of 67.5 in November 2021. The Action Economics Forecast Survey expected a reading of 51.0 for August.

The ISM Composite Index combines the services index and the manufacturing index released on Tuesday. This index rose to 51.6 in August from 49.8 in July. This also was the highest level in six months.

Amongst the services component series, the business activity index rose to 55.0 last month after falling to 52.6 in July. Twenty-three percent (NSA) of respondents reported improved activity while 14.2% reported decline. The new orders index increased to 56.0 from 50.3 in July. Twenty-seven percent (NSA) of respondents reported improved orders while a lessened 16.2% reported decline. The employment series was little-changed in August at 46.5, after falling from 47.2 in June. A lessened 10.3% (NSA) of respondents reported increased employment while a lower 16.8% reported decline. Working lower, the supplier delivery series fell to 50.3 in August after rising to 51.0 in July. Four percent of respondents (NSA) reported faster delivery speeds while 4.5% reported slower speeds.

On the inflation front, the prices index eased to 69.2 after surging to 69.9 in July. A lessened 36.7% (NSA) of respondents reported higher prices while 2.6% reported lower prices. The index has increased from its December 2023 53.1.

Additionally, the new export orders index eased to 47.3 (NSA) in July following a decline to 47.9 in July. Twelve percent of survey respondents reported higher exports while 16.9% reported decline. The imports index surged to 54.6 last month after falling to 45.9 in July. A higher 18.9%% of respondents reported higher imports while a lessened 9.8% reported decline. The inventory change index rose to 53.2 from 51.8 and the order backlog index fell to 40.4 in August after rising to 44.3 in July. These series are not seasonally adjusted and not included in the ISM Services PMI total.

The ISM Services PMI is a composite index consisting of four equally weighted diffusion indexes: Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector, while below 50 suggests contraction. Supplier Deliveries is the only ISM index that is inversed; a reading above 50 indicates slower deliveries.

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

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- Total index rebounds to six-month high.	
- Business activity and new orders improve.
- Prices index eases.

U.S. ISM Services PMI Increases in August

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The ADP National Employment Report indicated that nonfarm private sector payrolls rose 54,000 (1.1% y/y) during August after increasing 106,000 in July, revised from 104,000 and declining an unrevised 23,000 in June. The Action Economic Forecast Survey expected a 75,000 increase in August.

Small business hiring (less than 50 employees) increased 12,000 (0.4% y/y) in August after an 8,000 July rise, revised from 12,000. Employment at medium-sized firms (50-499 employees) rose 25,000 (1.1% y/y) in August after increasing 53,000 in July, revised from 46,000. Large business hiring (500+ employees) gained 18,000 (2.4% y/y) following a 47,000 July increase, revised from 46,000.

Goods-producing employment rose 13,000 (1.3% y/y) after increasing 32,000 in July. Construction jobs increased 16,000 (2.4% y/y) following a 13,000 gain in July. Manufacturing jobs declined 7,000 (+0.1% y/y), after two months of moderate increase. Natural resources and mining jobs increased 4,000 (4.1% y/y) in August after rising 11,000 in July.

Service-producing jobs increased 42,000 (1.0% y/y) after a 74,000 July gain. Changes amongst industry sectors were mixed. Leisure & hospitality employment rose 50,000 (3.5% y/y) after increasing 45,000 in July. Professional & business jobs improved 15,000 (0.5% y/y) following a 9,000 increase. Information sector employment rose 7,000 (1.1% y/y) after increasing 9,000.  Working lower, trade, transportation & utilities employment fell 17,000 (+0.3% y/y) after rising 20,000 in July. Education & health services posted a 12,000 decline (+0.2% y/y) after falling 40,000 in July. This was the sixth decline in seven months. Financial activities employment slid 2,000 (+1.9% y/y) after a 28,000 strengthening.

By region, in the Northeast the number of jobs rose 15,000 (1.2% y/y) in August following four consecutive monthly declines. Jobs rose 14,000 (1.3% y/y) in the Midwest after increasing 12,000 in July. In the West, jobs rose 8,000 (0.8% y/y) following a 67,000 increase, and in the South, employment rose 4,000 (0.8% y/y) following a 40,000 July strengthening.

Wage growth for job-stayers continued to moderate in August as year/year growth of median annual pay weakened to 4.4% from 4.5% in July, the slowest pace since June 2021. The slowdown in wage growth for job-stayers was widespread across major industries. Wage growth for job-changers was steady at 7.1% y/y, but down from a high of 16.1% in April 2022.

The ADP National Employment Report and Pay Insights data can be found in Haver's **USECON** database. Historical figures date back to January 2010 for private employment. Pay data date back to October 2020. The expectation figure is available in Haver's **AS1REPNA** database.

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- Private payroll job increase is half July’s gain.
- Goods-producing employment slows as factory hiring falls; service-sector jobs also moderate.
- Job-stayer wage growth eases.

Economy in Brief: January 2006

Jump to:

U.S. Vehicle Sales Recovered at Yearend, Along With Gas Price

Higher CPI in Thailand Is Rare Instance of Energy Cost Pass-Through

Mortgage Apps Down With Fewer For Purchase, Delinquencies Up

U.S. Factory Inventories and Backlogs Up

U.S. Factory Inventories and Backlogs Up

Good News on German Unemployment

U.S. Construction Gain Eased, Single Family Still Strong

ISM Index Fell Further