Louise Curley

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<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009e.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009h.jpg">
The balance of trade in goods in France improved from a deficit of 3.2 billion euros in July to 2.8 billion euros in August. In Germany, the surplus on trade in goods declined to 15.3 billion euros from 16.5 billion euros in July. Since month-to-month changes in the balance of trade in goods tend to be erratic, we calculated six-month averages (using the &quot;advance functions&quot; button) to get a better idea of the trends in the two balances. On this basis, the trend in France&#39;s balance of trade in goods appears to be still toward greater deficits, while the trend in Germany suggests that the recent rise in surpluses may be decelerating, as can be seen in the first chart.
The rise in the Euro that began in late 2005 has led to a reduction in the portion of exports to the United States as can be seen in the second and third charts. These charts show the dollar value of the euro (scale inverted) and the portion of French and German exports to the United States. The relationship between the exchange rate and portion of exports appears to be closer in Germany than in France, but both show that an increase in the euro tends to dampen the portion of exports to the U. S. However, since exports to the US are a relatively small part of total exports in both countries, the impact on total exports has been small. The U. S. accounted for about 7% of total French exports in 2006. For Germany, the corresponding figure was about 9%. By far the most important buyers of French and German exports are other members of the Euro Area who are unaffected by changes in the currency. Over the past three years, between 40 and 45% of France&#39;s exports of goods and between 50 and 53% of Germany&#39;s exports of goods went to other members of the Euro Area, as shown in the fourth chart.
<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009g.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009f.jpg">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">TRADE IN GOODS--FRANCE AND GERMANY (Billions Euros)</th>
<th scope="col">Aug 07</th>
<th scope="col">Jul&nbsp; &nbsp; 07&nbsp;</th>
<th scope="col">Aug&nbsp; 06&nbsp;</th>
<th scope="col">M/M Chg&nbsp;</th>
<th scope="col">Y/Y Chg&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">FRANCE Balance</td>
<td>-2.8</td>
<td>-3.2</td>
<td>-3.0</td>
<td>0.4</td>
<td>0.2</td>
<td>-27.6</td>
<td>-22.7</td>
<td>-5.0</td>
</tr>
<tr>
<td class="firstcol">Total Exports</td>
<td>34.7</td>
<td>34.0</td>
<td>32.5</td>
<td>2.0</td>
<td>6.6</td>
<td>389.6</td>
<td>357.5</td>
<td>340.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports to Euro Area</td>
<td>17.2</td>
<td>16.9</td>
<td>16.9</td>
<td>1.7</td>
<td>1.6</td>
<td>194.4</td>
<td>180.7</td>
<td>173.9</td>
</tr>
<tr>
<td class="firstcol">Exports to US</td>
<td>2.1</td>
<td>2.2</td>
<td>2.1</td>
<td>-3.2</td>
<td>-1.8</td>
<td>26.4</td>
<td>25.1</td>
<td>23.0</td>
</tr>
<tr class="odd">
<td class="firstcol">GERMANY&nbsp; Balance</td>
<td>15.3</td>
<td>16.5</td>
<td>12.1</td>
<td>-1.2</td>
<td>3.2</td>
<td>162.2</td>
<td>157.8</td>
<td>154.0</td>
</tr>
<tr>
<td class="firstcol">Total Exports&nbsp;</td>
<td>82.7</td>
<td>80.3</td>
<td>73.7</td>
<td>2.0</td>
<td>12.4</td>
<td>893.8</td>
<td>783.7</td>
<td>726.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports to Euro Area</td>
<td>22.6</td>
<td>22.1</td>
<td>21.8</td>
<td>-3.2</td>
<td>-1.8</td>
<td>254.2</td>
<td>233.8</td>
<td>225.7</td>
</tr>
<tr>
<td class="firstcol">Exports to US</td>
<td>n.a.</td>
<td>6.1</td>
<td>6.3*</td>
<td>n.a..</td>
<td>-4.0*</td>
<td>78.0</td>
<td>68.8</td>
<td>94.1</td>
</tr>

<tr>
<td class="firstcol">EXCHANGE RATE&nbsp; US$/Euro</td>
<td>1.3626</td>
<td>1.3726</td>
<td>1.2810</td>
<td>-0.7</td>
<td>6.4</td>
<td>1.2560</td>
<td>1.2447</td>
<td>1.2439</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan=9>*July 2006&nbsp;&nbsp; n.a. not available</td>

</tr>
</tbody>
</table>
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The balance of trade in goods in France improved from a deficit of 3.2 billion euros in July to 2.8 billion euros in August. In Germany, the surplus on trade in goods declined to 15.3 billion euros from 16.5 billion euros in July. [...]

August Trade in Goods: a Dip in Germany's Surplus and a Small Improvement in France's Deficit

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009d.jpg" width="353">
Economy watchers index at five year low. 
Japan&#146;s economy watcher&#146;s index fell again for the six month running and extending a drop from a local peak reached back in March of 2006. The current future and employment indexes all are trending lower.The current economy watchers index and the employment components are at their five-year lows. The future index stands in the bottom 20% of its five-year range.
Japan&#146;s economy continues to emit irregular signals despite ongoing statements of optimism from the BOJ.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></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>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
</tr>
<tr>
<td class="firstcol" colspan=8>Diffusion</td>

</tr>
<tr class="odd">
<td class="firstcol">Economy Watchers</td>
<td>44.1</td>
<td>44.7</td>
<td>46.0</td>
<td>46.8</td>
<td>0.0%</td>
<td>3.8%</td>
<td>25.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>48.3</td>
<td>51.2</td>
<td>51.2</td>
<td>50.7</td>
<td>0.0%</td>
<td>4.0%</td>
<td>27.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Future</td>
<td>46.5</td>
<td>46.7</td>
<td>48.4</td>
<td>50.0</td>
<td>19.8%</td>
<td>21.4%</td>
<td>34.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">NTC MFG</td>
<td>49.6</td>
<td>49.0</td>
<td>50.4</td>
<td>51.4</td>
<td>6.7%</td>
<td>0.0%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol" colspan=8>Econ Trends (Teikoku&#39;/50 neutral/weighted diffusion)</td>

</tr>
<tr class="odd">
<td class="firstcol">MFG</td>
<td>44.2</td>
<td>44.5</td>
<td>44.6</td>
<td>45.2</td>
<td>55.7%</td>
<td>63.2%</td>
<td>69.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail</td>
<td>38.3</td>
<td>37.9</td>
<td>39.2</td>
<td>39.6</td>
<td>39.6%</td>
<td>37.0%</td>
<td>52.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Wholesale</td>
<td>41.2</td>
<td>41.3</td>
<td>42.1</td>
<td>42.8</td>
<td>51.1%</td>
<td>56.6%</td>
<td>68.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>47.3</td>
<td>47.6</td>
<td>48.6</td>
<td>49.1</td>
<td>67.9%</td>
<td>74.0%</td>
<td>83.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>36.3</td>
<td>36.6</td>
<td>36.8</td>
<td>37.7</td>
<td>68.2%</td>
<td>71.9%</td>
<td>77.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan=8>100 is high; zero is low</td>

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</tbody>
</table>
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Japan's Economy Watcher’s Index Drops for Sixth Month in a Row

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009a.jpg" width="353">
For the second straight week, the International Council of Shopping Centers (ICSC)-UBS reported that chain store sales showed roughly no change from the prior period. That followed declines of roughly 1.0% during each of the prior two consecutive weeks.
The average level of chain store sales during September fell 0.8% versus the August average. That average had risen 0.1% from July. Retail sales for September will be published by the Commerce Department this coming Friday.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS fell 0.8% (-0.2% y/y) after a 0.2% decline during the prior week.
Changing Productivity Trends from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2007/el2007-25.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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">10/06/07</th>
<th scope="col">09/29/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>475.3</td>
<td>475.5</td>
<td>2.1%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>


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For the second straight week, the International Council of Shopping Centers (ICSC)-UBS reported that chain store sales showed roughly no change from the prior period. That followed declines of roughly 1.0% during each of the prior two [...]

Weekly U.S. Chain Store Sales Roughly Unchanged: Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009c.jpg" width="353">
During September, small business optimism rose 1.0% from August after a 1.3% decline during that month. The level during September was 11% below the peak reached back in 2004, according to the National Federation of Independent Business (NFIB).
During the last ten years there has been a 70% correlation between the level of the NFIB index and the two quarter change in real GDP.
The percentage of firms indicating that credit was more difficult to get rose to 9%, nearly double the recent low.
Financial Stability and the Federal Reserve is a speech delivered this weekend by Federal Reserve Board GovernorKevin Warsh and it is available <a href="http://www.federalreserve.gov/newsevents/speech/warsh20071005a.htm"> here</a>.
Internal Risk Models and the Estimation of Default Probabilities from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2007/el2007-29.pdf"> here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009b.jpg" width="353">
Respondents expecting the economy improved slightly to 2% and the percentage with one or more job openings was stable at 25%. During the last ten years there has been a 71% correlation between the NFIB percentage and the y/y change in nonfarm payrolls.
The percent planning to raise capital expenditures remained at a reduced 29%, down from the 2005 average of 32%..The percentage of firms planning to raise average selling prices fell to 21%, the lowest level since late 2005. The percentage of firms actually raising prices also fell to 9%, nearly its lowest level since 2004. During the last ten years there has been a 60% correlation between the change in the producer price index and the level of the NFIB price index.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>97.3</td>
<td>96.3</td>
<td>-2.1%</td>
<td>98.9</td>
<td>101.6</td>
<td>104.6</td>
</tr>
</tbody>
</table>


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During September, small business optimism rose 1.0% from August after a 1.3% decline during that month. The level during September was 11% below the peak reached back in 2004, according to the National Federation of Independent [...]

Small Business Optimism Reduced by Credit Problems

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009c.jpg" width="353">
During September, small business optimism rose 1.0% from August after a 1.3% decline during that month. The level during September was 11% below the peak reached back in 2004, according to the National Federation of Independent Business (NFIB).
During the last ten years there has been a 70% correlation between the level of the NFIB index and the two quarter change in real GDP.
The percentage of firms indicating that credit was more difficult to get rose to 9%, nearly double the recent low.
Financial Stability and the Federal Reserve is a speech delivered this weekend by Federal Reserve Board GovernorKevin Warsh and it is available <a href="http://www.federalreserve.gov/newsevents/speech/warsh20071005a.htm"> here</a>.
Internal Risk Models and the Estimation of Default Probabilities from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2007/el2007-29.pdf"> here</a>.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009b.jpg" width="353">
Respondents expecting the economy improved slightly to 2% and the percentage with one or more job openings was stable at 25%. During the last ten years there has been a 71% correlation between the NFIB percentage and the y/y change in nonfarm payrolls.
The percent planning to raise capital expenditures remained at a reduced 29%, down from the 2005 average of 32%..The percentage of firms planning to raise average selling prices fell to 21%, the lowest level since late 2005. The percentage of firms actually raising prices also fell to 9%, nearly its lowest level since 2004. During the last ten years there has been a 60% correlation between the change in the producer price index and the level of the NFIB price index.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>97.3</td>
<td>96.3</td>
<td>-2.1%</td>
<td>98.9</td>
<td>101.6</td>
<td>104.6</td>
</tr>
</tbody>
</table>
Weekly U.S. Chain Store Sales Roughly Unchanged: Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 9, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009a.jpg" width="353">
For the second straight week, the International Council of Shopping Centers (ICSC)-UBS reported that chain store sales showed roughly no change from the prior period. That followed declines of roughly 1.0% during each of the prior two consecutive weeks.
The average level of chain store sales during September fell 0.8% versus the August average. That average had risen 0.1% from July. Retail sales for September will be published by the Commerce Department this coming Friday.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS fell 0.8% (-0.2% y/y) after a 0.2% decline during the prior week.
Changing Productivity Trends from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2007/el2007-25.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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">10/06/07</th>
<th scope="col">09/29/07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>475.3</td>
<td>475.5</td>
<td>2.1%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>
Japan's Economy Watcher’s Index Drops for Sixth Month in a Row 
by <a href="/comment/Brusca.html">Robert Brusca</a> October 9, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009d.jpg" width="353">
Economy watchers index at five year low. 
Japan&#146;s economy watcher&#146;s index fell again for the six month running and extending a drop from a local peak reached back in March of 2006. The current future and employment indexes all are trending lower.The current economy watchers index and the employment components are at their five-year lows. The future index stands in the bottom 20% of its five-year range.
Japan&#146;s economy continues to emit irregular signals despite ongoing statements of optimism from the BOJ.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></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>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
</tr>
<tr>
<td class="firstcol" colspan=8>Diffusion</td>

</tr>
<tr class="odd">
<td class="firstcol">Economy Watchers</td>
<td>44.1</td>
<td>44.7</td>
<td>46.0</td>
<td>46.8</td>
<td>0.0%</td>
<td>3.8%</td>
<td>25.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>48.3</td>
<td>51.2</td>
<td>51.2</td>
<td>50.7</td>
<td>0.0%</td>
<td>4.0%</td>
<td>27.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Future</td>
<td>46.5</td>
<td>46.7</td>
<td>48.4</td>
<td>50.0</td>
<td>19.8%</td>
<td>21.4%</td>
<td>34.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">NTC MFG</td>
<td>49.6</td>
<td>49.0</td>
<td>50.4</td>
<td>51.4</td>
<td>6.7%</td>
<td>0.0%</td>
<td>0.9%</td>
</tr>
<tr>
<td class="firstcol" colspan=8>Econ Trends (Teikoku&#39;/50 neutral/weighted diffusion)</td>

</tr>
<tr class="odd">
<td class="firstcol">MFG</td>
<td>44.2</td>
<td>44.5</td>
<td>44.6</td>
<td>45.2</td>
<td>55.7%</td>
<td>63.2%</td>
<td>69.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Retail</td>
<td>38.3</td>
<td>37.9</td>
<td>39.2</td>
<td>39.6</td>
<td>39.6%</td>
<td>37.0%</td>
<td>52.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Wholesale</td>
<td>41.2</td>
<td>41.3</td>
<td>42.1</td>
<td>42.8</td>
<td>51.1%</td>
<td>56.6%</td>
<td>68.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>47.3</td>
<td>47.6</td>
<td>48.6</td>
<td>49.1</td>
<td>67.9%</td>
<td>74.0%</td>
<td>83.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>36.3</td>
<td>36.6</td>
<td>36.8</td>
<td>37.7</td>
<td>68.2%</td>
<td>71.9%</td>
<td>77.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan=8>100 is high; zero is low</td>

</tr>
</tbody>
</table>
August Trade in Goods: a Dip in Germany's Surplus and a Small Improvement in France's Deficit 
by <a href="/comment/Curley.html">Louise Curley</a> October 9, 2007


<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009e.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009h.jpg">
The balance of trade in goods in France improved from a deficit of 3.2 billion euros in July to 2.8 billion euros in August. In Germany, the surplus on trade in goods declined to 15.3 billion euros from 16.5 billion euros in July. Since month-to-month changes in the balance of trade in goods tend to be erratic, we calculated six-month averages (using the &quot;advance functions&quot; button) to get a better idea of the trends in the two balances. On this basis, the trend in France&#39;s balance of trade in goods appears to be still toward greater deficits, while the trend in Germany suggests that the recent rise in surpluses may be decelerating, as can be seen in the first chart.
The rise in the Euro that began in late 2005 has led to a reduction in the portion of exports to the United States as can be seen in the second and third charts. These charts show the dollar value of the euro (scale inverted) and the portion of French and German exports to the United States. The relationship between the exchange rate and portion of exports appears to be closer in Germany than in France, but both show that an increase in the euro tends to dampen the portion of exports to the U. S. However, since exports to the US are a relatively small part of total exports in both countries, the impact on total exports has been small. The U. S. accounted for about 7% of total French exports in 2006. For Germany, the corresponding figure was about 9%. By far the most important buyers of French and German exports are other members of the Euro Area who are unaffected by changes in the currency. Over the past three years, between 40 and 45% of France&#39;s exports of goods and between 50 and 53% of Germany&#39;s exports of goods went to other members of the Euro Area, as shown in the fourth chart.
<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009g.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071009f.jpg">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">TRADE IN GOODS--FRANCE AND GERMANY (Billions Euros)</th>
<th scope="col">Aug 07</th>
<th scope="col">Jul&nbsp; &nbsp; 07&nbsp;</th>
<th scope="col">Aug&nbsp; 06&nbsp;</th>
<th scope="col">M/M Chg&nbsp;</th>
<th scope="col">Y/Y Chg&nbsp;</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">FRANCE Balance</td>
<td>-2.8</td>
<td>-3.2</td>
<td>-3.0</td>
<td>0.4</td>
<td>0.2</td>
<td>-27.6</td>
<td>-22.7</td>
<td>-5.0</td>
</tr>
<tr>
<td class="firstcol">Total Exports</td>
<td>34.7</td>
<td>34.0</td>
<td>32.5</td>
<td>2.0</td>
<td>6.6</td>
<td>389.6</td>
<td>357.5</td>
<td>340.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports to Euro Area</td>
<td>17.2</td>
<td>16.9</td>
<td>16.9</td>
<td>1.7</td>
<td>1.6</td>
<td>194.4</td>
<td>180.7</td>
<td>173.9</td>
</tr>
<tr>
<td class="firstcol">Exports to US</td>
<td>2.1</td>
<td>2.2</td>
<td>2.1</td>
<td>-3.2</td>
<td>-1.8</td>
<td>26.4</td>
<td>25.1</td>
<td>23.0</td>
</tr>
<tr class="odd">
<td class="firstcol">GERMANY&nbsp; Balance</td>
<td>15.3</td>
<td>16.5</td>
<td>12.1</td>
<td>-1.2</td>
<td>3.2</td>
<td>162.2</td>
<td>157.8</td>
<td>154.0</td>
</tr>
<tr>
<td class="firstcol">Total Exports&nbsp;</td>
<td>82.7</td>
<td>80.3</td>
<td>73.7</td>
<td>2.0</td>
<td>12.4</td>
<td>893.8</td>
<td>783.7</td>
<td>726.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports to Euro Area</td>
<td>22.6</td>
<td>22.1</td>
<td>21.8</td>
<td>-3.2</td>
<td>-1.8</td>
<td>254.2</td>
<td>233.8</td>
<td>225.7</td>
</tr>
<tr>
<td class="firstcol">Exports to US</td>
<td>n.a.</td>
<td>6.1</td>
<td>6.3*</td>
<td>n.a..</td>
<td>-4.0*</td>
<td>78.0</td>
<td>68.8</td>
<td>94.1</td>
</tr>

<tr>
<td class="firstcol">EXCHANGE RATE&nbsp; US$/Euro</td>
<td>1.3626</td>
<td>1.3726</td>
<td>1.2810</td>
<td>-0.7</td>
<td>6.4</td>
<td>1.2560</td>
<td>1.2447</td>
<td>1.2439</td>
</tr>
<tr class="grey1">
<td class="firstcol" colspan=9>*July 2006&nbsp;&nbsp; n.a. not available</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/071008c.jpg" width="353">
Inflation is picking up in many emerging markets. Among the highest rates of inflation being recorded are those in Eastern Europe. Latvia, for example, announced today that inflation reached 11% in September and in Ukraine, it was over 14%. Although inflation rates in other Eastern Europe countries are lower most have been rising throughout the year, as can be seen in the first chart, which shows inflation rates for the Czech Republic, Lithuania, Latvia and the Ukraine.
Inflation has generally been kept in check in the Far East. One important exception is India where inflation has been running between 6 and 8% for the last year or so. More recently, inflation in China has accelerated. From a rate of 2.2% in January of this year, inflation in China has risen to 6.7% in September. The second chart shows inflation in four of the Far East countries--China, India, South Korea and Thailand.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071008b.jpg" width="353">
In Latin America where many countries experienced hyper inflation in the past, Brazil and Chile have succeeded in keeping inflation subdued. Currently, their inflation rates, though rising this year, are still below 6%. Argentina has had less success in getting its rate of inflation below that of Brazil and Chile, but its rate of inflation has continued to decline this year from 9.7% in January to 8.6% in September. The high rate of Inflation in Venezuela due, in part to the populist policies of its government, declined in September to 15.2%, from the peak of 20.4% reached in February. The third chart shows inflation in four Latin American countries--Argentina, Brazil, Chile and Venezuela. 
Among the emerging markets of the Middle East and Africa, Turkey, Egypt and Jordan have seen declines in their inflation rates during this year in contrast to the increases in other emerging markets. In South Africa, inflation has kept fairly steady between 6 and 7%. Inflation rates in these countries are shown in the fourth chart. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071008d.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071008e.jpg" width="353">

<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">INFLATION RATES (%)&nbsp;</th>
<th scope="col">SEP</th>
<th scope="col">AUG&nbsp;&nbsp;</th>
<th scope="col">JUL&nbsp; &nbsp;</th>
<th scope="col">JUN&nbsp;</th>
<th scope="col">MAY&nbsp;</th>
<th scope="col">APR</th>
<th scope="col">MAR</th>
<th scope="col">FEB</th>
<th scope="col">JAN</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Czech Republic</td>
<td>2.8</td>
<td>2.4</td>
<td>2.3</td>
<td>2.5</td>
<td>2.4</td>
<td>2.5</td>
<td>1.9</td>
<td>1.5</td>
<td>1.3</td>
</tr>
<tr>
<td class="firstcol">Lithuania</td>
<td>7.1</td>
<td>5.5</td>
<td>4.1</td>
<td>4.9</td>
<td>4.9</td>
<td>4.8</td>
<td>4.6</td>
<td>4.3</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Latvia</td>
<td>11.4</td>
<td>10.1</td>
<td>9.5</td>
<td>8.8</td>
<td>8.2</td>
<td>8.9</td>
<td>8.5</td>
<td>7.3</td>
<td>7.1</td>
</tr>
<tr>
<td class="firstcol"> Ukraine </td>
<td>14.4</td>
<td>14.3</td>
<td>13.5</td>
<td>12.9</td>
<td>10.7</td>
<td>10.5</td>
<td>10.1</td>
<td>9.5</td>
<td>10.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Thailand</td>
<td>2.1</td>
<td>1.1</td>
<td>1.2</td>
<td>1.9</td>
<td>1.9</td>
<td>1.8</td>
<td>2.0</td>
<td>2.3</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">South Korea</td>
<td>2.3</td>
<td>2.0</td>
<td>2.5</td>
<td>2.6</td>
<td>2.4</td>
<td>2.4</td>
<td>2.2</td>
<td>2.2</td>
<td>1.7</td>
</tr>
<tr class="odd">
<td class="firstcol">India</td>
<td>n.a.</td>
<td>7.3</td>
<td>6.4</td>
<td>5.7</td>
<td>6.6</td>
<td>6.8</td>
<td>6.7</td>
<td>7.6</td>
<td>6.7</td>
</tr>
<tr>
<td class="firstcol">China</td>
<td>n.a</td>
<td>6.7</td>
<td>4.7</td>
<td>4.5</td>
<td>3.4</td>
<td>3.0</td>
<td>3.3</td>
<td>2.8</td>
<td>2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Argentina</td>
<td>8.6</td>
<td>8.7</td>
<td>8.6</td>
<td>8.8</td>
<td>8.8</td>
<td>8.9</td>
<td>9.1</td>
<td>9.6</td>
<td>9.7</td>
</tr>
<tr>
<td class="firstcol">Brazil</td>
<td>n.a</td>
<td>4.8</td>
<td>4.2</td>
<td>4.0</td>
<td>3.6</td>
<td>3.4</td>
<td>3.3</td>
<td>3.1</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Chile</td>
<td>5.9</td>
<td>4.7</td>
<td>3.8</td>
<td>3.2</td>
<td>2.9</td>
<td>2.5</td>
<td>2.6</td>
<td>2.7</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">Venezuela</td>
<td>15.3</td>
<td>15.9</td>
<td>17.2</td>
<td>19.4</td>
<td>19.5</td>
<td>19.4</td>
<td>18.5</td>
<td>20.4</td>
<td>18.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Turkey</td>
<td>7.1</td>
<td>7.4</td>
<td>6.9</td>
<td>8.6</td>
<td>9.2</td>
<td>10.7</td>
<td>10.9</td>
<td>10.2</td>
<td>9.9</td>
</tr>
<tr>
<td class="firstcol">South Africa</td>
<td>n.a</td>
<td>6.7</td>
<td>7.0</td>
<td>7.0</td>
<td>6.9</td>
<td>7.0</td>
<td>6.1</td>
<td>5.8</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Egypt</td>
<td>n.a</td>
<td>8.5</td>
<td>8.0</td>
<td>8.5</td>
<td>10.0</td>
<td>11.7</td>
<td>12.8</td>
<td>12.6</td>
<td>12.4</td>
</tr>
<tr>
<td class="firstcol">Jordan</td>
<td>n.a</td>
<td>3.9</td>
<td>3.7</td>
<td>3.9</td>
<td>3.6</td>
<td>5.6</td>
<td>6.7</td>
<td>8.4</td>
<td>7.6</td>
</tr>
</tbody>
</table>
</body>
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Inflation is picking up in many emerging markets. Among the highest rates of inflation being recorded are those in Eastern Europe. Latvia, for example, announced today that inflation reached 11% in September and in Ukraine, it was [...]

Inflation Trends in Emerging Markets

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<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071008c.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071008b.jpg">
Inflation is picking up in many emerging markets. Among the highest rates of inflation being recorded are those in Eastern Europe. Latvia, for example, announced today that inflation reached 11% in September and in Ukraine, it was over 14%. Although inflation rates in other Eastern Europe countries are lower most have been rising throughout the year, as can be seen in the first chart, which shows inflation rates for the Czech Republic, Lithuania, Latvia and the Ukraine.
Inflation has generally been kept in check in the Far East. One important exception is India where inflation has been running between 6 and 8% for the last year or so. More recently, inflation in China has accelerated. From a rate of 2.2% in January of this year, inflation in China has risen to 6.7% in September. The second chart shows inflation in four of the Far East countries--China, India, South Korea and Thailand.
In Latin America where many countries experienced hyper inflation in the past, Brazil and Chile have succeeded in keeping inflation subdued. Currently, their inflation rates, though rising this year, are still below 6%. Argentina has had less success in getting its rate of inflation below that of Brazil and Chile, but its rate of inflation has continued to decline this year from 9.7% in January to 8.6% in September. The high rate of Inflation in Venezuela due, in part to the populist policies of its government, declined in September to 15.2%, from the peak of 20.4% reached in February. The third chart shows inflation in four Latin American countries--Argentina, Brazil, Chile and Venezuela. 
Among the emerging markets of the Middle East and Africa, Turkey, Egypt and Jordan have seen declines in their inflation rates during this year in contrast to the increases in other emerging markets. In South Africa, inflation has kept fairly steady between 6 and 7%. Inflation rates in these countries are shown in the fourth chart.
<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071008d.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071008e.jpg">

<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">INFLATION RATES (%)&nbsp;</th>
<th scope="col">SEP</th>
<th scope="col">AUG</th>
<th scope="col">JUL</th>
<th scope="col">JUN</th>
<th scope="col">MAY</th>
<th scope="col">APR</th>
<th scope="col">MAR</th>
<th scope="col">FEB</th>
<th scope="col">JAN</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Czech Republic</td>
<td>2.8</td>
<td>2.4</td>
<td>2.3</td>
<td>2.5</td>
<td>2.4</td>
<td>2.5</td>
<td>1.9</td>
<td>1.5</td>
<td>1.3</td>
</tr>
<tr>
<td class="firstcol">Lithuania</td>
<td>7.1</td>
<td>5.5</td>
<td>4.1</td>
<td>4.9</td>
<td>4.9</td>
<td>4.8</td>
<td>4.6</td>
<td>4.3</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Latvia</td>
<td>11.4</td>
<td>10.1</td>
<td>9.5</td>
<td>8.8</td>
<td>8.2</td>
<td>8.9</td>
<td>8.5</td>
<td>7.3</td>
<td>7.1</td>
</tr>
<tr>
<td class="firstcol"> Ukraine </td>
<td>14.4</td>
<td>14.3</td>
<td>13.5</td>
<td>12.9</td>
<td>10.7</td>
<td>10.5</td>
<td>10.1</td>
<td>9.5</td>
<td>10.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Thailand</td>
<td>2.1</td>
<td>1.1</td>
<td>1.2</td>
<td>1.9</td>
<td>1.9</td>
<td>1.8</td>
<td>2.0</td>
<td>2.3</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">South Korea</td>
<td>2.3</td>
<td>2.0</td>
<td>2.5</td>
<td>2.6</td>
<td>2.4</td>
<td>2.4</td>
<td>2.2</td>
<td>2.2</td>
<td>1.7</td>
</tr>
<tr class="odd">
<td class="firstcol">India</td>
<td>n.a.</td>
<td>7.3</td>
<td>6.4</td>
<td>5.7</td>
<td>6.6</td>
<td>6.8</td>
<td>6.7</td>
<td>7.6</td>
<td>6.7</td>
</tr>
<tr>
<td class="firstcol">China</td>
<td>n.a</td>
<td>6.7</td>
<td>4.7</td>
<td>4.5</td>
<td>3.4</td>
<td>3.0</td>
<td>3.3</td>
<td>2.8</td>
<td>2.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Argentina</td>
<td>8.6</td>
<td>8.7</td>
<td>8.6</td>
<td>8.8</td>
<td>8.8</td>
<td>8.9</td>
<td>9.1</td>
<td>9.6</td>
<td>9.7</td>
</tr>
<tr>
<td class="firstcol">Brazil</td>
<td>n.a</td>
<td>4.8</td>
<td>4.2</td>
<td>4.0</td>
<td>3.6</td>
<td>3.4</td>
<td>3.3</td>
<td>3.1</td>
<td>2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Chile</td>
<td>5.9</td>
<td>4.7</td>
<td>3.8</td>
<td>3.2</td>
<td>2.9</td>
<td>2.5</td>
<td>2.6</td>
<td>2.7</td>
<td>2.8</td>
</tr>
<tr>
<td class="firstcol">Venezuela</td>
<td>15.3</td>
<td>15.9</td>
<td>17.2</td>
<td>19.4</td>
<td>19.5</td>
<td>19.4</td>
<td>18.5</td>
<td>20.4</td>
<td>18.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Turkey</td>
<td>7.1</td>
<td>7.4</td>
<td>6.9</td>
<td>8.6</td>
<td>9.2</td>
<td>10.7</td>
<td>10.9</td>
<td>10.2</td>
<td>9.9</td>
</tr>
<tr>
<td class="firstcol">South Africa</td>
<td>n.a</td>
<td>6.7</td>
<td>7.0</td>
<td>7.0</td>
<td>6.9</td>
<td>7.0</td>
<td>6.1</td>
<td>5.8</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Egypt</td>
<td>n.a</td>
<td>8.5</td>
<td>8.0</td>
<td>8.5</td>
<td>10.0</td>
<td>11.7</td>
<td>12.8</td>
<td>12.6</td>
<td>12.4</td>
</tr>
<tr>
<td class="firstcol">Jordan</td>
<td>n.a</td>
<td>3.9</td>
<td>3.7</td>
<td>3.9</td>
<td>3.6</td>
<td>5.6</td>
<td>6.7</td>
<td>8.4</td>
<td>7.6</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071008a.jpg" width="353">
Both the chart and the table tell the story of waning German order strength. We have followed Euro-orders series closely as the euro has gained strength. What we see is that there is a clear loss in momentum. That loss is more severe if we compartmentalize German orders into a quarterly habitat. Viewed that way orders for Q3 are coming up quite weak. TWO full months into the new quarter overall German orders are falling at a 6.9% annualized rate. Foreign orders are off at a 13% annual rate. Domestic orders scratch out a feeble 0.1% gain in Q3. These are weak results. The blow is only somewhat softened by the strength that the components showed in 2007Q2 when orders rose at an annualized pace of 18.0% led by 29.3% for foreign orders and 7.3% for domestic orders.
The real question is which of the trends lies ahead? On that ground the slower one seems to have become dominant&#133; These results fall back into perspective on the Yr/Yr calculation where total order volumes are up by 4.2% on 5.1% for foreign orders and 3.2% for domestic orders. The Y/Y figures are solid, but they show that much of the earlier momentum has been lost.
Other German indicators have showed this from the IFO report to the ZEW survey to the EU indexes. Europe once rocked and now it is being rocked as financial ministers try to decide what to do.
Let&#146;s understand this as a logical outcropping of the desire to make the euro a main reserve unit. The more it comes into demand the stronger that euro will be and that more that will disrupt the export sector in EMU countries. Europe is much more export dependent than the US. So this is a problem for the euro area. While there is great prestige and some gain to being the reserve currency (segniorage: The difference between the value of money and the cost to produce it), there is also cost. Europe is too export dependent and not flexible enough for the euro to be a main reserve unit. Being a reserve currency is an honor and a challenge: you can&#146;t have one without the other.
In a two reserve currency system, when the dollar is weak, of course, past dollar hoarders want to switch into a stronger reserve unit. But unless Europe can absorb such flows it isn&#146;t going to work. To put it another way, the euro and its financial sector may be prepared to be a reserve unit but the euro area economy is not. Just look at the complications to US policy to see what Europe must be able to sustain to truly compete with the dollar. After all it is fair to argue that if certain disequilibrium conditions have been thrust onto the dollar some of those will now come to rest on the euro as it takes up more of the burden of being the reserve unit.
The US current account deficit is at about 5 &frac12;% of GDP. Blame the US if you will, but how can you ignore the consequences of its having been the reserve unit? Look at the massive reserve accumulations in Japan and in China (Hong Kong and Taiwan) and Korea. What of their obvious impacts on FX values? How can you ignore the fact that China wants to maintain a peg at an undervalued level? How can you argue that Japan has not been doing the same? The center country in reserve system is the one that is the numeraire and loses its policy independence. Every other currency pegs to it or floats against it. If some countries choose a balance of payments &#145;result&#146; (such as running persistent surpluses) the reserve country is stuck with the flip-side of those actions. I just don&#146;t see how Europe can do it. Germany and EMU already are stressed and previous little reserve shifting has occurred. What we are seeing in Europe is what happens when you are unprepared to experience your dream. The good news: the Euro is strong and has become a more important reserve unit internationally. The bad news? It&#146;s the same.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th colspan="8" scope="col">German Orders and Sales By Sector and Origin</th>
</tr>
</thead>
<tbody>
<tr class="grey3">
<td class="firstcol">Real and SA</td>
<td colspan="3">% M/M</td>
<td colspan="4">% Saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>3-MO</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>YrAgo</td>
</tr>
<tr>
<td class="firstcol">Total Orders</td>
<td>1.2%</td>
<td>-6.1%</td>
<td>5.4%</td>
<td>0.6%</td>
<td style="color:red;">0.3%</td>
<td style="color:red;">4.2%</td>
<td>15.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>2.4%</td>
<td>-10.8%</td>
<td>10.0%</td>
<td>2.1%</td>
<td style="color:red;">1.1%</td>
<td style="color:red;">5.1%</td>
<td>19.7%</td>
</tr>
<tr>
<td class="firstcol">Domestic</td>
<td>0.1%</td>
<td>-0.8%</td>
<td>0.4%</td>
<td style="color:red;">-1.1%</td>
<td style="color:red;">-0.5%</td>
<td style="color:red;">3.2%</td>
<td>10.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol" colspan="8">Sector Sales</td>

</tr>
<tr>
<td class="firstcol">Mfg/Mining</td>
<td>0.7%</td>
<td>0.2%</td>
<td>-0.2%</td>
<td>3.0%</td>
<td style="color:red;">1.5%</td>
<td style="color:red;">5.3%</td>
<td>8.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer</td>
<td>1.5%</td>
<td style="color:red;">-1.6%</td>
<td>-0.9%</td>
<td style="color:red;">-4.5%</td>
<td style="color:red;">-2.3%</td>
<td style="color:red;">1.6%</td>
<td>3.9%</td>
</tr>
<tr>
<td class="firstcol">Consumer Durables</td>
<td>4.1%</td>
<td style="color:red;">-1.5%</td>
<td>1.4%</td>
<td>16.9%</td>
<td>8.1%</td>
<td style="color:red;">2.3%</td>
<td>12.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Nondurables</td>
<td>1.0%</td>
<td style="color:red;">-1.6%</td>
<td>-1.5%</td>
<td style="color:red;">-8.3%</td>
<td style="color:red;">-4.2%</td>
<td style="color:red;">1.5%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td style="color:red;">0.2%</td>
<td>1.6%</td>
<td>-0.9%</td>
<td>3.7%</td>
<td style="color:red;">1.9%</td>
<td style="color:red;">7.1%</td>
<td>8.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>1.1%</td>
<td style="color:red;">-0.6%</td>
<td>1.1%</td>
<td>6.7%</td>
<td style="color:red;">3.3%</td>
<td style="color:red;">5.5%</td>
<td>11.8%</td>
</tr>
<tr>
<td class="firstcol">All Mfg Sales</td>
<td>0.8%</td>
<td style="color:red;">-0.2%</td>
<td>0.0%</td>
<td>2.4%</td>
<td style="color:red;">1.2%</td>
<td style="color:red;">5.0%</td>
<td>7.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

Both the chart and the table tell the story of waning German order strength. We have followed Euro-orders series closely as the euro has gained strength. What we see is that there is a clear loss in momentum. That loss is more severe [...]

German Orders Still Strong but Definitely Fading…

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?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

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Andrew Cates

**The global business cycle** 
The recent sharp decline in the Future Output Balance in the global composite PMI survey reflects a sudden deterioration in global business expectations. The sweeping tariffs, introduced in April 2025, have generated heightened uncertainty around trade policy and sparked fears of retaliatory actions from key trading partners. As a result, businesses worldwide are scaling back their expectations for future output, wary of rising costs, disrupted demand flows, and a broader shift toward protectionism that could undermine global economic momentum.

250507Z1.jpg

Note: The extreme declines in the Future Output Balance that were recorded in the early months of 2020 (at the height of the COVID pandemic) have been removed from this chart.

**Global supply chain pressures**
Still, despite the marked deterioration in global business expectations, this second chart below provides a reassuring counterpoint: as of now, there is little evidence that global supply chain pressures have materially intensified. Both the New York Fed’s Global Supply Chain Pressure Index and the Baltic Exchange Dry Index remain relatively subdued, especially compared to the pandemic-era spikes of 2020–2022. While there has been heightened concern following the April 2025 US tariff announcements, these trade policy shifts have yet to translate into measurable physical disruption in logistics or freight rates. The stability of these indices suggests that although sentiment has taken a hit, global shipping networks and supply flows are, for now, absorbing the shock. However, this calm may prove fragile if the policy environment hardens further or retaliatory trade actions begin to compound the strain.

250507Z2.jpg

**Expectations for central banks’ policy rates** 
Adding to the picture of mounting economic caution, the latest Blue Chip Financial Forecasts survey reveals that expectations for policy easing over the next 12 months have become even more pronounced than in previous months. While earlier surveys had already pointed to a further extension of the global rate-cutting cycle, the latest results suggest forecasters now anticipate a deeper and more aggressive round of monetary easing—most notably from the US Federal Reserve, which is now expected to deliver nearly a full percentage point in rate cuts over the next 12 months. The sharp deterioration in business sentiment is reshaping the macro narrative: central banks are no longer simply guiding inflation lower, but are instead preparing to confront the risk of a deeper, demand-driven slowdown.

250507Z3.jpg

**Energy prices and inflation** 
Adding further context to the growing expectations for policy easing, oil prices have dropped sharply in recent weeks—driven by mounting concerns over global growth, as reflected in weakening business sentiment and softer demand indicators. The chart below provides a longer-run perspective on why this matters: energy prices have historically played a central role in shaping the global inflation trajectory. The strong positive correlation (r = 0.83) between median world energy price inflation and median core consumer price inflation underscores the powerful pass-through effects energy costs can have on broader price dynamics. While core inflation tends to be stickier, this historical relationship makes clear that sustained declines in energy prices often foreshadow broader disinflationary trends.

250507Z4.jpg

**Intangibles versus tangibles** 
Shifting focus from short-term cyclical risks to longer-term structural dynamics, the next chart below underscores a fundamental transformation in the composition of US investment: the economy has increasingly been built on intangibles. Over the past several decades, investment in intangible assets—such as software, intellectual property, R&D, and brand equity—has steadily climbed and, since the mid-2010s, has overtaken investment in both structures and equipment as a share of GDP. This shift reflects the rise of a knowledge-based, innovation-driven economy, but it also introduces new forms of vulnerability. Unlike physical capital, intangible assets rely heavily on trust, reputation, legal protections, and global openness. In this context, escalating trade frictions and a more confrontational US economic stance—as signalled by the recent tariff wave—risk eroding the goodwill and institutional credibility that underpin much of the value created by intangibles. If geopolitical uncertainty undermines the perceived reliability of US intellectual property protections or weakens global collaboration, it could pose a deeper structural challenge to future growth than any immediate cyclical downturn.

250507Z5.jpg

**Investment in Artificial Intelligence**
The centrality of intangibles to the US growth model is nowhere more evident than in the explosion of private investment in artificial intelligence. As this chart illustrates, global AI investment has surged over the past decade—reaching new highs in 2024—and the United States has consistently accounted for the lion’s share of that spending. This reflects not only America’s previous leadership in frontier technologies but also its dependence on intangible capital, from algorithms and data infrastructure to human expertise and institutional trust. However, this dominance also underscores the strategic stakes of current policy choices. In an environment of rising trade tensions and potential fragmentation, the foundations of US leadership in AI—cross-border collaboration, data openness, and global market access—could be at risk.

250507Z6.jpg

Financial market sentiment has rebounded in recent weeks, buoyed by signs of de-escalation in the US-led trade war and growing confidence that central banks—particularly the Federal Reserve—will step in with more rate cuts to cushion any fallout. Yet beneath the surface, a more sobering picture of the global economy persists. For example, latest PMI surveys reveal that global business expectations have slumped to their lowest levels since the pandemic, reflecting widespread unease about the growth outlook (chart 1). While supply chain pressures have so far remained contained, suggesting no repeat of the logistical chaos seen during the pandemic (chart 2), the latest Blue Chip Financial Forecasts survey reveals that forecasters are now pencilling in deeper and more widespread monetary easing than previously anticipated—an acknowledgment that demand is faltering (chart 3). Falling oil prices further reinforce this view: they are both a symptom of weakening global demand and a potential source of disinflation, reducing the urgency for central banks to maintain tight policy (chart 4). At the structural level, the US economy's increasing reliance on intangible assets—ranging from intellectual property to reputation—has made it more vulnerable to geopolitical frictions and the erosion of global trust (chart 5). This risk is compounded by America's dominant role in AI investment, a sector symbolic of both its economic strengths and its exposure to international perceptions (chart 6). The longer-term challenge, then, is not just navigating the current downturn, but ensuring that the institutional goodwill and cross-border openness that support the modern US economy are not sacrificed in a more fragmented and uncertain global order.

Charts of the Week: Relief Rally Meets Recession Risk

250507J1.jpg

250507K1.jpg

At today’s meeting of the Federal Open Market Committee, the target range for the Fed funds rate was left unchanged at 4.25% to 4.50%. This followed reductions at three consecutive meetings in the fall of 2024. Rates remain below the high of 5.25% to 5.50% in place in mid-September. Today’s target range matched expectations in the Action Economics Forecast Survey.

The statement following the meeting indicated that, “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.”

“The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”

The Fed continued, “The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage backed securities.”

250507L1.jpg

250507M1.jpg

- FOMC holds funds rate target at late-December level.
- Risk assessments include higher unemployment & inflation.

FOMC Targeted Funds Rate Range Is Unchanged; Increased Risks Acknowledged

Kathleen Stephansen, CBE

250507F4.jpg

250507G4.jpg

Consumer credit outstanding rose $10.2 billion (1.9% y/y) during March after declining by $0.6 billion (+1.7% y/y) during February, revised from a decline of $0.8 billion (+1.7% y/y. A $10.0 billion rise had been expected in the Action Economics Forecast Survey. As a percentage of disposable personal income, consumer credit was 22.4% in March, compared to 22.9% one year earlier.

Nonrevolving credit outstanding rose $8.3 billion (1.5% y/y) in March after easing $0.3 billion (1.3% y/y) in February. Nonrevolving credit held by depository institutions declined 7.8% y/y in March after declining 9.0% y/y in February. Finance company debt holdings rose 0.8% y/y, while credit union holdings eased 1.9% y/y in March. Nonrevolving debt held by the federal government rose 3.4% y/y.

In March, revolving credit outstanding, which includes credit cards, rose $1.9 billion (2.9% y/y) following a decline of $0.3 billion (2.9% y/y) in February. Revolving credit outstanding held by depository institutions fell 1.5% y/y. Revolving credit held by finance companies dropped 12.2% y/y, while that held by credit unions rose 3.7% y/y.

The consumer credit figures from the Federal Reserve Board are break-adjusted and calculated by Haver Analytics. The breaks in the series in 2005, 2010 and 2015 are the result of the incorporation of data from the Census and the Survey of Finance Companies, as well as changes in the seasonal adjustment methodology. The consumer credit data are available in Haver’s **USECON** database. The Action Economics forecast figures are contained in the **AS1REPNA** database.

250507H4.jpg

250507I4.jpg

- Consumer credit rises close to expectations.
- Nonrevolving and revolving credit rise.


U.S. Consumer Credit Rebounded in March

250507A20.jpg

250507B20.jpg

Mortgage applications increased 11.0% (26.0% y/y) in the week ended May 2, after declining 4.2% in the week ended April 25, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications to purchase a home rose 11.1% (12.9% y/y) in the week ended May 2 after declining 4.4% in the previous week. Loan applications to refinance a home loan also increased 11.1% (51.0% y/y) in the latest week after falling 3.7% in the prior week.

The effective interest rate on a 30-year fixed rate loan of 7.03% in the week ended May 2 compared to 7.08% in the prior week. The effective rate on a 15-year fixed rate loan of 6.34% in the week ended May 2 followed 6.36% in the prior week. The rate on a 30-year jumbo loan declined to 6.99% in the latest week from 7.06% in the prior week, while the rate on a 5-year ARM eased	to 6.08% in the week ended May 2 from 6.12% in the prior week.

The share of applications to refinance an existing mortgage slipped to 37.1% in the week ended May 2 from 37.3% in the prior week. The share of loans with an adjustable rate rose to 8.3% in the latest week from 7.4% one week earlier.

The average size of a mortgage loan rose 4.2% (3.8% y/y) to $400,200 in the week ended May 2, after slipping 0.7% to $384,100 in the prior week. The average size of a loan to purchase a home increased 1.0% (0.2% y/y) to $444,300 in the latest week from $440,100 in the week prior. The average size of a loan to refinance an outstanding mortgage increased 12.3% (27.6% y/y) last week to $325,400 from $289,800 one week earlier.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Purchase & refinancing loan applications jump.
- Effective interest rates remain range-bound.
- Average loan size increases.

Mortgage Applications Surge as Interest Rates Ease Last Week

250506J8.jpg

250506K8.jpg

The U.S. trade deficit in goods and services (BOP basis) in March grew to $140.5 billion after narrowing slightly to $123.2 billion in February, revised from $122.7 billion, after widening to $130.7 billion in January according to the U.S. Census Bureau. A $136.7 billion deficit was expected by the Action Economics Forecast Survey. Exports rose 0.2% (6.7% y/y) in March after increasing 2.8% in February. This was accompanied by a 4.4% rise (27.1% y/y) rise in imports which came after m/m stability in February. In Q1’25, the deficit grew to an average $131.4 billion, after rising to an average $83.3 billion in Q4’24.

The trade deficit in goods (BOP basis) widened to a record $163.2 billion in March from $147.9	 billion in February, revised from $147.0 billion. Goods exports (customs value) rose 1.4% (7.0% y/y) in March, after increasing 3.6% in February. The latest increase reflected an 8.2% (8.4% y/y) surge in auto exports which came after a 12.7% strengthening. A 3.5% (4.0% y/y) gain occurred in industrial supplies & materials exports which followed a 5.1% rise. Foods, feeds & beverage exports rose 6.6% (1.4% y/y) after declining in four of the prior five month. Working lower, capital goods exports fell 2.5% (+13.9% y/y) in March after a 4.	8% increase and nonauto consumer goods exports were off 1.1% (+3.4% y/y) in March after a 2.4% gain.

Imports of goods increased 5.5% (31.4% y/y) in March after a 0.2% February easing. Imports of nonauto consumer goods imports surged 27.9% (56.0% y/y) following a 3.1% February gain. Auto imports rose 6.6% (8.7% y/y) after a 1.2% rise. Capital goods imports rose 4.2% (22.5% y/y) following a 1.1% rise. Foods, feeds & beverage imports eased 0.4% (+11.1% y/y) following a 2.0% weakening. Industrial supplies & materials imports declined 12.4% (+39.5% y/y) after weakening 4.6% in February. Petroleum imports by end-use fell 4.1% (-10.2% y/y) after a 2.9% decline. Nonpetroleum imports increased 6.0% (34.8% y/y) after holding steady in February.

The inflation-adjusted goods trade deficit (customs value) deepened to $150.9 billion in March from $136.9 billion in February. Real exports rose 1.6% (5.3% y/y) after a 3.0% February increase, while real imports rose 5.8% (29.8% y/y) in March following a 0.5% February slip.

The services trade surplus narrowed to $23.0 billion in March after decreasing to $23.8 billion in February. It reached a peak of $25.7 billion in November of last year. Service exports fell 0.9% (+5.7% y/y) after a 0.8% decline in February. Construction services exports rose 1.0% (37.7% y/y) after increasing 2.6% in February. Travel services exports fell 7.1% (-3.7% y/y) and financial exports increased 0.9% (7.3% y/y). Transport exports rose 3.1% (2.4% y/y). Service imports eased 0.1% (+10.8% y/y) in March following a 0.8% gain. Maintenance & repair services declined 1.5% (+32.1% y/y) while imported transport services increased 1.2% (1.7% y/y). Imported travel services fell 2.2% (5.3% y/y) while charges for use of intellectual property rose 1.0% (13.6 y/y).

The U.S. goods trade deficit with China narrowed to a seasonally adjusted $24.8 billion in March from $26.6 billion in February. Exports to China declined 8.2% (-10.5% y/y) while imports weakened 7.2% (-2.7% y/y). The deficit with the European Union deepened to a record $48.3 billion in March from $30.9 billion in February. Exports rose 10.9% (14.5% y/y) while imports soared 34.0% (65.4% y/y). The deficit with Japan deepened to $5.8 billion from $5.2 billion in February. Exports rose 1.8% (8.8% y/y) and imports rose 6.4% (9.9% y/y).

The international trade data, including relevant data on oil prices, can be found in Haver’s **USECON** database. Detailed figures on international trade are available in the **USINT** and **USTRADE** databases. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Goods deficit grows as imports surge ahead of tariff imposition.
- Exports edge higher, led by autos.
- Petroleum product imports fall as crude oil prices decline.

Economy in Brief: October 2007

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August Trade in Goods: a Dip in Germany's Surplus and a Small Improvement in France's Deficit

Japan's Economy Watcher’s Index Drops for Sixth Month in a Row

Weekly U.S. Chain Store Sales Roughly Unchanged: Again

Small Business Optimism Reduced by Credit Problems

Small Business Optimism Reduced by Credit Problems

Inflation Trends in Emerging Markets

Inflation Trends in Emerging Markets

German Orders Still Strong but Definitely Fading…