Tom Moeller

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<p align="justify">Activity in the factory improved last month. The
Institute for Supply Management (ISM) reported that its composite index of
manufacturing sector activity for January rose to 50.9 after falling to 47.8 in
December, revised from 47.2. It was the highest reading since July following
five straight months below 50, which is the dividing line between rising and
falling activity. A reading of 48.8 had been expected in the Action
Economics Forecast Survey. During the last 15 years, there has been a 69%
correlation between the composite index and the quarterly change in real GDP.</p>

<p align="justify">The rise in the composite index reflected notable increases
in new orders and production. The orders index strengthened to 52.0, its highest
level since May after being below 50 for the last five months. Production also
rose above 50 for the first time since July. The improvement to 54.3 reflected a
greatly increased 25% (NSA) of respondents reporting higher production while a
weakened 19% (NSA) reported a decline. Showing modest declines were the
inventories and supplier delivery series.</p>

<p align="justify">The employment index also improved modestly to 46.6, but
remaining below 50, it indicated a decline in factory sector payrolls for the
sixth straight month. A greatly lessened twelve percent (NSA) of survey
respondents reported more hiring while 22% (NSA) reported a
decline. During the last 15 years, there has been an 80% correlation between the
index level and the m/m change in factory sector payrolls.</p>

<p align="justify">The prices paid index increased to 53.3. It was the second time
since May that the figure was above the break-even level of 50.
An increased 24% (NSA) of survey respondents indicated higher prices while 17%
reported price declines.</p>

<p align="justify">Amongst other series reported by the ISM, the export order
index surged to 53.3, its highest level since September 2018. The
import index also strengthened to the highest level since early-2019. The unfilled order
series also rose modestly, but at 45.7, it remained well below the 2018 high of
63.5 and indicated falling backlog levels.</p>

<p align="justify">The ISM figures are diffusion indexes where a reading above
50 indicates expansion. The figures from the Institute for Supply Management can
be found in Haver's <b>USECON</b> database; further detail is found in the <b>SURVEYS</b>
database. The expectations number is available in Haver's <b>AS1REPNA</b> database.</p>

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      <th class="firstcol" scope="col" >ISM Mfg (SA)</th>
      <th>Jan</th>
      <th>Dec</th>
      <th>Nov</th>
      <th>Jan'19</th>
      <th>2019</th>
      <th>2018</th>
      <th>2017</th>
    </tr>
  </thead>
  <tbody>
    <tr class="odd">
      <td class="firstcol" >Headline Index</td>
      <td>50.9</td>
      <td>47.8</td>
      <td>48.1</td>
      <td>55.5</td>
      <td>51.2</td>
      <td>58.9</td>
      <td>57.4</td>
    </tr>
    <tr>
      <td class="firstcol" >&nbsp;New Orders</td>
      <td>52.0</td>
      <td>47.6</td>
      <td>46.8</td>
      <td>56.8</td>
      <td>51.1</td>
      <td>61.6</td>
      <td>62.1</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >&nbsp;Production</td>
      <td>54.3</td>
      <td>44.8</td>
      <td>48.0</td>
      <td>57.0</td>
      <td>51.2</td>
      <td>60.9</td>
      <td>60.9</td>
    </tr>
    <tr>
      <td class="firstcol" >&nbsp;Employment</td>
      <td>46.6</td>
      <td>45.2</td>
      <td>46.8</td>
      <td>55.2</td>
      <td>50.9</td>
      <td>56.9</td>
      <td>56.8</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >&nbsp;Supplier Deliveries</td>
      <td>52.9</td>
      <td>54.6</td>
      <td>52.0</td>
      <td>56.2</td>
      <td>52.9</td>
      <td>62.0</td>
      <td>56.8</td>
    </tr>
    <tr>
      <td class="firstcol" >&nbsp;Inventories</td>
      <td>48.8</td>
      <td>49.2</td>
      <td>47.2</td>
      <td>52.9</td>
      <td>49.8</td>
      <td>52.9</td>
      <td>50.4</td>
    </tr>
    <tr class="odd">
      <td class="firstcol" >Prices Paid Index (NSA)</td>
      <td>53.3</td>
      <td>51.7</td>
      <td>46.7</td>
      <td>49.6</td>
      <td>49.1</td>
      <td>71.7</td>
      <td>65.0</td>
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Activity in the factory improved last month. The Institute for Supply Management (ISM) reported that its composite index of manufacturing sector activity for January rose to 50.9 after falling to 47.8 in December, revised from 47.2. [...]

ISM Manufacturing Index Jumps; Prices Strengthen

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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The NFIB Small Business Optimism Index rose 0.5% (10.5%) to 100.8 in August after strengthening 1.7% to an unrevised 100.3 in July and easing 0.2% to 98.6 in June, according to the Small Business Economic Trends survey conducted by the National Federation of Independent Business. Four of the ten index components increased last month. The NFIB Small Business Uncertainty Index fell 4.1% (+1.1% y/y) to 93 after rising 9.0% in July.

The outlook for business conditions was mixed in the latest survey. The net balance of respondents expecting the economy to improve stood at 34% last month after rising to 36% in July. A higher 12% expected higher real sales in six months, compared to 6% in July. A lessened 14%, compared to 16% in July, of respondents indicated that now was a good time to expand the business. The figure remained up from 4% last September.

Plans to make capital outlays eased to 21% of firms after rising to 22% in July. Plans to add to inventories were unchanged at 1% of survey respondents, having been negative or zero early in the year. The index of expected credit conditions held steady with five of the prior six months at -4%. It remained up from a low of -11 in November 2023. On the labor front, the percent planning to increase employment edged up to 15% from 14% in July. The increase was to the highest level since February. It was increased from a low of 12% in both March and May, but stood substantially below its high of 32% in August 2021. A lessened 43% of businesses reported few or no qualified workers to fill job openings in August, down from the most recent high of 50% in June. These readings remained below a high of 56% in August of last year.

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The net percent of firms reporting higher earnings improved to -19% last month after holding steady at 22% in July. The figure was increased from the August 2024 low of -37%.

On the pricing front, the net percent raising their average selling prices fell to 21% last month from 24% in July. It had grown to 32% in February. The percentage planning to raise prices declined to 26% in August, down from a 32% high in June. Worker compensation improved as a net 29% of respondents lifted compensation during the last three months versus 27% in the last survey. Compensation gains peaked at 50% of firms in January 2022. A higher net 20% of firms are making plans to raise worker compensation in the next three months, below November’s high of 28%.

Taxes were reported by a steady 17% of member firms as the single most important issue facing small businesses. Also steady was the 11% citing inflation as the most important problem. Other major concerns were the cost of labor reported by 9% of firms and government requirements, also at 9%.

According to the Small Business Administration, there are 33 million small businesses in the United States, which employ 62 million workers. The NFIB surveys anywhere from 500 to 2000 respondents each month and the typical firm employs 10 people and reports gross sales of about $500,000 a year. The NFIB figures can be found in Haver’s **SURVEYS** database.

- Sales & employment expectations improve.
- Economic & business expansion plans ease.
- Percent raising prices and price expectations decline.

U.S. NFIB Small Business Optimism Index Improves in August

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Retail gasoline prices for all grades rose to $3.32 per gallon (-1.2% y/y), on average, last week after rising to $3.30 per gallon one week earlier. Gasoline prices are at the highest level since the fourth week of June, and above their low of $3.13 in the week of December 9. The recent high was $3.79 in the week ending April 22, 2024. Their all-time high of $5.11 occurred in the week ending June 13, 2022. The retail price for on-highway diesel fuel increased to $3.77 per gallon (5.9% y/y) last week after rising to $3.73 in the prior week. The latest diesel price stood well below a high of $4.63 in the week ending September 18, 2023 and a peak of $5.81 in the week ending June 20, 2022.

The price of West Texas Intermediate crude oil fell to $63.73 per barrel (-8.4% y/y) in the week ended September 5 after rising in the prior week to $64.16 per barrel. Prices remained below a high of a $74.17 during the third week of June. The cost of crude oil peaked at $120.46 in the week of June 10, 2022. Yesterday, the price was $62.26 per barrel. The price of European Brent crude fell to $66.85 per barrel (-11.2% y/y) in the week of September 5 from $67.77 in the prior week. Prices remained below a recent high of $95.61 in the week of September 29, 2023 and below a peak of $127.40 in June 2022. The price yesterday was $65.44 per barrel.

Natural gas prices rose an average $2.97/mmbtu (47.0% y/y) in the week ended September 5, after steadying at an average $2.85/mmbtu in the prior week. Prices remained well above a low of $1.40/mmbtu in the week of March 15, 2024 but below their peak of $9.56 in the week of August 26, 2022. Yesterday, the price was $3.10 per mmbtu.

Gasoline demand declined 0.8% y/y in the four weeks ending August 29, following a 1.1% y/y decline in the prior four weeks. Demand for all petroleum products rose 2.5% y/y in the four weeks ending August 29, after a 2.5% y/y increase in the previous four-week period. Crude oil input to refineries rose 1.8% y/y in the four weeks ending August 29, after a 3.0% y/y gain in the prior four weeks.

Gasoline inventories eased 0.3% y/y in the week ending August 29 after rising 1.8% y/y in the prior week. Residual fuel oil inventories fell 22.5% y/y in the week of August 29, after falling 23.8% y/y in the prior week. Crude oil inventories rose 3.4% y/y in the week of August 29 after a 2.4% y/y rise in the previous week.

Measured in days’ supply, gasoline inventories fell to 24.1 days in the week of August 29 from 24.6 days in the prior week. The recent low was 22.9 days in the week of November 8, 2024. The supply of crude oil edged higher to 24.7 days in the week of August 29 from 24.5 days in the prior week and remained below a high of 31.9 days in the week of March 3, 2023.

These data are reported by	 the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** & **USENERGY** database.

- Gasoline prices increase to late-June high.
- Crude oil prices ease after prior week’s increase.
- Natural gas prices rise to four-week high.

U.S. Energy Prices Are Mixed Last Week

Robert Brusca

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The end of summer is turning out to be a difficult time for France even though industrial output is in a seemingly solid trend. Output in June rose by 3.5%, it did that after a weak May when output fell by 1.1% and now in July output is falling by 1.6%. By itself, the manufacturing trend is simply not that worrisome, but it is built upon somewhat more convoluted trends with July’s drop. Add this complication to a political environment that is quite difficult as in real time, in September, France's government is being dissolved, the Prime Minister is being dismissed, and President Macron is under pressure. There is a decidedly split and fractured legislature to deal with as he is going to have to appoint yet another prime minister, the second lost government in less than a year. Macron continues to resist calling elections or stepping down himself.

France has been called out by the markets for the size of its government sector and its debt as Macron’s earlier tax cuts produced fiscal deficits not growth. French deficits continue to push up bond yields toward levels being paid by Italy. The U.K. is also under pressure for its substantial indebtedness and its inability to get control of its economy and generate growth. None of these are new trends and certainly not foreign to anyone in the United States where large fiscal deficits, concerns about future fiscal deficits, and President Trump's own concern about deficits as exhibited by his attempt to try to push interest rates down to reduce the interest cost of the debt. This has pushed the fiscal budgeting process into the mainstream of making monetary policy creating a clash over central bank independence in the United States- with reverberations abroad.

The best way to keep debt or the size of the government sector from becoming a problem is to control it and none of these governments seem to have been able to do that. A country that is going to rely on debt and increasing indebtedness is pushing the day of reckoning out on the future generations. That becomes increasingly unpalatable as population growth has been slowing. Slowing population growth and rising debt levels are an extremely bad combination and yet we see these as real international trends.

In France, the one-year trend for industrial production in manufacturing is still relatively solid at 1.5% growth over 12 months, stepping up to 4.5% at an annual rate over six months and up to 8.2% annualized over three months. On the face of these figures, if they hold up, the progression for growth is pretty good. However, when we see what produces these results in the table, which is a sharp drop in May and July, with a sharper increase sandwiched in between, we are left wondering whether the sequential trend is going to hold up at all. Consumer durable goods output trends are one of the reasons that that output trend in manufacturing is so strong with positive growth in May, June and July; the sector logs 12-month growth of 3.7%, 6-month growth at 9.2% at an annualized rate, and 3-month growth at a stunning 17% annual rate. That would seem to be a lot of strength to carry the day, but consumer nondurables output trends point in the opposite direction with -0.6% over 12 months, a -1.2% annual rate decline over six months and then -5.7% at an annual rate over three months. The capital goods sector sides with growth with a 4% rate over 12 months and an 8.5% pace over six months and that largely holds up at 8.1% over three months. However, the sequential growth rate for intermediate goods shows a drop in output of 0.8% over 12 months, a nice rebound with a 3.9% annual rate over six months and then the declining pace of 1% annualized over three months – a bit less coherence.

Transportation output in France is considerably stronger than the trends in motor vehicle registrations. Even though output in the auto sector continues to be quite firm to strong, registrations are weakening. That can’t be good.

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France is clearly in a difficult spot with President Macron also caught between a political rock and a hard place given the importance of Algerians in the French economy and given the conflict in Israel involving Hamas in the Gaza Strip. His political base domestically is severely fractured, and economic performance now is spotty. One good bit of news for the European Monetary Union is that, while inflation runs mildly over the top of its target, it is not accelerating; the ECB seems content to let inflation set at a pace slightly above its target as long as it continues to mind its business there.

It's certainly a bad time for France to be dealing with geopolitical tensions in the Middle East and Ukraine and with these political divisions at home they're deepened by those kinds of divisions as well as an economy that's showing signs of stress, signs that have been inevitable to show up in the wake of the recovery from COVID since governments did so much to try to bail their economies out. The unwinding of those actions has been destined, for some time, to create management problems for the economy and for continuing growth globally. For the time being, governments have managed the situation by tolerating inflation overshoots and pretending that having inflation over target is fine. However, Trump's tariffs seem to be calling the bluff on that to some extent. Tariffs will exacerbate inflation pressures and probably chill growth prospects at least by increasing uncertainty in the short run. This means that the risk of a downturn has risen but it's not clear that it's risen to a point that should be concerning although it certainly could be. It's more likely to be an issue and economies that have continued to place a great deal of emphasis on government efforts to sustain growth.

The next few months could be pivotal for global growth not just in France, as we begin to see what challenges tariffs are going to propose for local economies in terms of adversely affecting growth and adversely affecting inflation. The problems have been manageable so far, will that continue? That essentially is the question for the outlook.

France

French IP Is Expanding But Had a Tough Month

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Consumer credit outstanding increased $16.0 billion (2.2% y/y) during July after rising $9.6 billion in June, revised from $7.4 billion, and $7.9 billion in May, revised from $5.1 billion. A $10.3 billion July rise had been expected in the Action Economics Forecast Survey. As a percentage of disposable personal income, consumer credit outstanding of 22.4% in July was steady with June and compared to 22.9% one year earlier. It reached a high of 26.4% during all of 2017. The figures are reported by the Federal Reserve Board.

In July, revolving credit outstanding, which includes credit cards, rose $10.5 billion (3.1% y/y) after rising $0.8 billion in June, revised from a $1.0 billion decline, and falling $1.6 billion in May, revised from down $3.8 billion. Revolving credit outstanding held by depository institutions fell a steady 2.3% y/y. Revolving credit held by finance companies fell 13.8% y/y in July after falling 15.0% y/y in June, while credit union debt rose a steady 4.1% y/y in July.

Nonrevolving credit outstanding rose $5.5 billion (1.8% y/y) in July after increasing $8.8 billion in June, revised from $8.4 billion, and increasing $9.5 billion in May, revised from $8.9 billion. Nonrevolving credit held by depository institutions declined 7.7% y/y in July after falling 8.1% y/y in June. Finance company debt holdings fell 1.3% y/y after a 0.4% slip, while credit union holdings rose a steady 11.1% y/y in July. Nonrevolving debt of the federal government rose 3.9% y/y in July following a 4.1% y/y rise in June.

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.

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- Notable gain in credit usage follows two months of moderate growth.
- Revolving credit picks up as nonrevolving credit eases.

U.S. Consumer Credit Surges in July

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The **Industrial Materials Price Index** from the Foundation for International Business and Economic Research (FIBER) declined 1.0% during the last four weeks, after weakening 1.9% in the prior four weeks. Despite these declines, prices rose 0.5% during the last twelve months. During July, factory sector production held steady but rose an improved 1.4% y/y.

**Crude Oil & Benzene** group costs continued to lead the overall price weakening as they moved 1.9% lower (-10.3% y/y) in the latest four week period. The price of West Texas Intermediate crude oil declined 1.7% to $64.27 per barrel and remained 8.9% lower y/y. It had fallen to a low of $58.50 per barrel in the second week of May. The cost of the petrol-chemical benzene, used for making plastics & synthetic fibers, weakened 6.5% (-31.7% y/y). Excluding crude oil, the industrial commodity price index weakened 0.9% (+1.1% y/y) during the last four weeks.

Lower **Miscellaneous** group prices followed with a 4.0% decline in the latest four week period, but prices remained up 1.8% y/y. Lumber prices fell 21.2% (+10.2% y/y) during the last four weeks, and tallow costs (used in the soap industry) declined 3.9% (+34.4% y/y). Moving higher, the cost of rubber rose 2.8% in four weeks, but fell 18.6% y/y.

**Metals** group prices rose 1.7% (4.1% y/y) over four weeks. Copper scrap prices rose 2.3% (9.6% y/y). Aluminum prices increased 1.3% in four weeks (9.1% y/y), and the cost of zinc moved up 3.8% in four weeks, and did the same y/y. Tin prices rose 4.8% (13.1% y/y) in four weeks. Lead prices edged up 0.7% (-2.3% y/y) but steel scrap costs fell 1.9% (-6.3% y/y) over the same period.

Prices in the **Textile** group moved 0.5% higher (1.6% y/y) during the last four weeks. Burlap costs surged 6.9% (22.2% y/y), but cotton prices fell 1.3% (-3.4% y/y).

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

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- Decline extends last month’s weakness. 
- Crude oil costs & lumber costs decline.
- Metals prices improve.

FIBER: Industrial Commodity Prices Continue to Decline in Latest Four Weeks

Economy in Brief: February 2020

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ISM Manufacturing Index Jumps; Prices Strengthen