Tom Moeller

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<div align="left"><img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070808a.jpg">
The total number of mortgage applications surged 8.1% last week following declines during the prior two weeks, according to the Mortgage Bankers Association.
Strongest was a 9.1% gain in applications to refinance which rose after a 1.8% increase during the prior week.
Purchase applications also were strong and rose 7.4%. The gain followed steady declines during five of the previous six weeks. It was to the highest level since early July.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070808b.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage dropped a sharp ten basis points w/w to 6.74%, the lowest since early June. Rates averaged 6.91% during July, up from 6.28% in December. Rates for 15-year financing similarly fell sharply to 6.45% last week. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 and 35 top lenders in the U.S. housing industry. Then it derives its refinance, purchase and market indexes. The weekly survey covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>. 
For yesterday&#39;s statement by the FOMC follow this <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2007/20070807/default.htm">link</a>.
The U.S. Economy and Monetary Policy from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/news/speeches/2007/0712.html">here</a>.</div>

<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">08/03/07</th>
<th scope="col">7/27/07</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 class="odd">
<td class="firstcol">Total Market Index</td>
<td>656.5</td>
<td>607.1</td>
<td>18.7%</td>
<td>584.2</td>
<td>708.6</td>
<td>735.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>447.4</td>
<td>416.6</td>
<td>15.0%</td>
<td>406.9</td>
<td>470.9</td>
<td>454.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,881.1</td>
<td>1,724.1</td>
<td>23.9%</td>
<td>1,633.0</td>
<td>2,092.3</td>
<td>2,366.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The total number of mortgage applications surged 8.1% last week following declines during the prior two weeks, according to the Mortgage Bankers Association. Strongest was a 9.1% gain in applications to refinance which rose after a [...]

U.S. Mortgage Applications Surge

Carol Stone, CBE

Consumer price behavior varies widely in Central and Eastern Europe, apparently depending on the degree of development in various economies. In the Czech Republic, inflation is slow and restrained, much like that in Western Europe, [...]

CPI Inflation Restrained in Czech Republic, Moderate in Lithuania and Very Fast in Latvia

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807e.jpg" width="353">
A number of Euro Area countries have reported wavering business confidence in July. Today, France&#39;s INSEE (Institute National de la Statistiques et des Etudes Economiques) released its measure of business confidence for the area as a whole. The measure declined in July to 112 from 113 in June and is below the recent peak of 114 last seen in September, 2006. Confidence, however, appears to be plateauing rather than declining sharply as at previous peaks, as can be seen in the first chart.
One of the reasons that might explain the fact that business confidence in the Euro Area has not gone off the cliff is that such factors as the slowdown in the U. S. and the rise in the Euro, which would ordinarily weaken confidence, have been offset by the rise in the demand for European exports from Asia. The second chart shows the Euro Area exports to Asia and to the U. S. In addition, as we noted yesterday German manufacturing orders from other Euro Area countries have recently risen sharply. This suggests that intra Euro Area activity, which is not affected by changes in the euro, is increasing. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807f.jpg" width="353">
Note: The European Business Confidence measure is based on six balance of opinion indicators: production over the past three months, production forecast for the next three months, inventories, order books, foreign order book and selling price expectations. The data are gathered from surveys in France, Germany, Italy, Spain, the Netherlands and Belgium. These six countries account for about 90% of the total Euro Area&#39;s GDP. The measure is conducted so that its average is 100 and has a standard deviation of 10..

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">EURO AREA&nbsp;</th>
<th scope="col">Jul&nbsp; 07</th>
<th scope="col">Jun 07&nbsp;</th>
<th scope="col">May&nbsp; 06&nbsp;</th>
<th scope="col">Apr 06&nbsp;</th>
<th scope="col">Mar 06&nbsp;</th>
<th scope="col">Feb 06</th>
<th scope="col">Jan 06</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">Business Confidence</td>
<td>112</td>
<td>113</td>
<td>112</td>
<td>113</td>
<td>111</td>
<td>111</td>
<td>111</td>
<td>112</td>
<td>102</td>
<td>106</td>
</tr>
<tr>
<td colspan="11">Euro Area&nbsp; Exports&nbsp; (Mil Euro)</td>
</tr>
<tr class="odd">
<td class="firstcol">To Asia</td>
<td>--</td>
<td>--</td>
<td>&nbsp; 24275</td>
<td>23754</td>
<td>23970</td>
<td>23915</td>
<td>24004</td>
<td>277184</td>
<td>243246</td>
<td>233896</td>
</tr>
<tr class="odd">
<td class="firstcol"> To U. S. </td>
<td>--</td>
<td>--</td>
<td>16603</td>
<td>16320</td>
<td>16099</td>
<td>16754</td>
<td>15743</td>
<td>199521</td>
<td>184992</td>
<td>172546</td>
</tr>
</tbody>
</table>
</body>
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A number of Euro Area countries have reported wavering business confidence in July. Today, France's INSEE (Institute National de la Statistiques et des Etudes Economiques) released its measure of business confidence for the area as a [...]

Business Confidence in the Euro Area Falls in July but Is Still Healthy

Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807g.jpg" width="353">
For the full quarter total German IP is up by 0.3%. Construction is off by 31% at an annual rate in Q2, accounting for much of the drag. But MFG is up by 0.8% roughly the same as for consumer goods, intermediate goods and capital goods output. Of course in Q2 2007 German orders are up at a spectacular 17.6% annual rate.
The accompanying graph shows that orders often peak at the same time or before industrial output (note that that is a two-scale chart). In that sense the ongoing rise in orders is reassuring. From Nov 2006 through Jan 2007 orders growth did slip below the pace of growth for output. This event is coincident with the year-end/new year period when the VAT hike was initiated and that tax accounted for some uncertainty at the time. Uncertainty seems to have interrupted the flow of new orders more than of output because what we see is that the flow of orders was interrupted at that time but the growth of output was not. Now however there is a lull in output in Q2 as orders have sped ahead. The reasonable question to ask is whether this is some sort of catch up in orders after that year-end lull when IP was stronger than orders &#150; since that is an unusual configuration for these two series, to have output stronger than orders. Or is the new spurt in orders entirely of a different cause and does it point to even stronger gains in IP for the period ahead?
At this time most Europeans are very upbeat and no end of laudatory statements have been made about Euro-growth and growth prospects. But the fact remains that some Euro area members are not doing so well and that even for Germany much of this strength in orders comes from cross-border transactions. The latter trend seems to imply that the spurt in orders is for real and reflects some new demand phenomenon. But the UK has also turned in some hot/cold signals recently and Italy is showing a protracted period of anemia. France benefited from elections and post-election euphoria and it is not clear that it will continue to have so much good news to buoy its spirits in the period ahead. Sarkozy can only keep pointing his finger at others as the source of the problem for so long until one day he steps in front of a mirror.
I think the series of German reports from the Zew and IFO indexes peaking to the flap about IP in Germany to some irregular signals from the UK as well as ongoing weakness in Italy point to some real world problems creeping into the Euro area. Europe still does not have a flexible economy. The US is still clearly the leader on that score. The raft of mini-problems or question marks arising in Europe I believe will prove to have some real causes behind them.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Total German IP
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">SAAR&nbsp; except M/M</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-month</td>
<td>6-month</td>
<td>12-month</td>
</tr>
<tr>
<td class="firstcol">IP total</td>
<td>-0.4%</td>
<td>1.9%</td>
<td>-1.5%</td>
<td>0.0%</td>
<td>2.8%</td>
<td>4.9%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>-2.5%</td>
<td>1.3%</td>
<td>-0.9%</td>
<td>-8.2%</td>
<td>-1.5%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>-0.9%</td>
<td>2.1%</td>
<td>-1.1%</td>
<td>0.3%</td>
<td>6.7%</td>
<td>7.1%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>0.8%</td>
<td>2.1%</td>
<td>-2.1%</td>
<td>3.0%</td>
<td>4.5%</td>
<td>7.5%</td>
</tr>
<tr>
<td class="firstcol">Memo: Construction</td>
<td>-2.1%</td>
<td>0.2%</td>
<td>-5.6%</td>
<td>-26.5%</td>
<td>-17.0%</td>
<td>-3.7%</td>
</tr>
</tbody>
</table>
</body>
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For the full quarter total German IP is up by 0.3%. Construction is off by 31% at an annual rate in Q2, accounting for much of the drag. But MFG is up by 0.8% roughly the same as for consumer goods, intermediate goods and capital [...]

German IP Weakens as Orders Surge

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807c.jpg" width="353">
Chain store sales last week rebounded a strong 1.1% after the 0.2% decline during the prior week, according to the International Council of Shopping Centers (ICSC)-UBS. 
The rise pulled sales for all of July up 0.4% from June, modest because of many declines during the last eight weeks.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807d.jpg" width="353">
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 0.7% (+0.2% y/y) last week and gave back much of a 1.2% rise during the prior week. 
Evaluating the Relative Strength of the U.S. Capital Markets from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/newsevents/news/research/2007/rp070730.html"> 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/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">07/28/07</th>
<th scope="col">07/21/07</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>486.5</td>
<td>481.3</td>
<td>3.2%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</td>
</tr>
</tbody>
</table>


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Chain store sales last week rebounded a strong 1.1% after the 0.2% decline during the prior week, according to the International Council of Shopping Centers (ICSC)-UBS.

Chain Store Sales Rebound, Strong

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807a.jpg" width="353">
Growth in non-farm labor productivity of 1.8% last quarter fell a bit short of Consensus forecasts for a 2.1% increase but it was the fastest since a 2.5% rise during 1Q06. The gain was up from the revised 0.7% increase during the first quarter but the average of the two at 1.2% barely exceeds the 1.0% gain last year and falls well short of 2.7% growth during 2004.
What Happened to the Gains From Strong Productivity Growth? from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/Publicat/econrev/PDF/1q07will.pdf"> here</a>.
Output growth of 4.2% (2.0% y/y) also was the best since 1Q06 and was an acceleration from the 1.5% average of the prior four quarters.
Compensation growth held at an elevated 3.9% (5.2% y/y), the fastest y/y growth since 2000. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807b.jpg" width="353">
As a result, unit labor costs rose 2.1% during 2Q07 which was down from a 3.0% rise the prior quarter, but the 4.5 gain from the prior year also was the fastest since 2000.
The implicit price deflator rose 2.4% (2.0% y/y) and the increase lifted the ratio of prices to unit labor costs just slightly. It still well below the high during last year. During the last ten years there has been a 59% correlation between the ratio and the y/y growth in corporate profits.
Factory sector productivity grew 1.6% (2.9% y/y, about the same as during the prior quarter. Manufacturing compensation grew 2.8% (6.2% y/y) which was the fastest y/y gain since 2005. And though the 1.2% quarterly gain in unit labor costs was down from 5.0% during 1Q, the y/y gain of 3.2% in factory sector unit labor costs was the fastest since 2000.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">2Q &#39;07</th>
<th scope="col">1Q &#39;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 class="odd">
<td class="firstcol">Output per Hour</td>
<td>1.8%</td>
<td>0.7%</td>
<td>0.6%</td>
<td>1.0%</td>
<td>1.9%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>3.9%</td>
<td>3.7%</td>
<td>5.2%</td>
<td>3.9%</td>
<td>4.0%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>2.1%</td>
<td>3.0%</td>
<td>4.5%</td>
<td>2.9%</td>
<td>2.0%</td>
<td>0.9%</td>
</tr>
</tbody>
</table>
</body>
</html>

Growth in non-farm labor productivity of 1.8% last quarter fell a bit short of Consensus forecasts for a 2.1% increase but it was the fastest since a 2.5% rise during 1Q06. The gain was up from the revised 0.7% increase during the [...]

U.S. Productivity Missed 2Q Estimate, Cost Increase Fastest Since 2000

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807g.jpg" width="353">
For the full quarter total German IP is up by 0.3%. Construction is off by 31% at an annual rate in Q2, accounting for much of the drag. But MFG is up by 0.8% roughly the same as for consumer goods, intermediate goods and capital goods output. Of course in Q2 2007 German orders are up at a spectacular 17.6% annual rate.
The accompanying graph shows that orders often peak at the same time or before industrial output (note that that is a two-scale chart). In that sense the ongoing rise in orders is reassuring. From Nov 2006 through Jan 2007 orders growth did slip below the pace of growth for output. This event is coincident with the year-end/new year period when the VAT hike was initiated and that tax accounted for some uncertainty at the time. Uncertainty seems to have interrupted the flow of new orders more than of output because what we see is that the flow of orders was interrupted at that time but the growth of output was not. Now however there is a lull in output in Q2 as orders have sped ahead. The reasonable question to ask is whether this is some sort of catch up in orders after that year-end lull when IP was stronger than orders &#150; since that is an unusual configuration for these two series, to have output stronger than orders. Or is the new spurt in orders entirely of a different cause and does it point to even stronger gains in IP for the period ahead?
At this time most Europeans are very upbeat and no end of laudatory statements have been made about Euro-growth and growth prospects. But the fact remains that some Euro area members are not doing so well and that even for Germany much of this strength in orders comes from cross-border transactions. The latter trend seems to imply that the spurt in orders is for real and reflects some new demand phenomenon. But the UK has also turned in some hot/cold signals recently and Italy is showing a protracted period of anemia. France benefited from elections and post-election euphoria and it is not clear that it will continue to have so much good news to buoy its spirits in the period ahead. Sarkozy can only keep pointing his finger at others as the source of the problem for so long until one day he steps in front of a mirror.
I think the series of German reports from the Zew and IFO indexes peaking to the flap about IP in Germany to some irregular signals from the UK as well as ongoing weakness in Italy point to some real world problems creeping into the Euro area. Europe still does not have a flexible economy. The US is still clearly the leader on that score. The raft of mini-problems or question marks arising in Europe I believe will prove to have some real causes behind them.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
Total German IP
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">SAAR&nbsp; except M/M</td>
<td>Jun-07</td>
<td>May-07</td>
<td>Apr-07</td>
<td>3-month</td>
<td>6-month</td>
<td>12-month</td>
</tr>
<tr>
<td class="firstcol">IP total</td>
<td>-0.4%</td>
<td>1.9%</td>
<td>-1.5%</td>
<td>0.0%</td>
<td>2.8%</td>
<td>4.9%</td>
</tr>
<tr>
<td class="firstcol">Consumer Goods</td>
<td>-2.5%</td>
<td>1.3%</td>
<td>-0.9%</td>
<td>-8.2%</td>
<td>-1.5%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>-0.9%</td>
<td>2.1%</td>
<td>-1.1%</td>
<td>0.3%</td>
<td>6.7%</td>
<td>7.1%</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>0.8%</td>
<td>2.1%</td>
<td>-2.1%</td>
<td>3.0%</td>
<td>4.5%</td>
<td>7.5%</td>
</tr>
<tr>
<td class="firstcol">Memo: Construction</td>
<td>-2.1%</td>
<td>0.2%</td>
<td>-5.6%</td>
<td>-26.5%</td>
<td>-17.0%</td>
<td>-3.7%</td>
</tr>
</tbody>
</table>
 Business Confidence in the Euro Area Falls in July but Is Still Healthy 
by <a href="/comment/Curley.html">Louise Curley</a> August 7, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807e.jpg" width="353">
A number of Euro Area countries have reported wavering business confidence in July. Today, France&#39;s INSEE (Institute National de la Statistiques et des Etudes Economiques) released its measure of business confidence for the area as a whole. The measure declined in July to 112 from 113 in June and is below the recent peak of 114 last seen in September, 2006. Confidence, however, appears to be plateauing rather than declining sharply as at previous peaks, as can be seen in the first chart.
One of the reasons that might explain the fact that business confidence in the Euro Area has not gone off the cliff is that such factors as the slowdown in the U. S. and the rise in the Euro, which would ordinarily weaken confidence, have been offset by the rise in the demand for European exports from Asia. The second chart shows the Euro Area exports to Asia and to the U. S. In addition, as we noted yesterday German manufacturing orders from other Euro Area countries have recently risen sharply. This suggests that intra Euro Area activity, which is not affected by changes in the euro, is increasing. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807f.jpg" width="353">
Note: The European Business Confidence measure is based on six balance of opinion indicators: production over the past three months, production forecast for the next three months, inventories, order books, foreign order book and selling price expectations. The data are gathered from surveys in France, Germany, Italy, Spain, the Netherlands and Belgium. These six countries account for about 90% of the total Euro Area&#39;s GDP. The measure is conducted so that its average is 100 and has a standard deviation of 10..

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">EURO AREA&nbsp;</th>
<th scope="col">Jul&nbsp; 07</th>
<th scope="col">Jun 07&nbsp;</th>
<th scope="col">May&nbsp; 06&nbsp;</th>
<th scope="col">Apr 06&nbsp;</th>
<th scope="col">Mar 06&nbsp;</th>
<th scope="col">Feb 06</th>
<th scope="col">Jan 06</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">Business Confidence</td>
<td>112</td>
<td>113</td>
<td>112</td>
<td>113</td>
<td>111</td>
<td>111</td>
<td>111</td>
<td>112</td>
<td>102</td>
<td>106</td>
</tr>
<tr>
<td colspan="11">Euro Area&nbsp; Exports&nbsp; (Mil Euro)</td>
</tr>
<tr class="odd">
<td class="firstcol">To Asia</td>
<td>--</td>
<td>--</td>
<td>&nbsp; 24275</td>
<td>23754</td>
<td>23970</td>
<td>23915</td>
<td>24004</td>
<td>277184</td>
<td>243246</td>
<td>233896</td>
</tr>
<tr class="odd">
<td class="firstcol"> To U. S. </td>
<td>--</td>
<td>--</td>
<td>16603</td>
<td>16320</td>
<td>16099</td>
<td>16754</td>
<td>15743</td>
<td>199521</td>
<td>184992</td>
<td>172546</td>
</tr>
</tbody>
</table>
U.S. Productivity Missed 2Q Estimate, Cost Increase Fastest Since 2000 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 7, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807a.jpg" width="353">
Growth in non-farm labor productivity of 1.8% last quarter fell a bit short of Consensus forecasts for a 2.1% increase but it was the fastest since a 2.5% rise during 1Q06. The gain was up from the revised 0.7% increase during the first quarter but the average of the two at 1.2% barely exceeds the 1.0% gain last year and falls well short of 2.7% growth during 2004.
What Happened to the Gains From Strong Productivity Growth? from the Federal Reserve Bank of Kansas City can be found <a href="http://www.kansascityfed.org/Publicat/econrev/PDF/1q07will.pdf"> here</a>.
Output growth of 4.2% (2.0% y/y) also was the best since 1Q06 and was an acceleration from the 1.5% average of the prior four quarters.
Compensation growth held at an elevated 3.9% (5.2% y/y), the fastest y/y growth since 2000. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807b.jpg" width="353">
As a result, unit labor costs rose 2.1% during 2Q07 which was down from a 3.0% rise the prior quarter, but the 4.5 gain from the prior year also was the fastest since 2000.
The implicit price deflator rose 2.4% (2.0% y/y) and the increase lifted the ratio of prices to unit labor costs just slightly. It still well below the high during last year. During the last ten years there has been a 59% correlation between the ratio and the y/y growth in corporate profits.
Factory sector productivity grew 1.6% (2.9% y/y, about the same as during the prior quarter. Manufacturing compensation grew 2.8% (6.2% y/y) which was the fastest y/y gain since 2005. And though the 1.2% quarterly gain in unit labor costs was down from 5.0% during 1Q, the y/y gain of 3.2% in factory sector unit labor costs was the fastest since 2000.

<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/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">2Q &#39;07</th>
<th scope="col">1Q &#39;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 class="odd">
<td class="firstcol">Output per Hour</td>
<td>1.8%</td>
<td>0.7%</td>
<td>0.6%</td>
<td>1.0%</td>
<td>1.9%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Compensation</td>
<td>3.9%</td>
<td>3.7%</td>
<td>5.2%</td>
<td>3.9%</td>
<td>4.0%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>2.1%</td>
<td>3.0%</td>
<td>4.5%</td>
<td>2.9%</td>
<td>2.0%</td>
<td>0.9%</td>
</tr>
</tbody>
</table>
Chain Store Sales Rebound, Strong 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 7, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807c.jpg" width="353">
Chain store sales last week rebounded a strong 1.1% after the 0.2% decline during the prior week, according to the International Council of Shopping Centers (ICSC)-UBS. 
The rise pulled sales for all of July up 0.4% from June, modest because of many declines during the last eight weeks.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070807d.jpg" width="353">
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 0.7% (+0.2% y/y) last week and gave back much of a 1.2% rise during the prior week. 
Evaluating the Relative Strength of the U.S. Capital Markets from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/newsevents/news/research/2007/rp070730.html"> here</a>. 

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<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">07/28/07</th>
<th scope="col">07/21/07</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>486.5</td>
<td>481.3</td>
<td>3.2%</td>
<td>3.3%</td>
<td>3.6%</td>
<td>4.7%</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/070806e.jpg" width="353">
German new orders for manufacturing in nominal terms rose 4.65% in June from May. This was the largest month to month rise since December, 2004. The rise was due almost entirely to a rise in foreign orders, which rose 8.90% from May and 24.04% from June 2006. Domestic orders rose only 0.41% in June from May and were 11.75% above June 2006. Indexes for domestic and foreign new orders are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070806f.jpg" width="353">
The rise in foreign orders came from a 22.39% increase in orders from other Euro Zone countries. Orders from non Euro Zone countries actually declined by 2.70% in June, due perhaps to the continued rise in the Euro. Indexes of new orders from Euro Zone countries and non Euro Zone countries are shown in the second chart
The composition of German manufacturing new orders is heavily weighted by capital goods, reflecting Germany&#39;s engineering expertise. Capital goods new orders increased 8.61% in June from May, while consumer goods new orders declined 1.48% in the same period. Manufacturing new orders of capital and consumer goods are shown in the third chart.
Manufacturing sales, in contrast to new orders, declined 0.77% in June from May and were 7.02% above June, 2006. Domestic manufacturing sales were down 1.21% in June, while foreign sales managed a small increase of 0.20%. Foreign sales continue to be more dynamic than domestic as can be seen in the fourth chart. The increase in sales to other Euro Zone countries was a mere 0.07% and sales to non Euro Zone countries declined 0.44%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070806g.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070806h.jpg" width="353">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">GERMAN NEW ORDERS AND SALES (Nominal (2000=100))&nbsp;</th>
<th scope="col">Jun 07</th>
<th scope="col">May&nbsp; 07&nbsp;</th>
<th scope="col">Jun&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">New Orders</td>
<td>144.0</td>
<td>137.6</td>
<td>122.1</td>
<td>4.65</td>
<td>17.94</td>
<td>123.9</td>
<td>111.7</td>
<td>105.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Domestic</td>
<td>121.7</td>
<td>121.2</td>
<td>108.9</td>
<td>0.41</td>
<td>11.75</td>
<td>110.9</td>
<td>101.4</td>
<td>98.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Foreign</td>
<td>171.8</td>
<td>158.2</td>
<td>138.5</td>
<td>8.60</td>
<td>24.02</td>
<td>140.1</td>
<td>127.4</td>
<td>113.5</td>
</tr>
<tr>
<td class="firstcol"> &nbsp;&nbsp;&nbsp; Euro Zone </td>
<td>182.6</td>
<td>149.2</td>
<td>131.3</td>
<td>22.39</td>
<td>39.07</td>
<td>132.1</td>
<td>120.4</td>
<td>109.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Non Euro Zone</td>
<td>161.9</td>
<td>166.4</td>
<td>145.1</td>
<td>-2.70</td>
<td>11.58</td>
<td>147.4</td>
<td>128.6</td>
<td>117.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Capital Goods</td>
<td>156.5</td>
<td>144.1</td>
<td>123.9</td>
<td>8.61</td>
<td>26.31</td>
<td>127.5</td>
<td>116.1</td>
<td>107.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer Goods</td>
<td>113.5</td>
<td>115.2</td>
<td>102.9</td>
<td>-1.48</td>
<td>10.30</td>
<td>105.7</td>
<td>99.8</td>
<td>95.1</td>
</tr>
<tr>
<td class="firstcol">Sales</td>
<td>128.1</td>
<td>129.1</td>
<td>119.7</td>
<td>-0.77</td>
<td>7.02</td>
<td>119.6</td>
<td>110.6</td>
<td>105.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Domestic</td>
<td>114.4</td>
<td>115.8</td>
<td>108.5</td>
<td>-1.21</td>
<td>5.44</td>
<td>108.8</td>
<td>102.7</td>
<td>99.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign</td>
<td>151.3</td>
<td>151.6</td>
<td>138.5</td>
<td>-0.20</td>
<td>9.24</td>
<td>137.8</td>
<td>123.9</td>
<td>115.8</td>
</tr>
<tr class="odd">
<td class="firstcol"> &nbsp;&nbsp;&nbsp; Euro Zone </td>
<td>144.5</td>
<td>144.4</td>
<td>131.8</td>
<td>0.07</td>
<td>9.64</td>
<td>131.1</td>
<td>119.5</td>
<td>113.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Non Euro Zone</td>
<td>157.8</td>
<td>158.5</td>
<td>145.0</td>
<td>-0.44</td>
<td>8.83</td>
<td>144.2</td>
<td>128.1</td>
<td>118.1</td>
</tr>
</tbody>
</table>
</body>
</html>

German new orders for manufacturing in nominal terms rose 4.65% in June from May. This was the largest month to month rise since December, 2004. The rise was due almost entirely to a rise in foreign orders, which rose 8.90% from May [...]

June manufacturing New Orders in Germany Rise Sharply While Sales Show a Small Decline

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

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

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

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Nonfarm payrolls increased 147,000 (1.1% y/y) during June after rising 144,000 in May, revised from 139,000, and 158,000 in April, revised from 147,000. Expectations had been for a 113,000 rise in the Action Economics Forecast Survey. The three-month average change of 150,000 in June compared to 232,000 in January.

Average hourly earnings rose 0.2% during June after an unrevised 0.4% May gain, and a 0.2% April increase. Earnings growth of 3.7% y/y is down from a high of 4.2% last November, and has been trending lower from the 5.9% high in March 2022. A 0.3% increase expected for June.

The unemployment rate, measured in the household survey, fell m/m to 4.1%. It compared to 4.2% in May where it had been for three straight months. A rise to 4.3% was expected. 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, eased to 7.7% last month from 7.8% In May. It was 6.6% in April 2023.

In the **establishment survey**, private-sector employment in June rose 74,000 (1.0% y/y) after a 137,000 May increase. Factory sector jobs declined 7,000 (-0.7% y/y) for the second consecutive month. Construction sector employment increased 15,000 (1.4% y/y), after rising 6,000 in May.

Private service-producing sector employment increased 68,000 (1.2% y/y) in June after improving 141,000 in May. Increases varied greatly amongst service sector categories. Private education & health sector employment rose 51,000 (3.3% y/y) last month while leisure & hospitality employment rose 20,000 (1.4% y/y). Trade, transportation & utilities employment gained 3,000 (0.6% y/y) and financial activities employment improved 3,000 (1.0% y/y).

Government sector payrolls strengthened 73,000 (1.5% y/y) last month following a 7,000 rise in May. State government employment increased 47,000 (2.8% y/y) while the number of local government jobs rose 33,000 (1.7% y/y). Federal government payrolls fell 7,000 (-2.1% y/y), the fifth straight monthly decline.

Private-sector average hourly earnings rose 0.2% (3.7% y/y) in June following unrevised increases of 0.4% in May and 0.2% in April. Earnings in the goods-producing sector edged 0.1% (3.6% y/y) higher. In construction earnings rose 0.4% (3.9% y/y) but factory sector earnings eased 0.1% (+3.5% y/y). In the private services-sector, earnings rose 0.2% (3.7% y/y) in June.

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The length of the average workweek shortened to 34.2 hours in June from 34.3 hours in May. The workweek in the goods-producing sector was unchanged at 39.8 hours. The construction sector average workweek eased to 38.9 hours while the factory sector workweek held steady at 40.1 hours. The average workweek in the private service sector eased to 33.1 hours.

In the **household survey**, the unemployment rate dipped to 4.1% in June from 4.2% in May as employment rose 96,000 and the size of the labor force declined 130,000, off for the second straight month. The labor force participation rate eased to 62.3% last month and remained below the high of 63.3% early in 2020. The rate for teenagers plunged to 35.1%, a five-year low. For workers aged 20-24, the rate declined to 71.0%. For workers aged 25-54, the participation rate edged up to 83.5%. For individuals 55 and over, the rate eased to nearly a 20-year low of 38.0% in June.

The employment/population ratio for all workers held steady at 59.7% last month. It remained below the peak reading of 61.1% in February, 2020 just prior to the pandemic.

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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- Job growth improves with strength in state & local gov’t hiring.
- Earnings gain decelerates.
- Jobless rate falls to four-month low.

U.S. Job Growth Firms in June, While Earnings Growth & Jobless Rate Decline

Sandy Batten

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The U.S. trade deficit in goods and services (BOP basis) widened to $71.5 billion in May from a downwardly revised $60.3 billion in April (previously -$61.6 billion), according to the U.S. Census Bureau. The actual widening met the Action Economics Forecast Survey expectation. Exports fell 4.0% m/m (+5.3% y/y), the first monthly decline in five months, led by a 5.7% m/m decline in goods exports. Imports edged down 0.1% m/m (+3.3% y/y) in May after a 16.3% m/m plunge in April. Imports of goods have cooled markedly in the past two months after surging during Q1 as importers attempted to front run expected increases in tariffs.

The real (inflation adjusted) goods trade deficit widened to $92.5 billion (2017$) in May from $84.4 billion in April. The real trade deficit had widened to record levels during the first quarter with net exports subtracting 4.6%-points from Q1 GDP. The April/May figures put the real balance on course to narrow by roughly $150 billion in Q2 (at a quarterly rate), which would mean that net exports in the national accounts could add 2-1/2 to 3%-points to Q2 GDP.

The trade deficit in goods widened to $97.5 billion in May from $86.3 billion in April. Goods exports fell 5.7% m/m, the first monthly decline in five months. Exports of nonmonetary gold fell $5.5 billion (-56.4% m/m) while exports of finished metal shapes (which includes other forms of nonmonetary gold) fell $1.0 billion (-10.0% m/m). Both of these had surged in April, reflecting re-exports of previous nonmonetary gold imports that had risen markedly in Q1 in an attempt to front run expected tariff increases. More generally, exports of industrial supplies and materials slumped 13.3% m/m in May after a 16.1% m/m jump in April. Capital goods ex autos declined 3.1% m/m, and food exports fell 2.5% m/m, the fifth monthly decline in the past six months. In contrast, auto exports rebounded, rising 3.6% m/m, but failed to come close to reversing the 21.5% plunge in April. Exports of nonfood consumer goods ex autos posted a solid 6.9% monthly gain after having declined in each of the preceding two months.

Imports of goods edged down 0.1% m/m (+2.8% y/y) in May on top of a 19.9% monthly plunge in April, indicating that the surge in imports in Q1 ahead of expected tariff hikes has run its course. Auto imports jumped 10.3% m/m after a 19.9% monthly decline in April. Imports of “other” goods rebounded 8.4% m/m in May following a 3.3% m/m decline in April. In contrast, imports of industrial supplies and materials fell 1.8% m/m, the fourth consecutive monthly decline. Imports of nonfood consumer goods ex autos fell 5.7% m/m on top of a 32.0% drop in April. Food imports posted a small monthly decline while imports of capital goods ex autos posted a small increase.

The services trade surplus narrowed marginally to $25.99 billion in May from $26.05 billion in April. Exports of services slid 0.2% m/m after a 2.2% monthly increase in April. Exports of transport services fell 2.0% m/m, the third monthly decline in the past four months. Travel exports declined 1.8% m/m, the fourth monthly decline in the past five months. In contrast, maintenance services exports rose 2.1% m/m; exports of insurance services increased 1.5% m/m; exports of intellectual property rose 0.9% m/m; and construction service exports gained 1.4% m/m. Services imports declined 0.2% m/m in May, the first monthly decline in three months. Imported transport services fell 3.3% m/m, the fourth monthly decline in the past five months. Travel imports declined 1.0% m/m, also the fourth monthly decline in the past five months. In contrast, imported construction services jumped 3.9% m/m and imported intellectual property rose 1.6% m/m.

The U.S. goods trade deficit with China narrowed markedly to a seasonally adjusted $14.0 billion from $19.7 billion in April and $24.2 billion March. This is the smallest monthly deficit with China in the history of the series, which dates back to 2009. Exports to China plunged 19.9% m/m while imports from China plummeted 26.3% m/m. The trade deficit with the European Union widened to $22.5 billion from $17.9 billion in April. The trade deficit with Japan narrowed marginally to $5.77 billion in May from $5.81 billion in April.

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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- Trade deficit widened in May on decline in goods exports.
- Still, the real deficit in April/May points to net exports making a meaningful positive contribution to Q2 GDP.
- Both exports and imports declined in May.
- Series low trade deficit with China.

U.S. Trade Deficit Widened in May

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance were 233,000 in the week of June 28, down 4,000 from 237,000 in the week ending June 21, revised from 236,000. The Action Economics Forecast Survey expected 240,000. These data are seasonally adjusted by the Department of Labor. The 4-week moving average was 241,500, a decrease of 3,750 from the previous week’s average of 245,250, revised from 245,000.

The total number of unemployment insurance beneficiaries – also known as “continuing claims” – in the week ended June 21 was 1.964 million, unchanged from the prior week’s level, which was revised down from 1.974 million. The 4-week moving average was 1.954 million, up from 1.938 million in the previous week, revised from 1.941 million. This is the highest level for this average since November 20, 2021, when it was 2.004 million.

The insured unemployment rate for the week ending June 21, that is, the number of unemployment beneficiaries as a % of covered employment, was unchanged at 1.3% for the fourth consecutive week.

Economic conditions vary widely across states and territories. In the week ended June 14, the highest unemployment rates were in New Jersey (2.23%), Minnesota (2.22%), Puerto Rico (2.20%), California (2.16%), Washington (1.98%), and Rhode Island (1.95%). The lowest rates were in South Dakota (0.27%), Florida (0.41%), North Carolina (0.47%), and Alabama (0.48%). Rates in other notable states include Pennsylvania (1.71%), Illinois (1.67%), New York (1.55%), and Texas (1.26%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Initial claims for unemployment insurance declined by 4,000 in the week ended June 28.
- Total number of beneficiaries was unchanged in the week of June 21 week.
- The insured unemployment rate was unchanged at 1.3%.

U.S. Initial Jobless Claims Decreased in Latest Week

Andrew Cates

**The Blue Chip interest rate consensus**
The latest Blue Chip Financial Forecasts survey suggests that monetary policy across most major advanced economies is expected to loosen modestly over the next six months. Central banks in the US, Canada, UK, Australia, and the euro area are all forecast to cut rates to varying degrees, with Australia expected to deliver the largest reduction. In contrast, Japan continues to stand out as the only major economy where forecasters see scope for a slight increase in rates, highlighting its unique position in the global policy cycle. Overall, the chart reflects a broad but uneven tilt towards monetary easing as policymakers respond to softer inflation and growth signals.

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**The US dollar and data surprises** 
This next chart shows that the recent bout of US dollar weakness has coincided with a period in which US economic data surprises have turned more negative relative to the euro area. The surprise index differential between the US and euro area —measuring US growth surprises minus euro surprises—has declined, pointing to a run of weaker-than-expected US data and stronger euro area outturns. Historically, this has tended to pull the euro higher relative to the dollar. However, the scale of the dollar’s recent slide appears larger than the data surprises alone would imply, suggesting that other forces are potentially weighing on the currency as well.

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**US stagflation risk**
Latest ISM manufacturing survey data highlight a worrying decoupling between input costs and underlying demand that points to potential stagflation pressures in the US economy. Historically, the ISM New Orders Index and the Prices Paid Index have tended to move broadly in sync, reflecting cycles where stronger demand drives both production and cost pressures higher. However, the chart shows that while prices paid have recently rebounded sharply, new orders have remained subdued and stuck near contractionary territory. This breakdown suggests that firms are facing rising input costs without a corresponding pickup in demand—an imbalance that could be amplified by US tariff measures, which tend to push up costs for imported materials and components while weighing on new orders through weaker trade flows.

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**US Supply Chain Risks** 
Added to this, the number of vessels queuing at the Los Angeles and Long Beach harbours has climbed to elevated levels in recent weeks, highlighting supply chain bottlenecks on the US West Coast. While various factors may be driving this congestion—including seasonal trade patterns and shifts in global shipping routes—recent tariff measures could be contributing as well. New or increased tariffs sometimes distort normal trade flows by prompting importers to front-load shipments ahead of cost increases or reroute sourcing strategies in ways that strain particular ports.

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**Global warming** 
Pivoting to more structural issues, the next chart highlights the persistent upward trend in global surface temperature anomalies over the past century, with both land and ocean temperatures now averaging well over one degree Celsius. This long-term warming signal continues to manifest in extreme weather events and record-breaking heat waves, including the unusually high temperatures that have swept parts of Europe in recent days, pushing June readings to historic highs in several regions.

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**Climate change and productivity** 
This final chart illustrates the projected impact of heat stress on labour productivity in Europe under current climate policy scenarios, highlighting how rising temperatures could steadily erode worker efficiency over the coming decades. As shown, the median estimates from the Climate Analytics group suggest that productivity losses could deepen from around 0.3 percentage points today to nearly 0.9 percentage points by mid-century if climate conditions remain unchanged. These figures reflect the physical limits of the human body’s capacity to perform work in increasingly hot and humid environments, a challenge that will become more acute if climate change continues on its current path. With recent record-high June temperatures across parts of Europe underscoring the reality of more frequent heat extremes, these projections serve as a clear reminder of the economic stakes involved in addressing climate risks and investing in adaptation measures to protect labour productivity and economic resilience.

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Financial markets have remained generally buoyant in recent days, with global equity indices advancing on the back of relatively upbeat global growth data, benign European inflation readings and the prospect of further policy easing from major central banks. At the same time, the US dollar has continued to weaken, reflecting a run of disappointing US economic data and rising investor concerns about the fiscal outlook, even as European growth surprises have turned more positive. This divergence, combined with the prospect of lower US policy rates relative to some (though not all) peers, has added to the dollar’s drift lower (charts 1 and 2). Supply chain strains—highlighted by elevated vessel queues at US West Coast ports—also feed into the narrative that US tariff measures may be contributing to sticky input costs and stagflation risks (charts 3 and 4). Meanwhile, record temperatures in parts of Europe this week have reinforced the climate challenge facing policymakers, with the final two charts illustrating how rising global temperatures and heat stress could increasingly weigh on productivity and growth potential if left unchecked. With trading volumes light ahead of the July 4th holiday and markets awaiting tomorrow’s US non-farm payrolls report, the interplay between softer US data, resilient equities, a weaker dollar, and climate-related risks remains firmly in focus.

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Charts of the Week: Headwinds and Heatwaves

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The ADP National Employment Report reported that nonfarm private sector payrolls declined 33,000 (+1.1% y/y) during June after rising 29,000 in May, revised from 37,000 and increasing an unrevised 60,000 in April. It was the first monthly decline since March 2023. A 110,000 June rise had been expected in the in the Action Economics Forecast Survey.

Small business hiring (less than 50 employees) declined 47,000 (+0.4% y/y), after falling 13,000 in May. These were the first back-to-back monthly declines since the end of 2023. Employment at medium-sized firms (50-499,000 employees) declined 15,000 (1.1% y/y), after rising 46,000 in May, revised from 49,000. Large business hiring (500+ employees) increased 30,000 (2.7% y/y) after easing 4,000 in May.

Goods-producing employment rose 32,000 (1.4% y/y) in June after falling a minimally revised 3,000 in May. Manufacturing jobs increased 15,000, unchanged y/y, following a 6,000 decline in May. The number of construction sector jobs rose 9,000 (2.8% y/y) after increasing 6,000 in May. Natural resources & mining jobs rose 8,000 (4.3% y/y) in June after falling 3,000 in May.

The decline in payrolls overall reflected weakness in the service sector where the number of service-producing jobs declined 66,000 last month (+1.1% y/y) after increasing 32,000 in May, revised from 36,000. Professional & business services employment fell 56,000 (+0.2% y/y), after declining 13,000 in May. These weak readings came after a 1,000 April gain and a 46,000 March increase. Education & health services employment declined 52,000 (+0.8% y/y), the third consecutive month of decline. Employment in the financial industry weakened 14,000 (+1.8% y/y) last month, after rising 17,000 in May.

Offsetting these declines, leisure & hospitality employment increased 32,000 in June (3.2% y/y), following a 43,000 May gain. Monthly increases have averaged 36,000 this year. Trade, transportation & utilities employment increased 14,000 (0.3% y/y) after falling 8,000 in May. Information sector employment rose 5,000 (0.2% y/y) after a 4,000 May increase and a 10,000 April decline. Employment in “other” services sectors rose 5,000 in June (2.9% y/y), the same as in May.

Growth in median annual pay for "job stayers" slipped to 4.4% y/y in June, down from a high of 7.8% in September 2022. Manufacturing sector pay grew 4.6% y/y, steady with May. Construction sector pay also rose a steady 4.6% y/y. Natural resource & mining sector pay grew 4.5% y/y last month. Financial sector earnings rose an improved 5.2% y/y, while education & health services pay rose a lessened 4.6% y/y. Leisure & hospitality pay increased 4.7% y/y in June. Professional & business service sector pay increased a lessened 4.2% y/y as did trade, transportation & utilities pay, up 4.2% y/y. Information pay rose a lessened 4.1% y/y. Median annual pay for “job changers” rose 6.8% y/y in June, down from a high of 16.1% y/y in April 2022.

By region, employment in the Midwest declined 24,000 (+1.3% y/y) to 28,761 million after a 17,000 rise in May. Employment in the West, declined 20,000 to 31,363 million (+0.5% y/y) last month, and reversed a 31,000 rise during May. Employment in the Northeast fell 3,000 to 24,116 million (+1.4% y/y) in June, following a 23,000 decline in May. Partially offsetting these declines, in the South employment increased 13,000 to 50,092 million (1.0% y/y) in June, after rising 2,000 in May.

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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- Employment declines in several service industries; factory & building industry jobs rise.
- Wage growth moderates further.
- Small- & medium-sized shed jobs.

Economy in Brief: August 2007

Jump to:

U.S. Mortgage Applications Surge

CPI Inflation Restrained in Czech Republic, Moderate in Lithuania and Very Fast in Latvia

Business Confidence in the Euro Area Falls in July but Is Still Healthy

German IP Weakens as Orders Surge

Chain Store Sales Rebound, Strong

U.S. Productivity Missed 2Q Estimate, Cost Increase Fastest Since 2000

German IP Weakens as Orders Surge

June manufacturing New Orders in Germany Rise Sharply While Sales Show a Small Decline