Robert Brusca

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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>
<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>
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<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>
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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…

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071005i.jpg" width="353">
Household confidence in France fails to climb to or above -10.
The chart on French consumer confidence shows that there is something around the level of -10 on the index that seems critical to the development of the direction on the index. In 1994-95 the index was about to move above +10 and eventually dipped to -30 before soaring above -10 to reach a peak of +10 in late 2000. From that peak confidence fell but once it broke below 10 in 2002 its fall accelerated. Now as confidence has tried to recover again it has once again failed to reach -10 or to climb above it. With that failure, confidence has fallen back sharply. Various line items on confidence are weak with the exception of plans to save with that indicator in the top 12 percent of its lifetime range.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<th scope="col" colspan=11>INSEE Household Monthly Survey</th>
</tr>
<tr>
<th scope="col">&nbsp;</th>
<th scope="col">&nbsp;</th>
<th scope="col">&nbsp;</th>
<th scope="col">&nbsp;</th>
<th scope="col">&nbsp;</th>
<th scope="col" colspan=2>Since Jan 1990</th>
<th scope="col" colspan=4>Since Jan 1990</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Sep 07</td>
<td>Aug 07</td>
<td>Jul 07</td>
<td>Jun 07</td>
<td>Percentile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
</tr>
<tr>
<td class="firstcol">Household Confidence</td>
<td>-21</td>
<td>-17</td>
<td>-15</td>
<td>-13</td>
<td>27.9</td>
<td>109</td>
<td>10</td>
<td>-33</td>
<td>43</td>
<td>-17</td>
</tr>
<tr class="even">
<td class="firstcol" colspan="11">Living Standards</td>

</tr>
<tr>
<td class="firstcol">past 12 Mos</td>
<td>-50</td>
<td>-47</td>
<td>-46</td>
<td>-45</td>
<td>19.0</td>
<td>139</td>
<td>18</td>
<td>-66</td>
<td>84</td>
<td>-37</td>
</tr>
<tr>
<td class="firstcol">Next 12-Mos</td>
<td>-26</td>
<td>-17</td>
<td>-11</td>
<td>-3</td>
<td>28.1</td>
<td>115</td>
<td>15</td>
<td>-42</td>
<td>57</td>
<td>-18</td>
</tr>
<tr>
<td class="firstcol">Unemployment: Next 12</td>
<td>13</td>
<td>0</td>
<td>-8</td>
<td>-8</td>
<td>45.5</td>
<td>152</td>
<td>73</td>
<td>-37</td>
<td>110</td>
<td>30</td>
</tr>
<tr class="even">
<td class="firstcol" colspan=11>Price Developments</td>

</tr>
<tr>
<td class="firstcol">Past 12Mo</td>
<td>9</td>
<td>5</td>
<td>1</td>
<td>-8</td>
<td>75.9</td>
<td>27</td>
<td>30</td>
<td>-57</td>
<td>87</td>
<td>-20</td>
</tr>
<tr>
<td class="firstcol">Next 12-Mos</td>
<td>-15</td>
<td>-20</td>
<td>-26</td>
<td>-28</td>
<td>49.5</td>
<td>16</td>
<td>31</td>
<td>-60</td>
<td>91</td>
<td>-34</td>
</tr>
<tr class="even">
<td class="firstcol" colspan=11>Savings</td>

</tr>
<tr>
<td class="firstcol">Favorable to save</td>
<td>36</td>
<td>35</td>
<td>33</td>
<td>34</td>
<td>88.9</td>
<td>8</td>
<td>40</td>
<td>4</td>
<td>36</td>
<td>23</td>
</tr>
<tr>
<td class="firstcol">Ability to save Next 12</td>
<td>-6</td>
<td>-5</td>
<td>-4</td>
<td>-4</td>
<td>58.6</td>
<td>67</td>
<td>6</td>
<td>-23</td>
<td>29</td>
<td>-8</td>
</tr>
<tr class="even">
<td class="firstcol" colspan="11">Spending</td>

</tr>
<tr>
<td class="firstcol">Favorable for major purchase</td>
<td>-8</td>
<td>-6</td>
<td>-3</td>
<td>-7</td>
<td>58.6</td>
<td>51</td>
<td>16</td>
<td>-42</td>
<td>58</td>
<td>-12</td>
</tr>
<tr class="even">
<td class="firstcol" colspan=11>Financial Situation</td>

</tr>
<tr>
<td class="firstcol">Current</td>
<td>16</td>
<td>15</td>
<td>15</td>
<td>14</td>
<td>61.9</td>
<td>39</td>
<td>24</td>
<td>3</td>
<td>21</td>
<td>12</td>
</tr>
<tr>
<td class="firstcol">Past 12 MOs</td>
<td>-15</td>
<td>-14</td>
<td>-14</td>
<td>-11</td>
<td>54.5</td>
<td>68</td>
<td>-5</td>
<td>-27</td>
<td>22</td>
<td>-16</td>
</tr>
<tr>
<td class="firstcol">Next 12-Mos</td>
<td>-4</td>
<td>-3</td>
<td>-1</td>
<td>4</td>
<td>44.4</td>
<td>159</td>
<td>11</td>
<td>-16</td>
<td>27</td>
<td>0</td>
</tr>
<tr class="grey1">
<td colspan="11" class="firstcol">Number of observations in the period 208</td>
</tr>
</tbody>
</table>
</body>
</html>

Household confidence in France fails to climb to or above -10. The chart on French consumer confidence shows that there is something around the level of -10 on the index that seems critical to the development of the direction on the [...]

French Household Confidence Takes Sharp Reversal

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071005h.jpg" width="353">
THE OECD leading economic indicators trend adjusted are showing a sharp moderation in the regional key indexes. The US is reversing sharply after embarking on a strong upturn earlier in the year. The Euro area is continuing to show waning momentum as that index works its way lower from its peak in mid-2006. Japan is sliding lower at a sharp pace that belies the optimism policy officials there embrace.
The OECD prefers to look over six-month horizons on its indicators so the table below arrays them two different ways. The six-month panel at the table bottom shows why the OECD talks of the indicators as pointing to moderation in growth. Only Europe and Japan are declining on the six-month horizon among these three main areas, yet all but the US are decelerating. The OECD area as a whole has its trend restored LEI rising with the index up by 09%.
But the three-month rate of change at the top of the table tells the story that the circumspect OECD does not want to center on. Yes, these are more volatile calculations and they could be reversed. But the shorter three-month trend tells us that all of these regions are pointing to a decline. Unless some stability sets in soon the six-month indexes will soon be reflecting this same sort of weakness and will point to DECLINES as well. On both approaches Japan looks like it is in trouble. These signals are not compatible with central banks hiking rates anytime soon.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th colspan=5 scope="col">OECD Trend-Restored Leading Indicators</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td colspan="5" class="firstcol">Growth Progression-SAAR</td>
</tr>
<tr class="grey2">
<td class="firstcol">&nbsp;</td>
<td>3Mos</td>
<td>6Mos</td>
<td>12mos</td>
<td>Yr-Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD</td>
<td style="color:red;">-1.8%</td>
<td style="color:red;">0.9%</td>
<td style="color:red;">1.3%</td>
<td>2.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD 7</td>
<td style="color:red;">-2.7%</td>
<td style="color:red;">0.6%</td>
<td style="color:red;">0.7%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Europe</td>
<td style="color:red;">-3.0%</td>
<td style="color:red;">-0.7%</td>
<td style="color:red;">0.3%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Japan</td>
<td style="color:red;">-7.6%</td>
<td style="color:red;">-4.3%</td>
<td style="color:red;">-1.9%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD US</td>
<td style="color:red;">-0.3%</td>
<td>3.1%</td>
<td style="color:red;">2.1%</td>
<td>2.2%</td>
</tr>
<tr class="grey4">
<td colspan="5" class="firstcol">Six-Month Readings at 6-Mo Intervals:</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Recent six</td>
<td>6Mo Ago</td>
<td>12Mo Ago</td>
<td>18MO Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD</td>
<td style="color:red;">0.9%</td>
<td>1.7%</td>
<td style="color:red;">0.8%</td>
<td>4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD 7</td>
<td style="color:red;">0.6%</td>
<td>0.8%</td>
<td style="color:red;">-0.1%</td>
<td>4.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Europe</td>
<td style="color:red;">-0.7%</td>
<td style="color:red;">1.2%</td>
<td>2.4%</td>
<td>1.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD.Japan</td>
<td style="color:red;">-4.3%</td>
<td>0.7%</td>
<td style="color:red;">0.2%</td>
<td>4.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">OECD US</td>
<td>3.1%</td>
<td>1.1%</td>
<td style="color:red;">-0.9%</td>
<td>5.4%</td>
</tr>
<tr class="grey1">
<td colspan="5" class="firstcol">Slowdowns indicated by BOLD RED</td>
</tr>
</tbody>
</table>
</body>
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THE OECD leading economic indicators trend adjusted are showing a sharp moderation in the regional key indexes. The US is reversing sharply after embarking on a strong upturn earlier in the year. The Euro area is continuing to show [...]

OECD Indicators Show Moderation in Growth Ahead

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071005e.jpg" width="353">
For the last 5 years, the European Central Bank (ECB) has conducted a quarterly survey of senior bank lending officers at a representative sample of European banking institutions. Ordinarily, the survey takes place during the first month of each quarter with reference to the prior quarter (&quot;past 3 months&quot;) and the outlook for the current quarter (&quot;next 3 months&quot;). This time, however, the survey was advanced by a month to gain an earlier reading on the impact of the recent turmoil in world credit markets. The results do suggest that this situation has indeed had an impact.
Banks reported a sharp turn in lending policy toward businesses. They had been in a trend of gentle easing of credit standards since the middle of 2004, with readings in most quarters ranging from 0 to -10, where negative numbers indicate that more banks are easing than tightening up on lending practices and credit availability. In July, this measure was -3 but in this survey, just two months later (late September), it was +31 as many more banks shifted toward lending restraints on business customers. Details show this move was more potent for large companies (-1 to +33) as against small and medium-size firms (-7 to +15). It also hit long-term loans (-4 to +30) over short-term (-2 to +16). The survey also inquires about banks&#39; expectations for their strategy in the coming three months; they look for about the same degree of tightening during Q4, at +28.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071005g.jpg" width="353">
Businesses&#39; demand for loans continued to expand in the latest survey, but at fewer banks than before. The demand reading was +17 in the July survey and averaged +19 in 2006. This latest figure is just +5, although bankers look for +11 in coming months.
Trends on loans to households differ. Banks report that they have tightened somewhat on home purchase lending, from a -1 rating in July to +12 in September; they expect slight further firming on credit conditions in the next few months, to +15. In contrast, they continued easing up on consumer credit and other loans, from -1 before to -3 most recently. They do, though, expect to tighten noticeably during Q4, to +11.
The bankers say that household loan demand is fairly weak, but this is also not a recent development. Demand for home purchase loans has been shrinking since Q4 2006, and in the latest two quarters has actually become somewhat less negative. The worst reading was April&#39;s -28, with a relative improvement to -22 in July and -15 in this latest survey. More weakening is anticipated, though, to -29 in the next 3 months. Other household lending has shown marginal gains in these last two quarters, although much less than earlier, as highlighted in the graph. A tiny net reduction is expected for the remainder of the year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071005f.jpg" width="353">
This survey shows significant alterations in credit policies, then, in the very most recent months, along with slowing credit demands. These new trends are mostly expected to continue. The main intended use for this survey is a source of information for the ECB policymakers, and these results would seem to describe that lending institutions themselves are tightening credit, even without any further rate change by the ECB since June.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">ECB Lending Survey, Net %-ages</th>
<th scope="col">Next 3 Months, Oct 2007</th>
<th scope="col" colspan="6">Past 3 Months</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>Oct 2007</td>
<td>July 2007</td>
<td>2006</td>
<td>2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr class="even">
<td colspan="8" class="firstcol">Credit Standards:&nbsp;&nbsp; + = Tighten, - = Ease</td>

</tr>
<tr>
<td class="firstcol">Business Loans</td>
<td>28</td>
<td>31</td>
<td>-3</td>
<td>-3</td>
<td>-7</td>
<td>7</td>
<td>40</td>
</tr>
<tr>
<td class="firstcol">Housing Loans</td>
<td>15</td>
<td>12</td>
<td>-1</td>
<td>-3</td>
<td>-3</td>
<td>4</td>
<td>12</td>
</tr>
<tr>
<td class="firstcol">Consumer Credit</td>
<td>11</td>
<td>-3</td>
<td>-1</td>
<td>-4</td>
<td>-3</td>
<td>1</td>
<td>15</td>
</tr>
<tr class="even">
<td class="firstcol" colspan="8">Loan Demand</td>

</tr>
<tr>
<td class="firstcol">Business Loans</td>
<td>11</td>
<td>5</td>
<td>17</td>
<td>19</td>
<td>1</td>
<td>-8</td>
<td>-26</td>
</tr>
<tr>
<td class="firstcol">Housing Loans</td>
<td>-29</td>
<td>-15</td>
<td>-22</td>
<td>15</td>
<td>18</td>
<td>13</td>
<td>27</td>
</tr>
<tr>
<td class="firstcol">Consumer Credit</td>
<td>-1</td>
<td>2</td>
<td>5</td>
<td>22</td>
<td>6</td>
<td>4</td>
<td>-3</td>
</tr>
</tbody>
</table>
</body>
</html>

For the last 5 years, the European Central Bank (ECB) has conducted a quarterly survey of senior bank lending officers at a representative sample of European banking institutions. Ordinarily, the survey takes place during the first [...]

Euro-Area Banks Tighten Lending Policies, According to Latest ECB Survey

Tom Moeller

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<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071005a.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071005d.jpg">
September nonfarm payrolls increased 110,000, slightly ahead of expectations for a 100,000 rise. And like a bad dream gone with the light of the next day, the previously reporteddecline in August payrolls was revised away and now shows an 89,000 increase. Adding to the good news was an upward revision to the July job gain as well.
Aggregate hours worked rose 1.2% (AR) last quarter versus a 2.1% increase during 2Q. This slowdown very much suggests slower growth in GDP versus the 3.8% 2Q rise.
From the establishment survey, the big upward revision to August jobs was to government payrolls, now estimated up 57,000 (1.0% y/y) versus the previously reported 28,000 decline. In September, government payrolls rose 37,000.
The increase in September private service sector jobs is now pegged at 106,000 and the previously reported 88,000 August gain now stands at 96,000. This year, these industries added an average of 123,000 per month versus last year&#146;s average of 159,000 per month.
The detail shows that retail employment fell 5,200 (+0.7% y/y) in September, the first decline since June. Financial sector jobs fell 14,000 (+0.5% y/y), the same as during a downwardly revised August. Professional &amp; business services employment rose 21,000 (1.8% y/y) after an upwardly revised 18,000 August increase.
Factory sector payrolls fell 18,000 (-1.6 y/y) after a little revised 45,000 worker decline during August. The accompanying chart indicates that these declines are at odds with the recent ISM reports of job growth in manufacturing.
Construction employment fell yet again, by 14,000 last month after an unrevised 22,000 worker decline during August. Construction employment has fallen an average 8,000 per month this year versus an average 11,000 increase per month during 2006.
The unemployment rate ticked up to 4.7% last month as household employment surged 463,000 (0.9% y/y), more than making up a 316,000 August decline. The number of job losers fell 40,000 (+12.0 % y/y) after an 11,000 August decline. The average duration of unemployment fell sharply to 16.5 weeks and that&#39;s down from the recent peak of 17.3 weeks during March. The labor force also more than made for the prior month&#39;s decline with a 573,000 (1.1% y/y) jump. The labor force participation rate recovered to 66.0% after its August dip to 65.8% which was the lowest since March 2005. The BLS commentary for the August drop was that much of it occurred amongst teenagers, who were apparently returning to school.
Average hourly earnings increased 0.4% after two monthly increases of 0.3%. As the chart shows these gains have decelerated lately. Factory sector earnings rose 0.2% (3.1% y/y) for the second month and private service producing earnings rose 0.4% for the fourth month in the last five.
Today&#39;s speech by Federal Reserve Vice ChairmanDonald L. Kohn on the Economic Outlook can be found <a href="http://www.federalreserve.gov/newsevents/speech/kohn20071004a.htm"> here</a>.
<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071005c.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071005b.jpg">
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a> : 000s</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">July</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">Payroll Employment</td>
<td>110</td>
<td>89</td>
<td>93</td>
<td>1.2%</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Previous</td>
<td>--</td>
<td>-4</td>
<td>68</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-18</td>
<td>-45</td>
<td>-4</td>
<td>-1.6%</td>
<td>-0.2%</td>
<td>-0.6%</td>
<td>-1.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>-14</td>
<td>-22</td>
<td>-16</td>
<td>-1.4</td>
<td>4.8%</td>
<td>5.2%</td>
<td>3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.8</td>
<td>33.8</td>
<td>33.8</td>
<td>33.8 (Sept &#39;06)</td>
<td>33.8</td>
<td>33.8</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.4%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>4.1%</td>
<td>3.9%</td>
<td>2.8%</td>
<td>2.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.7%</td>
<td>4.6%</td>
<td>4.6%</td>
<td>4.6% (Sept &#39;06)</td>
<td>4.6%</td>
<td>5.1%</td>
<td>5.5%</td>
</tr>
</tbody>
</table>
</body>
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September nonfarm payrolls increased 110,000, slightly ahead of expectations for a 100,000 rise. And like a bad dream gone with the light of the next day, the previously reporteddecline in August payrolls was revised away and now [...]

Like a Bad Dream Ended, September U.S. Payrolls and Revisions Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071004d.jpg" width="353">
It&#39;s widely known that the housing market has been in a deep slump. And it&#39;s also said that the impact is not uniform across the country, but is concentrated in a number of select states. Some evidence for that arrived this morning in the form of housing starts data by state.
Ah, but the Census Bureau doesn&#39;t produce starts data for states, you argue. Indeed. But the researchers at Bank of Tokyo-Mitsubishi UFJ compile surrogates from the Census Bureau&#39;s building permits data and from the starts data for regions and their seasonal factors. The BOT-Mitsubishi series are available in Haver&#39;s REGIONAL database. The underlying building permits are in Haver&#39;s collection of state, county and metro area PERMITS databases.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071004e.jpg" width="353">
In August, then, total national housing starts fell 36,000 units (SAAR) or 2.6% from July. They are 41.9% below their peak in January 2006. The regions are all quite distinct from the national total and from each other. In the Northeast, the Census data show that starts had moderate erosion until this last month; a 37.8% drop in that one month put them 60.2% below their peak, which was also in January 2006. This is now the biggest decline from peak of any region. In the West, starts fell 18.4% in August; they are now 53.5% below their peak, which occurred back in August 2005. In the other two regions, the South and the Midwest, starts rose in August. In the South, they were up 11.4%, and 4.2% in the Midwest. The South&#39;s activity level is 38.1% below its peak in January 2006 and the Midwest&#39;s, 44.5% below its peak in February 2005.
It is actually the Midwest that is perhaps most interesting.Recent mortgage delinquency data show a concentration of difficulties in this area, with Michigan and Ohio both experiencing significantly worse performances than most other states. But in both cases, construction of new houses has started to move higher. According to the Bank of Tokyo-Mitsubishi calculations, starts in Michigan, seen in the second graph, have risen from a mere 12,600 (seasonally adjusted annual rate) six months ago to 30,110 in August. This is still quite low by historical comparison, but the climb has been steady and progressive through the spring and summer. In Ohio, starts are up just moderately, but they have remained higher all year long since an apparent trough in January. The bottom in Illinois is more recent, April, but the pattern since then gives signs of stability.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071004f.jpg" width="353">
The performances in other states indicate wide divergence. An easy comparison is between the two big Southern states, Florida and North Carolina. Both are well down in the last 18 months or so, but the plunge in Florida housing activity has been far steeper, 62% from a peak in February 2006. North Carolina&#39;s starts have held up relatively better, with a 25% decline since January 2006. Both states saw modest increases in August, but their monthly changes are erratic enough to keep us from concluding that there&#39;s an outright upturn in the works. The sudden drop in the Northeast occurred in New York, where starts plunged from 62,000 in July to just 29,000 in August; one state in the region saw an increase, New Jersey, but only modestly.
August starts were down in nearly every state in the West. California is perhaps most notable, but others, even those that had been hovering in a narrow range, saw their activity decline in the month. Ironically, one state we&#39;ve heard a lot about from a mortgage quality standpoint, Nevada, actually saw its housing starts increase, reaching their best level since April. Even so, the pace there, at 23,000 annual rate in August, is still only about half what it was two years before.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Housing Starts, 000, SAAR</th>
<th scope="col">Aug 2007</th>
<th scope="col">July 2007</th>
<th scope="col">June 2007</th>
<th scope="col">Peak</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 US</td>
<td>1,331</td>
<td>1,367</td>
<td>1,468</td>
<td>2,292 (Jan 2006</td>
<td>1,801</td>
<td>2,068</td>
<td>1,956</td>
</tr>
<tr>
<td class="firstcol">Northeast</td>
<td>96</td>
<td>154</td>
<td>156</td>
<td>241 (Jan 2006)</td>
<td>167</td>
<td>190</td>
<td>175</td>
</tr>
<tr class="odd">
<td class="firstcol">Midwest</td>
<td>248</td>
<td>238</td>
<td>232</td>
<td>446 (Feb 2005)</td>
<td>28</td>
<td>357</td>
<td>356</td>
</tr>
<tr>
<td class="firstcol">South</td>
<td>716</td>
<td>643</td>
<td>726</td>
<td>1,156</td>
<td>910</td>
<td>996</td>
<td>908</td>
</tr>
<tr class="odd">
<td class="firstcol">West</td>
<td>271</td>
<td>332</td>
<td>354</td>
<td>583</td>
<td>444</td>
<td>525</td>
<td>516</td>
</tr>
</tbody>
</table>
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It's widely known that the housing market has been in a deep slump. And it's also said that the impact is not uniform across the country, but is concentrated in a number of select states. Some evidence for that arrived this morning in [...]

Housing Starts by State: Weak, Yes, But Gains in August Where You Wouldn't Expect

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071004c.jpg" width="353">
In yet another sign of weakness in the U.S. housing market, the National Association of Realtors indicated that the August level of pending home sales fell 6.5% from July and 21.5% from one year earlier.
The latest monthly figure is 31.2% below the peak average level during 2005. The data date back only to 2001. These are home sales under contract but not yet closed.
In further confirmation of the slow rate of home sales, the Realtors indicated in an earlier report that the number of homes on the market and available for sale rose slightly in August to a level 19.2% above the year earlier level.
In the Western part of the nation, the down trend in pending home sales is most severe with a 27.1% drop.
Despite that relative severity out West, the drop in pending home sales is large and pervasive. In the Northeast, pending home sales are down 19.3%. That decline compares to an 18.0% decline in the Midwest and a 21.3% drop in the South.
The pending home sales data are available in Haver&#39;s PREALTOR database and the number of homes on the market are in the REALTOR database.
Whose part is it? Measuring domestic content of vehicles from the Federal Reserve bank of Chicago is available <a href="http://www.chicagofed.org/publications/fedletter/cfloctober2007_243.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Pending Home Sales (2001=100) </a></th>
<th scope="col">August</th>
<th scope="col">July</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</td>
<td>85.5</td>
<td>91.4</td>
<td>-21.5%</td>
<td>112.1</td>
<td>124.2</td>
<td>120.5</td>
</tr>
</tbody>
</table>
</body>
</html>

In yet another sign of weakness in the U.S. housing market, the National Association of Realtors indicated that the August level of pending home sales fell 6.5% from July and 21.5% from one year earlier. The latest monthly figure is [...]

U.S. Pending Home Sales Collapse

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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The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) rose 0.6% (-3.6% y/y) during the four weeks ended May 9, 2025. The improvement followed sharp declines in April.

Miscellaneous group prices increased 2.4% (5.9% y/y) over the last four weeks. Natural rubber price soared 13.9% (11.7% y/y). The price of tallow (used in the soap industry) rose 10.6% (41.3% y/y) in four weeks but the cost of framing lumber declined 5.6%, but rose 7.3% y/y.

Prices in the Metals group edged 0.2% higher (-7.3% y/y) over the most recent four weeks. Variation in pricing was wide. Copper scrap prices rose 7.4% (-3.3% y/y) while lead costs rose 4.0% in four weeks (-11.1% y/y). The cost of aluminum increased 2.3% in four weeks, off 4.4% y/y. Working lower, the cost of steel scrap declined 8.1% (-11.6% y/) in four weeks while tin prices followed with a 4.9% decline (-2.9% y/y). Zinc prices eased 0.7% in four weeks and declined 10.3% y/y.

Crude Oil & Benzene group prices edged 0.1% higher (-19.4% y/y) in four weeks. The cost of West Texas Intermediate crude oil weakened 4.0% to $58.50 per barrel and was 25.6% lower y/y. The cost of the petrol-chemical benzene, used for making plastics & synthetic fibers, strengthened 8.5% (-41.8% y/y) in the last four weeks. Excluding crude oil, the industrial commodity price index rose 0.9% (-2.1% y/y) during the last four weeks.

Textile group prices edged 0.9% lower (-0.5% y/y) during the last four weeks. Burlap costs declined 14.3% (+7.4% y/y) but the cost of cotton rose 4.5% (-7.7% y/y) over four weeks.

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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- Metals prices are mixed.
- Crude oil prices fall sharply.
- Textile prices ease.

FIBER: Industrial Commodity Price Movement Diverges in Latest Four Weeks

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Wholesale trade inventories increased 0.4% (2.2% y/y) during March after rising 0.5% in February, revised from 0.3% after a 0.8% January rise. The increase compared to expectations for a 0.5% rise in the Informa Global Markets Survey and compared to a 0.6% gain in the advance report issued two weeks ago.

Durable goods inventories rose 0.6% in March (1.5% y/y) after rising 0.5% in February. Machinery inventories, the largest sector, increased 0.6% (1.7% y/y) while inventories of motor vehicles & parts, the second largest grouping, rose 1.2% (0.8% y/y). Furniture inventories strengthened 2.7% (6.8% y/y) while electrical equipment inventories declined 1.0% (-3.1% y/y). Inventories of nondurable goods edged 0.1% higher (3.4% y/y). Drug inventories, which make up one-quarter of nondurable inventories, advanced 1.0% (4.6% y/y). Grocery inventories, the second largest category, rose 0.4% (8.3% y/y). Apparel inventories fell 0.8% (-6.5% y/y) and chemical inventories rose 2.1% both m/m and y/y. Petroleum inventories increased 0.7% (0.3% y/y).

Sales at the wholesale level rose 0.6% (6.1% y/y) in March after rising 2.0% in February and falling 0.9% in January. A 0.9% March rise had been expected in the Action Economics Forecast Survey.

Durable goods sales rose 1.0% (8.5% y/y) in March after strengthening 3.2% in February. Sales of electrical equipment & electronic goods, the largest sector, rose 2.5% (20.9% y/y), after a 2.3% rise. Professional and commercial equipment sales, which includes computers, rose 1.2% (11.9% y/y), while vehicle sales declined 1.0% (1.1% y/y). Sales of machinery improved 0.7% (4.2% y/y). Nondurable product sales rose 0.3% (3.9% y/y) in March after gaining 0.9% in February. Drug store sales, the largest category, increased 2.8% (13.4% y/y), while grocery store sales eased 0.2% (+4.3% y/y). Sales of apparel weakened 0.8% (+3.5% y/y) while paper sales declined 1.7% (0.5% y/y). Petroleum product sales fell 4.6% both m/m and y/y.

The inventory-to-sales (I/S) ratio at the wholesale level remained at 1.30 in March and has been moving lower for the last two years.

The wholesale I/S ratio for durable goods eased to 1.69 in March and also has been trending lower. The machinery ratio fell to 2.92 while motor vehicles rose to 1.78. The I/S ratio for nondurable goods slipped to 0.93 and remained down from 1.02 early in 2023. The drug industry ratio eased to 0.94. Apparel's I/S ratio held at 2.06, but remained below its 2.28 level one year earlier, and has been declining since early 2023. The petroleum industry I/S ratio rose to 0.33.

The wholesale trade figures are available in Haver's **USECON** database. The expectations figure for inventories is contained in the **MMSAMER** database. Expectations for sales are from the **AS1REPNA** database.

**Assessing Maximum Employment** from Federal Reserve Governor Adriana D. Kugler is available [here](https://www.federalreserve.gov/newsevents/speech/kugler20250509a.htm).

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- Inventories trend higher y/y.
- Sales increase broadly.
- Inventory-to-sales ratio steadies.

U.S. Wholesale Inventories & Sales Increase in March

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Nonfarm labor productivity fell 0.8% (SAAR) during Q1’25 after increasing 1.7% in Q4’24, revised from 1.5%. A 0.6% decline had been expected in the Action Economics Forecast Survey. It was the first productivity decline since Q2’22. The y/y increase during Q1 fell to 1.4% from 2.1% in Q4. It was below a 3.3% high in the first quarter of last year. Productivity fell as real value-added output dropped 0.3% last quarter (+2.2% y/y) after increasing 2.5% in Q4, and hours worked lengthened 0.6% (0.8% y/y) following a 0.8% gain.

Compensation per hour increased 4.8% last quarter following a 3.7% Q4 rise. Despite the strength of these last two increases, y/y growth decelerated to 2.7% from a 6.8% high one year earlier. Nevertheless, the productivity decline raised unit labor costs by 5.7% (1.3% y/y) in Q1 versus expectations for a 5.2% increase. It followed a 2.0% gain during Q4 and was the strongest quarterly increase in a year.

Factory sector productivity surged 4.5% (1.5% y/y) during Q1’25 following three consecutive increases of roughly 0.5%. This strength was accompanied by a 6.2% rise (2.2% y/y) in hourly compensation which came after two consecutive increases of approximately 4.1%. The strength in productivity lowered the rise in unit labor costs to 1.6% from 3.8% in Q4. The y/y gain fell to 0.7% from 2.0% in Q4 and stood below the 6.2% y/y increase in Q1’24.

The productivity and labor cost data are available in Haver’s **USECON** database. The Action Economics expectations figures are in the **AS1REPNA** database.

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- Productivity declines with lower output.
- Compensation surge exacerbates labor market stress.
- Factory sector productivity surge lessens cost pressure.

U.S. Productivity Declines in Q1’25; Unit Labor Costs Surge

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The National Association of Realtors' Fixed Rate Mortgage Housing Affordability Index (HAI) rose 0.6% (3.2% y/y) in March to 103.2 after rising 0.9% to 102.6 in February and rising 0.8% in January to 101.7. The level of home affordability has risen 14.8% from its low of 89.9 in October 2023. It remains 42.4% below the high of 179.2 in April 2020.

The rise in affordability in March occurred as the median price of an existing single-family home rose 1.8% (2.9% y/y) to $408,000 which was offset by a decline in mortgage rates to 6.73% from 6.92% in February. The price compared to the record $432,900 in June 2024. The decline in mortgage rates compared to a recent low of 6.26% in September of last year and a 7.70% high during October of 2023. It remained well above a December 2020 low of 2.73%. These changes lowered the principal & interest payment by 0.2% (+1.1% y/y) to $2,113 per month. That was well above the most recent low of $984 in February 2020. Monthly mortgage payments averaged a lessened 24.2% of income during March. They remained up from a low of 14.0% of income in April 2020.

The rise in housing costs in March was accompanied by improvement in median family income. It increased 0.4% (4.4% y/y) to a record $104,705 after rising 0.4% in February and 0.7% in January.

Housing affordability improved m/m across the country in March. The index edged 0.1% higher (2.8% y/y) to 134.5 in the Midwest. It remains the most affordable region of the country. In the South, the index 0.9% (5.4% y/y) to 106.6 and the affordability index in the Northeast increased 2.1% (-2.6% y/y) to 95.7. In the West, where homes are the least affordable, the index rose 0.8% (3.3% y/y) to 71.8 in March.

The Housing Affordability Index (HAI) equals 100 when a median-income borrower qualifies for an 80% mortgage on a median-priced existing single-family home. The HAI had exceeded 100 in each month since July 1990 and reached its all-time high of 213.3 in January 2013; since then, it fell below 100 for the first time in June 2022.

Data on Housing Affordability can be found in Haver’s **REALTOR** database. Median home sales prices are also available in **USECON**. Higher frequency interest rate data are found in **SURVEYS**, **WEEKLY**, and **DAILY**.

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- Home prices rise but mortgage rates decline.
- Median income improves.
- Affordability increases across the country.

U.S. Housing Affordability Improves Slightly in March

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Initial claims for unemployment insurance were 228,000 seasonally adjusted in the week ended May 3, down from 241,000 in the previous week, which was unrevised. For the latest week, the Action Economics Forecast Survey had expected a smaller decline to 233,000.

In the week ended April 26, the total number of unemployment insurance beneficiaries – also known as “continuing claims” – was 1.879 million, down from 1.908 million in the April 19 week.

The insured unemployment rate, that is, the number of beneficiaries as a percentage of covered employment, returned to its longstanding rate of 1.2% in the April 26 week; this rate has held that amount since continuously since the week of January 6, 2024, except for the prior week’s 1.3%.

As we do highlight in every week’s discussion, economic conditions vary widely across individual states and territories. In the week ended April 19, the highest unemployment rates were in New Jersey and Rhode Island (both at 2.48%), California (2.26%), Washington (2.14%) and New York (1.85%). The lowest were in Florida (0.36%), South Dakota (0.37%), Alabama (0.41%), Virginia (0.45%) and Nebraska (0.47%). Rates in other notable states include Illinois (1.78%), Pennsylvania (1.53%) and Texas (1.14%). 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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- Continued claims for unemployment insurance decreased 29, 000 in the week ended April 26.
- Insured unemployment rate returns to longstanding 1.2%.
- Across the states, the insured unemployment rate ranges from 0.36% to 2.48%.

Economy in Brief: October 2007

Jump to:

German Orders Still Strong but Definitely Fading…

French Household Confidence Takes Sharp Reversal

OECD Indicators Show Moderation in Growth Ahead

Euro-Area Banks Tighten Lending Policies, According to Latest ECB Survey

Like a Bad Dream Ended, September U.S. Payrolls and Revisions Up

Like a Bad Dream Ended, September U.S. Payrolls and Revisions Up

Housing Starts by State: Weak, Yes, But Gains in August Where You Wouldn't Expect

U.S. Pending Home Sales Collapse