Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902b.jpg" align="left" border="0" height="265" width="353">
The July PPI in the e-zone jumped by 1.1% in July continuing
to spread inflation pressure in the e-zone. Ex energy the PPI rose by
0.5% after a 0.4% spurt in June. As a result even ex-energy inflation
is looking troublesome. Ex energy e-Zone inflation is running at 4.3%
Yr/Yr, at a 5.1% pace over six months and at a barely reduced 4.7% pace
over three months. While this is the PPI not the ECB&#8217;s favored HICP
measure, the strength in prices will not go down well at the ECB. Germany, Italy and the UK generally
show accelerating patterns of headline PPI inflation as well as
ex-energy inflation. Among those three only Italy does not show
inflation accelerating over the recent three months compared to six
months and 12-months for ex-energy inflation.
The e-zone headline inflation rate for the PPI is now up by 9%
Yr/Yr compared with ex-energy inflation at 4.7%. Capital goods
inflation remains subdued at 2% Yr/Yr. But consumer goods inflation is
up by 4.3%. Energy prices are up 24% Yr/Yr. Inflation trends in the
e-zone are like nothing the ECB would ever want to tolerate, but here
they are.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">E-zone and
UK PPI Trends </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M</td>
<td colspan="4">Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area 15</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>3-Mo</td>
<td>6-MO</td>
<td>Yr/Yr</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr>
<td class="firstcol">TotalxConstruct</td>
<td>1.1%</td>
<td>1.0%</td>
<td>14.2%</td>
<td>11.8%</td>
<td>9.0%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Excl Energy</td>
<td>0.5%</td>
<td>0.4%</td>
<td>4.7%</td>
<td>5.1%</td>
<td>4.3%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">Capital Gds</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>2.5%</td>
<td>2.0%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Consumer Gds</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>2.9%</td>
<td>4.3%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Intermediate&amp;Cap Gds</td>
<td>0.6%</td>
<td>0.5%</td>
<td>5.9%</td>
<td>6.3%</td>
<td>4.2%</td>
<td>3.4%</td>
</tr>
<tr>
<td class="firstcol">Energy</td>
<td>2.8%</td>
<td>2.8%</td>
<td>46.3%</td>
<td>33.5%</td>
<td>24.5%</td>
<td>-1.8%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.6%</td>
<td>0.7%</td>
<td>10.9%</td>
<td>9.6%</td>
<td>7.2%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>2.0%</td>
<td>0.9%</td>
<td>16.7%</td>
<td>13.4%</td>
<td>8.9%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ExEnergy</td>
<td>0.7%</td>
<td>0.3%</td>
<td>5.4%</td>
<td>5.1%</td>
<td>3.6%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.5%</td>
<td>0.8%</td>
<td>11.4%</td>
<td>10.4%</td>
<td>8.3%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ExEnergy</td>
<td>0.1%</td>
<td>0.5%</td>
<td>3.4%</td>
<td>5.1%</td>
<td>4.1%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>0.2%</td>
<td>2.9%</td>
<td>25.3%</td>
<td>20.9%</td>
<td>20.0%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ExEnergy</td>
<td>0.5%</td>
<td>0.8%</td>
<td>11.6%</td>
<td>10.3%</td>
<td>7.6%</td>
<td>3.0%</td>
</tr>
<tr class="grey2">
<td colspan="7" class="firstcol">Euro Area 15
Harmonized PPI
excluding Construction.</td>
</tr>
<tr class="grey2">
<td colspan="7" class="firstcol">The EA 15
countries are Austria,
Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, Malta, Netherlands, Portugal, Slovenia and Spain.</td>
</tr>
</tbody>
</table>
</body></html>

The July PPI in the e-zone jumped by 1.1% in July continuing to spread inflation pressure in the e-zone. Ex energy the PPI rose by 0.5% after a 0.4% spurt in June. As a result even ex-energy inflation is looking troublesome. Ex energy [...]

Euro Area Overall PPI Jumps: Sector Trends Diverge

Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902f.jpg" align="left" border="0" height="265" width="353">
The value of construction put in place fell 0.6% during July
and that reversed the 0.3% increases during the prior two months. The
decline was as-expected.
Year-to-year, construction was down 4.8% but the level of
activity so far this year continued roughly stable.
As in prior months, however, residential building activity
continued to decline sharply, by 2.1% in July. Since it's peak it has
fallen by just over one half. Single-family construction dropped an
even larger 3.7% (-0.9% y/y) in July and that level is off by nearly
two-thirds from its peak in early 2006. Building activity on
multi-family units ticked up 0.2% (-1.7% y/y) while spending on
improvements gave back the June gain and fell 1.0% (-5.5% y/y).
During the last twenty years there has been an 84% correlation
between the q/q change in the value of residential building and its
contribution to growth in real GDP.
The value of nonresidential building activity fell 0.7% after
increasing in each month of this year. Despite the latest dip, office
construction continued firm and increased 1.7% (13.7% y/y). Lodging
spending dipped, however, by 0.1% but it was up by more than one-third
from last year's level. Spending on multi-retail building rose 3.1%
(4.7% y/y) while spending on health care facilities dipped 0.2% (+6.7%
y/y).<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902g.jpg" align="right" border="0" height="265" width="353">
Public construction continued firm and rose by 1.4% (8.1%
y/y). The value of construction spending on highways &amp; streets
fell modestly for the third consecutive month but remained up 6.9% from
last year. (The value of construction on highways &amp; streets is
roughly one third of the value of total public construction spending.)
Building activity of educational facilities surged 2.5% (7.4% y/y)
during July.
The more detailed categories of construction represent the
Census Bureau&#8217;s reclassification of construction activity into end-use
groups. Finer detail is available for many of the categories; for
instance, commercial construction is shown for automotive sales and
parking facilities, drugstores, building supply stores, and both
commercial warehouses and mini-storage facilities. Note that start
dates vary for some seasonally adjusted line items in 2000 and 2002 and
that constant-dollar data are no longer computed.
The United States in the International Financial
System: A Separate Reality? Resolving Two Puzzles in the International
Accounts is yesterday's speech by Fed Governor Randall S.
Kroszner and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/kroszner20080901a.htm">here</a>.
Regional Variation in the Potential Economic
Effects of Climate Change from the Federal Reserve Bank
of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-26.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E907/@E907.HTM">Construction</a>
(%)</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.6</td>
<td>0.3</td>
<td>-4.8</td>
<td>-2.7</td>
<td>6.3</td>
<td>11.2</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-1.4</td>
<td>0.2</td>
<td>-9.2</td>
<td>-6.9</td>
<td>5.5</td>
<td>12.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-2.3</td>
<td>-1.4</td>
<td>-27.5</td>
<td>-19.8</td>
<td>1.0</td>
<td>14.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.7</td>
<td>1.7</td>
<td>16.0</td>
<td>19.6</td>
<td>16.2</td>
<td>7.8</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>1.4</td>
<td>0.4</td>
<td>8.1</td>
<td>12.3</td>
<td>9.3</td>
<td>6.2</td>
</tr>
</tbody>
</table>
ISM Index About Unchanged 
by <a href="/comment/Moeller.html">Tom
Moeller</a> September 2, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902c.jpg" align="left" border="0" height="265" width="353">
The Institute for Supply Management reported that it's
Composite Index of Manufacturing Sector Activity was about unchanged
from its July level at 49.9. It thus remained up slightly from the
monthly lows near 48 this past winter. Consensus expectations had been
for more of a decline to 49.1 in July.
Despite the very recent improvement, the index's average level
so far this year of 49.5 was near its lowest since early-2003. The
index level is consistent with a roughly unchanged level in industrial
sector activity.
During the last twenty years there has been a 64% correlation
between the level of the Composite Index and the three-month growth in
factory sector industrial production.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902d.jpg" align="right" border="0" height="265" width="353">
It is appropriate to correlate the ISM index level
with factory sector growth because the ISM index
is a diffusion index. It measures growth by using all of the positive
changes in activity added to one half of the zero change in activity
measures.
The new orders index recovered most of its sharp drop in July.
However, the two month average of the index at 46.6 was near this
cycle's low. The new export orders sub-series recovered most of its
July drop with a 3.0 point rise to 57.0. During the last ten years
there has been a 53% correlation between the index and the q/q change
in real exports of goods in the GDP accounts.
The employment index fell 2.2 points to 49.7 but that retraced
just a piece of the July rise. During the last twenty years there has
been a 67% correlation between the level of the ISM employment index
and the three-month growth in factory sector employment.
The production index dipped to 52.1 and still indicated a
rising level of output. The inventories series rose sharply to 49.3 and
that recovered most of its July decline.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902e.jpg" align="left" border="0" height="265" width="353">
Order backlogs remained near the lowest level (43.5) this year
as the index rose just slightly in August. It averaged 48.9 during all
of 2007.
Prices paid fell sharply. The index fell 11.5 points to 77.0,
its lowest level since February. That followed the recent decline in
oil prices. During the last twenty years there has been a 79%
correlation between the price index and the three-month change in the
PPI for intermediate goods.
Oil and the U.S. macroeconomy: an update and a simple
forecasting exercise from the Federal Reserve Bank of St.
Louis can be found <a href="http://research.stlouisfed.org/wp/2008/2008-009.pdf">here</a>.
The Menace of Inflation from the Center
for Economic and Policy Research is available <a href="http://www.cepr.net/index.php/op-eds-&amp;-columns/op-eds-&amp;-columns/the-menace-of-inflation">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/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August '07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>49.9</td>
<td>50.0</td>
<td>51.2</td>
<td>51.1</td>
<td>53.1</td>
<td>54.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>48.3</td>
<td>45.0</td>
<td>54.5</td>
<td>54.3</td>
<td>55.4</td>
<td>57.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>49.7</td>
<td>51.9</td>
<td>50.9</td>
<td>50.5</td>
<td>51.7</td>
<td>53.6</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>77.0</td>
<td>88.5</td>
<td>63.0</td>
<td>64.6</td>
<td>65.0</td>
<td>66.4</td>
</tr>
</tbody>
</table>
Euro Area Overall PPI Jumps:
Sector Trends Diverge 
by <a href="/comment/Brusca.html">Robert
Brusca</a> September 2, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902b.jpg" align="left" border="0" height="265" width="353">
The July PPI in the e-zone jumped by 1.1% in July continuing
to spread inflation pressure in the e-zone. Ex energy the PPI rose by
0.5% after a 0.4% spurt in June. As a result even ex-energy inflation
is looking troublesome. Ex energy e-Zone inflation is running at 4.3%
Yr/Yr, at a 5.1% pace over six months and at a barely reduced 4.7% pace
over three months. While this is the PPI not the ECB&#8217;s favored HICP
measure, the strength in prices will not go down well at the ECB. Germany, Italy and the UK generally
show accelerating patterns of headline PPI inflation as well as
ex-energy inflation. Among those three only Italy does not show
inflation accelerating over the recent three months compared to six
months and 12-months for ex-energy inflation.
The e-zone headline inflation rate for the PPI is now up by 9%
Yr/Yr compared with ex-energy inflation at 4.7%. Capital goods
inflation remains subdued at 2% Yr/Yr. But consumer goods inflation is
up by 4.3%. Energy prices are up 24% Yr/Yr. Inflation trends in the
e-zone are like nothing the ECB would ever want to tolerate, but here
they are.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup><thead><tr>
<th colspan="7" scope="col">E-zone and
UK PPI Trends </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M</td>
<td colspan="4">Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area 15</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>3-Mo</td>
<td>6-MO</td>
<td>Yr/Yr</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr>
<td class="firstcol">TotalxConstruct</td>
<td>1.1%</td>
<td>1.0%</td>
<td>14.2%</td>
<td>11.8%</td>
<td>9.0%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Excl Energy</td>
<td>0.5%</td>
<td>0.4%</td>
<td>4.7%</td>
<td>5.1%</td>
<td>4.3%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">Capital Gds</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>2.5%</td>
<td>2.0%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Consumer Gds</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>2.9%</td>
<td>4.3%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Intermediate&amp;Cap Gds</td>
<td>0.6%</td>
<td>0.5%</td>
<td>5.9%</td>
<td>6.3%</td>
<td>4.2%</td>
<td>3.4%</td>
</tr>
<tr>
<td class="firstcol">Energy</td>
<td>2.8%</td>
<td>2.8%</td>
<td>46.3%</td>
<td>33.5%</td>
<td>24.5%</td>
<td>-1.8%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.6%</td>
<td>0.7%</td>
<td>10.9%</td>
<td>9.6%</td>
<td>7.2%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>2.0%</td>
<td>0.9%</td>
<td>16.7%</td>
<td>13.4%</td>
<td>8.9%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ExEnergy</td>
<td>0.7%</td>
<td>0.3%</td>
<td>5.4%</td>
<td>5.1%</td>
<td>3.6%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.5%</td>
<td>0.8%</td>
<td>11.4%</td>
<td>10.4%</td>
<td>8.3%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ExEnergy</td>
<td>0.1%</td>
<td>0.5%</td>
<td>3.4%</td>
<td>5.1%</td>
<td>4.1%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>0.2%</td>
<td>2.9%</td>
<td>25.3%</td>
<td>20.9%</td>
<td>20.0%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ExEnergy</td>
<td>0.5%</td>
<td>0.8%</td>
<td>11.6%</td>
<td>10.3%</td>
<td>7.6%</td>
<td>3.0%</td>
</tr>
<tr class="grey2">
<td colspan="7" class="firstcol">Euro Area 15
Harmonized PPI
excluding Construction.</td>
</tr>
<tr class="grey2">
<td colspan="7" class="firstcol">The EA 15
countries are Austria,
Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, Malta, Netherlands, Portugal, Slovenia and Spain.</td>
</tr>
</tbody>
</table>
Brazil's Industrial
Production Points to&nbsp; a 5% Y/Y Increase in GDP in Q2 
by <a href="/comment/Curley.html">Louise
Curley</a> September 2, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080903e.jpg" align="left" border="0" height="265" width="353">
Brazilian industrial production rose 1% in July from June and
was 7% above July, 2007. Capital goods production was up 20% over July
2007. Consumer durable goods production was up 7.5% and consumer
semidurable and nondurable goods production was up 3%. The first chart
shows these major categories of total industrial production over the
past few years.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080903f.jpg" align="right" border="0" height="265" width="353">
The quarterly year-to-year changes in industrial production
have proven to be good indicators of the quarterly changes in real GDP
as shown in the second chart where the correlation between the two
series is .87 and the R2 is .76. The industrial
production data precedes the GDP data by a month or more. The
year-to-year increase in the second quarter industrial production was
5.1% down from the 6.6% of the first quarter when the year-to-year
increase in GDP was 5.8%. If the correlation holds, we should expect a
year-to-year increase of 5% second quarter increase of around 5% over
the second quarter of 2007. The actual figure will be published
September 10.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">BRAZIL:&nbsp;Industrial
Production&nbsp; (2002=100)</th>
<th scope="col">Jul 08</th>
<th scope="col">Jun&nbsp; 08&nbsp;</th>
<th scope="col">Jul&nbsp;&nbsp;
07&nbsp;</th>
<th scope="col">M/M % chg&nbsp;</th>
<th scope="col">Y/Y % chg&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>130.63</td>
<td>129.28</td>
<td>121.63</td>
<td>1.04</td>
<td>7.40</td>
<td>121.29</td>
<td>114.98</td>
<td>111.79</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>188.86</td>
<td>186.65</td>
<td>157.07</td>
<td>1.18</td>
<td>20.24</td>
<td>159.48</td>
<td>133.97</td>
<td>126.78</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Durable Goods</td>
<td>176.22</td>
<td>185.81</td>
<td>163.93</td>
<td>-5.16</td>
<td>7.50</td>
<td>160.92</td>
<td>148.13</td>
<td>139.99</td>
</tr>
<tr>
<td class="firstcol">Consumer Semi and Non
Durable Goods</td>
<td>113.90</td>
<td>113.87</td>
<td>110.44</td>
<td>0.03</td>
<td>3.13</td>
<td>110.98</td>
<td>107.41</td>
<td>104.78</td>
</tr>
</tbody>
</table>
</body></html>

The value of construction put in place fell 0.6% during July and that reversed the 0.3% increases during the prior two months. The decline was as-expected. Year-to-year, construction was down 4.8% but the level of activity so far this [...]

U.S. Construction Spending Fell in July

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902a.jpg" align="left" border="0" height="265" width="353">
German retail sales have now put in back-to-back declines,
each of substantial magnitude. Real and nominal sales are now lower
over 12 months. Over 6 months the rate of decline is more severe and
over 3 months the pace of decline is even more severe.
The loss in momentum is unmistakable.
For the current quarter, the results are very poor. It is
July, so we calculate the growth RATE in July centered over the average
for sales in Q2. There are
different ways to annualize things. We compound the growth rate and
present it as an actual rate from its current position compared to the
actual Q2 base. Since Q2 centers in May we take the resulting growth
rate to the 6th power to annualize it. That
leaves us with retail sales falling at a 4.3% pace in Q3 or at a -11.3%
pace in real terms (ex autos). However if we treat the level of sales
in July as the level for the whole quarter we compound by four instead
of six giving us a still weak growth rate of -7.7% for real ex-auto
sales. There is not much arguing with the notion that German retail
sales are falling sharply.


<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead><tr>
<th colspan="9" scope="col"> German Real and Nominal Retail Sales</th>
<th scope="col">QTR</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>May-08</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAgo</td>
<td colspan="2">Saar</td>
</tr>
<tr>
<td class="firstcol">Retaill Ex auto</td>
<td>-1.3%</td>
<td>-1.4%</td>
<td>1.7%</td>
<td>-4.1%</td>
<td>-3.0%</td>
<td>-0.2%</td>
<td>-0.7%</td>
<td colspan="2">-4.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food Bev &amp; Tobacco</td>
<td>-1.6%</td>
<td>-1.2%</td>
<td>0.1%</td>
<td>-10.4%</td>
<td>-5.0%</td>
<td>-1.2%</td>
<td>-4.3%</td>
<td colspan="2">-13.4%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>2.8%</td>
<td>-10.2%</td>
<td>15.1%</td>
<td>27.4%</td>
<td>1.3%</td>
<td>1.5%</td>
<td>2.1%</td>
<td colspan="2">0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="10">Real</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-1.5%</td>
<td>-1.4%</td>
<td>1.3%</td>
<td>-6.2%</td>
<td>-5.4%</td>
<td>-3.2%</td>
<td>-1.0%</td>
<td colspan="2">-11.3%</td>
</tr>
</tbody>
</table>
</body></html>

German retail sales have now put in back-to-back declines, each of substantial magnitude. Real and nominal sales are now lower over 12 months. Over 6 months the rate of decline is more severe and over 3 months the pace of decline is [...]

Germany Retail Sales Give Way…

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<html><head>
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<body>
 



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902a.jpg" align="left" border="0" height="265" width="353">
German retail sales have now put in back-to-back declines,
each of substantial magnitude. Real and nominal sales are now lower
over 12 months. Over 6 months the rate of decline is more severe and
over 3 months the pace of decline is even more severe.
The loss in momentum is unmistakable.
For the current quarter, the results are very poor. It is
July, so we calculate the growth RATE in July centered over the average
for sales in Q2. There are
different ways to annualize things. We compound the growth rate and
present it as an actual rate from its current position compared to the
actual Q2 base. Since Q2 centers in May we take the resulting growth
rate to the 6th power to annualize it. That
leaves us with retail sales falling at a 4.3% pace in Q3 or at a -11.3%
pace in real terms (ex autos). However if we treat the level of sales
in July as the level for the whole quarter we compound by four instead
of six giving us a still weak growth rate of -7.7% for real ex-auto
sales. There is not much arguing with the notion that German retail
sales are falling sharply.

<table border="0" cellspacing="0" width="100%"> <colgroup><col></colgroup>
<thead><tr>
<th colspan="9" scope="col"> German
Real and Nominal Retail Sales</th>
<th scope="col">QTR</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>May-08</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAgo</td>
<td colspan="2">Saar</td>
</tr>
<tr>
<td class="firstcol">Retaill Ex auto</td>
<td>-1.3%</td>
<td>-1.4%</td>
<td>1.7%</td>
<td>-4.1%</td>
<td>-3.0%</td>
<td>-0.2%</td>
<td>-0.7%</td>
<td colspan="2">-4.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food Bev &amp; Tobacco</td>
<td>-1.6%</td>
<td>-1.2%</td>
<td>0.1%</td>
<td>-10.4%</td>
<td>-5.0%</td>
<td>-1.2%</td>
<td>-4.3%</td>
<td colspan="2">-13.4%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>2.8%</td>
<td>-10.2%</td>
<td>15.1%</td>
<td>27.4%</td>
<td>1.3%</td>
<td>1.5%</td>
<td>2.1%</td>
<td colspan="2">0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="10">Real</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-1.5%</td>
<td>-1.4%</td>
<td>1.3%</td>
<td>-6.2%</td>
<td>-5.4%</td>
<td>-3.2%</td>
<td>-1.0%</td>
<td colspan="2">-11.3%</td>
</tr>
</tbody>
</table>
</body></html>

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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

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

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

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

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?

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250801D4.jpg

Nonfarm payrolls increased 73,000 during July after rising 14,000 in June, revised from 147,000, and 19,000 in May, revised from 144,000. Expectations had been for a 102,000 rise in the Action Economics Forecast Survey. The three-month average change in payrolls of 35,000 compared to 64,000 in June. The Bureau of Labor Statistics indicates that monthly revisions result from additional reports received from businesses and government agencies since the last published estimates.

Average hourly earnings rose an expected 0.3% during July after unrevised gains of 0.2% and 0.4% in June & May. Earnings growth of 3.9% y/y is little changed over twelve months, but has been trending lower from its 5.9% high in March 2022.

The unemployment rate, measured in the household survey, edged up m/m to an expected 4.2% from 4.1% and compared to 4.2% in the previous three months. It reached a low of 3.4% in April 2023. The unemployment rate, including employees working part-time for economic reasons plus all marginally-attached workers, rose to 7.9% last month from 7.7% In June. It was 6.6% in April 2023.

In the **establishment survey**, private-sector employment in July rose 83,000, factory sector jobs declined 11,000, off for the third straight month. Construction sector employment increased 2,000, after rising 3,000 in June. The number of mining & logging industry jobs declined 4,000 after falling in both of the prior two months. 

Private service sector employment increased 96,000 July after improving 16,000 in June. Increases varied greatly amongst service sector categories. Private education & health sector employment rose 79,000 last month, following a 52,000 increase in June. The number of trade, transportation & utilities jobs gained 11,000, following a 22,000 decline and financial activities employment improved 15,000 after a 2,000 drop, while leisure & hospitality employment rose just 5,000 after a 4,000 gain. The number of professional & business services jobs fell 14,000, down for the third straight month.  Information sector employment fell 2,000, after holding steady in June.

Government sector payrolls declined 10,000 last month and revered June’s 11,000 rise. Federal government employment weakened 12,000 and has fallen for six straight months. Local government employment eased 3,000 after rising 10,000 in June while state government payrolls rose 5,000 after increasing 10,000.

Private-sector average hourly earnings rose 0.3% (3.9% y/y) in July. Earnings in the goods-producing sector edged up 0.1% (3.6% y/y). In construction, earnings rose 0.2% (3.7% y/y) following a 0.4% rise, but factory sector earnings eased 0.1% (+3.6% y/y). In the service sector, earnings rose 0.4% (4.0% y/y) in July after increasing 0.2% in June.

250801C4.jpg

The length of the average workweek rose to 34.3 hours in July from 34.2 hours in June. The workweek in the goods-producing sector lengthened to 39.9 hours from 39.7 hours. The construction sector average workweek rose to 39.1 hours from 38.9 while the factory sector workweek held steady at 40.1 hours. The average workweek in the private service sector edged up to 33.2 hours from 33.1 hours.

In the **household survey**, the unemployment rate increased to 4.2% in July after falling to 4.1% as employment fell 260,000 after rising 93,000 in June and the size of the labor force declined 38,000, off for the third straight month. The labor force participation rate eased to 62.2% last month from 62.3% and remained below the high of 63.3% early in 2020. The rate for teenagers declined to 35.0%, after plunging to 35.1%. For workers aged 20-24, the rate declined to 70.9%. For workers aged 25-54, the participation rate eased to 83.4%. For individuals 55 and over, the rate improved slightly to 38.1% but remained near a 20-year low of 38.0% in June.

The employment/population ratio for all workers slipped to 59.6% last month. It remained below the peak reading of 61.1% in February, 2020 just prior to the pandemic. For men, the rate fell to 64.7% in July from 64.9% and for women, the rate eased to 54.7% from 54.8% in June.

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.

250801X4.jpg

250801F4.jpg

- Recent job growth reduced by fewer factory & government jobs.
- Earnings gain remains steady y/y.
- Jobless rate reverses June decline.

U.S. Employment Report Shows Weakness in July, While Revisions Reduce Earlier Gains; Jobless Rate Picks Up

Tian Yong Woon

This week, we examine the latest wave of trade developments across Asia as the US unveiled a full list of its modified reciprocal tariff rates, set to take effect on August 7. As anticipated, many of the updated rates are now lower than the original tariffs, with Cambodia and Vietnam seeing the sharpest reductions (chart 1). However, from peak tariff levels, China stands out—continuing to benefit from a 10% pause rate, down from triple-digit highs.

South Korea secured a deal just before the deadline, lowering its tariff from 25% to 15%. The new rate also applies to auto exports, offering relief to Korean automakers (chart 2). Thailand and Cambodia followed with US trade agreements after agreeing to an unconditional ceasefire following earlier military clashes. Their US-imposed tariffs dropped from 36% to 19%, highlighting how US trade policy can intersect with geopolitical interests and, in this case, may help reduce trade uncertainty (chart 3).

Malaysia, a key mediator in the ceasefire, also finalized a trade deal, reducing its tariff rate to 19% and gaining exemptions on key exports such as semiconductors (chart 4). Turning to Japan, while its US trade deal helped avert immediate tensions, the vague terms and a headline $550 billion investment—mostly in the form of loans—leave room for future friction (chart 5). China, however, remains a wildcard. Talks to extend its tariff pause are ongoing, but failure could see a return to extreme tariff levels (chart 6). Meanwhile, tech tensions linger, despite eased restrictions on Nvidia AI chip exports.

**Latest US tariff developments**
We gained further clarity on the new reciprocal tariff rates announced by the US administration last week, as the White House released a full list of the modified rates on Thursday. It also announced that the new rates will take effect on August 7, giving partner countries a bit more time to negotiate new terms. Overall, as earlier indications suggested, Trump’s post-pause tariff rates—regardless of whether trade deals were secured—have often ended up lower than the original rates, as shown in chart 1. The largest reductions from original tariff levels have so far come from Cambodia and Vietnam. However, when looking at the steepest reductions from peak tariff rates, China stands out. It continues to benefit from a 10% tariff pause—down sharply from the triple-digit rates imposed at the height of US-China trade tensions earlier this year. On the flipside, a handful of economies—including New Zealand, the Philippines, and Brunei—are now facing modified tariff rates that are actually higher than their original Liberation Day levels. Notably, the Philippines ended up in this group despite having secured a trade deal with the US.

250804T1.jpg

**South Korea**
As for South Korea, the US reduced its tariff rate to 15% just ahead of the August 1 deadline, a significant drop from the original Liberation Day rate of 25%. In return, South Korea committed to, among other terms, $350 billion in investments into the US. Of that total, $150 billion will go specifically toward shipbuilding cooperation—supporting the entry of Korean firms into the US shipbuilding industry—while the remaining $200 billion will be directed toward semiconductors and other sectors. Similar to Japan’s arrangement, the new 15% tariff rate will also apply to South Korean auto exports, likely providing relief to the country’s automakers. As shown in chart 2, South Korea’s vehicle exports—and, by extension, its export-driven growth—have come under pressure, with more recent headwinds stemming from the broad 25% auto tariffs imposed by the US. Notably, South Korea’s dealmaking pace with the US has been considered exceptionally swift, especially given that the country had only recently undergone an administrative transition following its presidential elections, leaving limited time to initiate formal trade negotiations.

250804T2.jpg

**Thailand and Cambodia**
Moving to other parts of Asia, one of the more notable developments last week was the signing of two additional US trade deals—specifically with Thailand and Cambodia. The two countries had recently been engaged in escalating border clashes but agreed to an unconditional ceasefire after mediation by Malaysia and the US. In reality, tensions between Thailand and Cambodia had been simmering for some time, likely driving in part the heightened uncertainty shown in chart 3, though other factors may have played a role. Notably, US President Trump stated that he had made it clear to both governments that no trade deal would be considered while they remained in conflict—an ultimatum that may have incentivized both sides to pursue de-escalation. Ultimately, US trade deals with both countries were announced, reducing their tariff rates from the original Liberation Day level of 36% to 19%. This illustrates how the US approach to dealmaking goes beyond trade, sometimes factoring in broader geopolitical considerations as well.

250804T3.jpg

**Malaysia**
Touching further on Malaysia, which played a key role in mediating the Thailand-Cambodia conflict mentioned earlier, a last-minute US-Malaysia trade deal also materialized shortly after the agreements with Thailand and Cambodia were hinted at. Under the new terms, Malaysia’s tariff rate was reduced to 19%, down from the original 24%. Malaysian Trade Minister Zafrul described the deal as a “win-win,” noting that Malaysia has either reduced or eliminated tariffs on nearly all American products. Notably—and perhaps offering some interim relief—Malaysia also secured tariff exemptions for its exports of semiconductors and pharmaceuticals. This is especially significant, as semiconductor exports account for a substantial share of Malaysia’s shipments to the US, as shown in chart 4.

250804T4.jpg

**Japan**
Turning to Japan, the recent US-Japan trade deal appears to have averted the worst for now. However, many key details remain unclear, particularly regarding Japan’s reported $550 billion investment into the US. While the headline figure is striking, Japan’s chief trade negotiator, Akazawa, later clarified that only 1–2% of the amount would constitute actual investment, with the remainder largely consisting of loans. More critically, the deal—like several other recent US-Asia trade agreements—was not accompanied by formal documentation, leaving its terms vague and, perhaps more concerning, open to future revision. These loose ends present ongoing risks to US-Japan economic relations and could potentially unwind recent market gains driven by trade optimism, as uncertainty remains and may yet resurface (see chart 5). This lingering uncertainty likely contributed to the Bank of Japan’s decision to hold its policy rate steady last week. The central bank adopted a wait-and-see approach before considering further rate hikes, while notably revising its inflation forecasts upward and presenting a slightly improved growth outlook for the fiscal year.

250804T5.jpg

**China**
Amid the recent flurry of US trade deals, one critical issue that may have slipped from the spotlight—but remains central to the global outlook —is China. Ongoing discussions between the two countries aim to extend China’s current tariff pause. If talks break down, US Treasury Secretary Scott Bessent has warned that the existing 10% tariff on Chinese exports could “boomerang” back to its previously exorbitant levels. This could potentially drive the US effective import tariff rate on China well above its already-elevated levels, as shown in chart 6. Meanwhile, the recent reversal of export restrictions by the US on Nvidia’s H20 AI chips may have brought temporary relief to China’s AI sector. However, Chinese authorities have raised national security concerns over the chips’ built-in tracking features and potential remote shutdown capabilities—adding yet another layer of complexity to the already tense US-China trade relationship and broader economic rivalry.

250804T6.jpg

Asia

Economic Letter from Asia: New Duty Roster

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250801G20.jpg

U.S. light vehicle sales increased 7.6% (6.0% y/y) to 16.87 million units (SAAR) in July after falling 0.3% to 15.68 million units in June. The gain followed three straight months of decline. The improvement in July vehicle sales accompanied a 1.7% y/y rise in real disposable income through June, which compared to 2.1% growth last year.

Increases in sales were broad-based last month. Light truck sales rose 7.7% (10.0% y/y) in July to 14.02 million units, after easing 0.2% to 13.02 million in June and weakening 8.7% in May to 13.04 million. Purchases of domestically-made light trucks improved 7.1% (12.0% y/y) to 10.79 million units, after falling 1.0% in June to 10.07 million. Sales of imported light trucks rose 9.8% (3.8% y/y) to 3.24 million units, following a 3.9% rise in June.

Trucks’ record 83.1% share of the light vehicle market last month compared to 83.0% in June and 80.1% in July of last year. The share averaged 80.3% during all of 2024 versus 53.3% ten years earlier.

Auto sales rose 6.4% last month, down 9.8% y/y, to 2.84 million units (SAAR) following a 0.4% June decline. Purchases of domestically-produced cars rebounded 10.1% (-6.4% y/y) last month to 2.18 million units, after declining 2.5% in June. Sales of imported autos fell 2.9% (-20.5% y/y) to 0.66 million units, after a 4.6% June gain.

Imports' 23.1% share of the U.S. light vehicle market edged down from 23.2% in June. These compare to a May 2023 low of 22.9% and a high of 26.3% in November of 2023. Imports' share of the passenger car market fell to 23.2% last month and compared to 26.4% in July of last year. It reached a high of 38.7% in September 2021. Imports' share of the light truck market rose to 23.1% last month after rising to 22.7% in June.

U.S. vehicle sales figures can be found in Haver's **USECON** database. Additional detail by manufacturer is in the **INDUSTRY** database.

250801H20.jpg

250801I20.jpg

- Both light truck and auto sales recover.
- Domestic and imports each increase.
- Imports' market share steadies.

U.S. Light Vehicle Sales Rebound in July

Winnie Tapasanun

250801A.jpg

250801B.jpg

The ISM U.S. manufacturing PMI fell to 48.0 in July from 49.0 in June and 48.5 in May, according to the Institute for Supply Management. The July manufacturing PMI, below the 50 expansion-contraction dividing line, indicated that the U.S. manufacturing sector contracted for the fifth consecutive month and to the lowest level since October 2024. The July reading, while slightly higher than a low of 46.9 in October and 47.0 in July of last year, was below its recent high of 50.9 in January and a peak of 63.8 in March 2021. A reading of 49.5 for July had been expected in the Action Economics Forecast Survey.

The production index rose to 51.4 in July after rising to 50.3 in June, suggesting production expanded for the second successive month and to the highest level since January; it was up from its most recent low of 44.0 in April but slightly below a high of 53.7 in March 2024. Twenty percent (NSA) of respondents reported higher production in July while 19.2% reported lower.

The new orders index increased to 47.1 in July after falling to 46.4 in June, indicating new orders contracted for the sixth straight month but at a slightly less severe pace. The Index, while below its recent high of 55.1 in January, was up from a low of 42.7 in January 2023. Nearly nineteen percent (NSA) of respondents reported higher new orders in July while 25.9% reported declines. The inventories index, however, fell to 48.9 in July after rising to 49.2 in June, showing inventories contracted for the third consecutive month. The index was down from its recent high of 53.4 in March and a high of 56.5 in July 2022. Meanwhile, the supplier deliveries index fell to 49.3 in July from 54.2 in June, indicating faster delivery performance following seven straight months in slower territory. An 8.7% (NSA) of respondents reported slower delivery speeds in July while an increased 10.2% reported faster speeds.

On the labor front, the employment index fell to 43.4 in July after falling to 45.0 in June, indicating employment contracted for the sixth straight month and to the lowest level since June 2020. The index was down from its recent high of 50.3 in January and a high of 56.5 in March 2022. A 12.6% (NSA) of respondents reported higher employment in July while an increased 25.0% reported less hiring.

On the pricing front, the prices paid index declined to 64.8 (NSA) in July after rising to 69.7 in June, indicating raw materials prices rose for the 10th straight month but at the slowest rising rate since February. The July index remained well above a low of 39.4 in December 2022 but meaningfully below a high of 87.1 in March 2022 and a peak of 92.1 in June 2021. A decreased 35.4% (NSA) of respondents reported higher prices in July while 5.8% reported price declines.

In other ISM series not included in the composite index, the new export orders index slipped to 46.1 in July after increasing to 46.3 in June, indicating new export orders contracted for the fifth straight month. It was down from its recent high of 52.4 in January and a high of 57.1 in February 2022. The imports index edged up to 47.6 in July after rising to 47.4 in June, remaining at a contraction level for the fourth consecutive month; it was down from its recent high of 52.6 in February and a high of 55.4 in February 2022. The order backlog index increased to 46.8 (NSA) in July after declining to 44.3 in June, indicating falling backlog levels since October 2022. It was up from a low of 37.5 in May 2023 but down from a peak of 70.6 in May 2021.

The ISM figures are based on responses from over 400 purchasing and supply executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These data are diffusion indexes where a reading above 50 indicates expansion; below 50 indicates contraction. The ISM Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes (seasonally adjusted) with equal weights: New Orders, Production, Employment, Supplier Deliveries, and Inventories. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- 48.0 in July vs. 49.0 in June; the fifth consecutive month of contraction.
- Production (51.4) expands to a six-month high.
- New orders (47.1) contract for the sixth successive month.
- Employment (43.4) contracts to the lowest level since June ’20.
- Prices Index (64.8) indicates prices rise for the 10th straight month; exports & imports contracting.

U.S. ISM Manufacturing PMI Contracts in July to a Nine-Month Low

Michael J. Moran

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Total construction activity fell 0.4 percent in June, continuing a soft trend that began in the middle of last year. After peaking in May 2024, total outlays have declined 3.6%. The retreat was modest at first, but the softness began to intensify last fall. Activity has now declined in nine of the past ten months, with the drop over this span totaling 3.1%. The private sector accounts for nearly all of the softness, with both residential and nonresidential contributing; public construction has continued to advance, although gains in recent months have been modest.

Private residential construction fell 0.7% in June, marking the 12th decline in the past 13 months and leaving activity 7.3% below the peak in May 2024. Hints of softness in private residential construction first appeared in mid-2023, when multi-family construction first stalled and then moved notably downward throughout 2024. Following the swoon in 2024, multi-family activity has stabilized in recent months.

However, single family building has taken the lead in pulling activity lower, declining for four consecutive months with pronounced retreats in the past three (average of -1.8%). Prospects for single-family construction do not seem bright, as the ups and downs in single-family housing starts have left little net growth in the past year; the past four months have been especially soft.

Improvements to existing structures contributed to weakness with sharp declines early in the year, but this area has posted small gains in the past three months. Home improvements (i.e. additions and renovations) should not be ignored in assessing residential construction, as they typically represent 35 to 40 percent of private activity.

Private nonresidential construction fell 0.3 percent in June, reinforcing the downward drift that has been in place since the start of 2024. This sector has posted 11 declines in the past 18 months. While activity grew in several months over this span, most of the increases were minuscule. The net effect of the ups and downs was a drop of 6.6% (annual rate of 4.4%). Total nonresidential activity has several components, and some have advanced in the past year or so, but none has posted an impressive performance. Two areas, lodging (hotel, motels, resorts) and commercial (retail and wholesale), have been notably soft.

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The public sector has started to sputter after two years of strong activity. Building was vigorous in 2023, growing 21.8% (December to December), and activity advanced an additional 2.4% in 2024. Growth so far this year has been modest on balance. Most months have registered gains, but they offset declines in the closing months of last year by only a small margin. Activity in June was 0.1% above the reading in October (the high point in 2024). Both state and Local governments and the federal sector have posted similar performances: robust in 2023, moderate in 2024, and hesitating this year.

The construction figures can be found in Haver's **USECON** database. The expectations figure is from the Action Economics Forecast Survey in **AS1REPNA**.

- Private building, both residential and nonresidential, drifting lower.
- Public construction hesitating after two strong years.

Economy in Brief: September 2008

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