Tom Moeller

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<div align="left"><img align="left" class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101a.jpg">
Personal consumption expenditures rose 0.3% in September, below the downwardly revised 0.5% August increase and below expectations for a 0.4% rise. A pattern of steadily declining rates of increase prevailed through 2007; 1Q up 7.3% (AR), 2Q up 5.7%, 3Q 4.7%.
Most of that slowdown, however, reflects easier price gains. Adjusted for inflation, consumption rose 3.0% last quarter following a 1.4% 2Q gain and a 3.7% 1Q increase. For the year as a whole 2007 real personal consumption should turn in a 3.1% rise, the same as during 2006.
For September, the slower real increase of 0.1% versus a 0.6% August jump reflected a much easier 0.7% rise in auto sales. In the nondurable area spending on tobacco and clothing dropped. In the services area spending on recreation and electricity &amp; gas consumption fell. These (perhaps too) fine levels of detail are available in Haver&#39;s USNA database.
Personal income rose 0.4% in September, the same as during an upwardly revised August, in line with Consensus forecasts.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101b.jpg" width="353">
Wages &amp; salaries rose 0.6% (7.1% y/y), ahead of the upwardly revised 0.4% August increase. Factory sector wages were unchanged (6.2% y/y), about as they had been m/m during all of 3Q.Wage &amp; salary income in the service-producing industries recovered 0.8% (8.1% y/y) and wages in the government sector rose 0.4% (4.4% y/y).
Interest income grew 0.5% (4.7% y/y), stronger with the rise in interest rates, and dividend income popped another 0.9% (13.3% y/y).
Personal current taxes rose 0.5% (10.3% y/y). As a result, disposable personal income grew 0.4% (6.3% y/y). Adjusted for inflation, disposable personal income rose 0.2% (3.9% y/y) after a 0.5% August increase.
The PCE chain price index 0.2% (2.4% y/y). The core PCE price index was a bit firmer than in August with a 0.2% rise. The overall price index should firm with oil prices moving above $90 per barrel.
Can Social Security Survive the Baby Boomers? from the Federal reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20070901/cover.pdf">here</a>.
The text which accompanied yesterday&#39;s FOMC decision to cut interest rates can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20071031a.htm"> here</a>.</div>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.4%</td>
<td>0.4%</td>
<td>6.8%</td>
<td>6.6%</td>
<td>5.9%</td>
<td>6.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.3%</td>
<td>0.5%</td>
<td>5.6%</td>
<td>5.9%</td>
<td>6.2%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Saving Rate</td>
<td>0.9%</td>
<td>0.8%</td>
<td>0.4% (Sept. 06)</td>
<td>0.4%</td>
<td>0.5%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.2%</td>
<td>-0.0%</td>
<td>2.4%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.8%</td>
<td>2.2%</td>
<td>2.2%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
</body>
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Personal consumption expenditures rose 0.3% in September, below the downwardly revised 0.5% August increase and below expectations for a 0.4% rise. A pattern of steadily declining rates of increase prevailed through 2007; 1Q up 7.3% [...]

U.S. Personal Spending Up 0.3%, Income Rose 0.4%

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<div align="left"><img align="left" class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101a.jpg">
Personal consumption expenditures rose 0.3% in September, below the downwardly revised 0.5% August increase and below expectations for a 0.4% rise. A pattern of steadily declining rates of increase prevailed through 2007; 1Q up 7.3% (AR), 2Q up 5.7%, 3Q 4.7%.
Most of that slowdown, however, reflects easier price gains. Adjusted for inflation, consumption rose 3.0% last quarter following a 1.4% 2Q gain and a 3.7% 1Q increase. For the year as a whole 2007 real personal consumption should turn in a 3.1% rise, the same as during 2006.
For September, the slower real increase of 0.1% versus a 0.6% August jump reflected a much easier 0.7% rise in auto sales. In the nondurable area spending on tobacco and clothing dropped. In the services area spending on recreation and electricity &amp; gas consumption fell. These (perhaps too) fine levels of detail are available in Haver&#39;s USNA database.
Personal income rose 0.4% in September, the same as during an upwardly revised August, in line with Consensus forecasts.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101b.jpg" width="353">
Wages &amp; salaries rose 0.6% (7.1% y/y), ahead of the upwardly revised 0.4% August increase. Factory sector wages were unchanged (6.2% y/y), about as they had been m/m during all of 3Q.Wage &amp; salary income in the service-producing industries recovered 0.8% (8.1% y/y) and wages in the government sector rose 0.4% (4.4% y/y).
Interest income grew 0.5% (4.7% y/y), stronger with the rise in interest rates, and dividend income popped another 0.9% (13.3% y/y).
Personal current taxes rose 0.5% (10.3% y/y). As a result, disposable personal income grew 0.4% (6.3% y/y). Adjusted for inflation, disposable personal income rose 0.2% (3.9% y/y) after a 0.5% August increase.
The PCE chain price index 0.2% (2.4% y/y). The core PCE price index was a bit firmer than in August with a 0.2% rise. The overall price index should firm with oil prices moving above $90 per barrel.
Can Social Security Survive the Baby Boomers? from the Federal reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20070901/cover.pdf">here</a>.
The text which accompanied yesterday&#39;s FOMC decision to cut interest rates can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20071031a.htm"> here</a>.</div>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.4%</td>
<td>0.4%</td>
<td>6.8%</td>
<td>6.6%</td>
<td>5.9%</td>
<td>6.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.3%</td>
<td>0.5%</td>
<td>5.6%</td>
<td>5.9%</td>
<td>6.2%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Saving Rate</td>
<td>0.9%</td>
<td>0.8%</td>
<td>0.4% (Sept. 06)</td>
<td>0.4%</td>
<td>0.5%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.2%</td>
<td>-0.0%</td>
<td>2.4%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.8%</td>
<td>2.2%</td>
<td>2.2%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
U.S. Initial Unemployment Insurance Claims Still Higher 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 1, 2007


<img align="left" class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101c.jpg">
Initial claims for unemployment insurance fell slightly last week but it was only to 327,000 from an upwardly revised 333,000 during the prior week. There were no distortions to the figure from holidays.
The four week moving average of initial claims rose again to 327,000 (4.1% y/y).
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last six years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
Continuing claims for unemployment insurance rose a sharp 2.6%. The increase during the prior week was downwardly revised slightly.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment rose to 2.0%. from 1.9% the week prior. 

<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">Unemployment Insurance (000s)</a></th>
<th scope="col">10/27/07 </th>
<th scope="col">10/20/07 </th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;327</td>
<td>333</td>
<td>-0.6%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
</tbody>
</table>
ISM Index Near "No Growth" Level 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 1, 2007


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101d.jpg" class="large" align="left">
The Composite Index of activity in the manufacturing sector,
reported by the Institute of Supply Management (ISM), fell to 50.9 last
month from 52.0 during September. A reading above 50 indicates growth
in factory sector activity. Consensus expectations had been for a
reading of 51.6.
Last month's PMI figure was the lowest since January when
industrial production in the factory sector fell 0.6%. The three month
% change in factory sector output fell to 0.4% last month
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.
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 being constructed using all
of the absolute positive changes in activity added to one half of the
no change in activity measures.
Declines in three of the index's five components accounted for
the lower composite index, notable was the decline in the production
component. The inventories component rose sharply to its highest level
since July and employment also rose.
The modest 0.3 point rise in the employment index to 52.0
followed a 0.4 point September 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 index of new export orders recovered all of its September
decline with a 2.5 point rise to 57.0. The import index conversely fell
to 47.5, the lowest level since 2001 and suggestive that imports
declined last month.
The prices index moved much higher with the rise in oil
prices. During the last twenty years there has been a 77% correlation
between the price index and the three month change in the PPI for
intermediate goods. 

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101e.jpg" class="small"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101f.jpg" class="small">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"></th>
<th scope="col">October </th>
<th scope="col">September
</th>
<th scope="col">October'06
</th>
<th scope="col">2006 </th>
<th scope="col"> 2005</th>
<th scope="col">2004 </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>50.9</td>
<td>52.0</td>
<td>51.5</td>
<td>53.9</td>
<td>55.5</td>
<td>60.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>52.5</td>
<td>53.4</td>
<td>52.1</td>
<td>55.4</td>
<td>57.4</td>
<td>63.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>63.0</td>
<td>59.0</td>
<td>47.0</td>
<td>65.0</td>
<td>66.4</td>
<td>79.8</td>
</tr>
</tbody>
</table>
UK Distributive Trade Sector Shows
a Slowdown 
by <a href="/comment/Brusca.html">Robert
Brusca</a> November 1, 2007


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101j.jpg" align="left" class="large">
The UK distributive trades survey shows a slowing of the UK
economy. Sales are at a +13 from a year ago and at +7 for this time of
year (Chart). Each of those figures is about at the midpoint of their
respective ranges. Orders at -1 stand in the bottom third of their
range. This is a slowdown in progress. The outlook is however more
upbeat. Sales are expected to post a +28 next month and that
expectation is a top 16% of range expectation. The graph on the left
shows the recent volatility in sales. For the moment it appears as
though industry respondents are not taking the slowdown very seriously.
The other outlook measures at the bottom of the table are strong to
firm in their respective ranges as well.


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr><th scope="col" colspan="10"> UK Distributive volume data CBI Survey</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Reported:</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>12MO Avg</td>
<td>%tile</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales/Yr Ago</td>
<td>13</td>
<td>40</td>
<td>30</td>
<td>4</td>
<td>21</td>
<td>49%</td>
<td>49</td>
<td>-21</td>
<td>70</td>
</tr>
<tr>
<td class="firstcol">Orders/Yr Ago</td>
<td>-1</td>
<td>38</td>
<td>18</td>
<td>1</td>
<td>16</td>
<td>31%</td>
<td>42</td>
<td>-20</td>
<td>62</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales: Time/Yr</td>
<td>7</td>
<td>32</td>
<td>23</td>
<td>11</td>
<td>17</td>
<td>56%</td>
<td>32</td>
<td>-25</td>
<td>57</td>
</tr>
<tr>
<td class="firstcol">Stocks: Sales</td>
<td>5</td>
<td>10</td>
<td>19</td>
<td>12</td>
<td>10</td>
<td>22%</td>
<td>30</td>
<td>-2</td>
<td>32</td>
</tr>
<tr class="even">
<td class="firstcol" colspan="10">Expected:</td>
</tr>
<tr>
<td class="firstcol">Sales/Yr Ago</td>
<td>28</td>
<td>33</td>
<td>0</td>
<td>19</td>
<td>20</td>
<td>84%</td>
<td>36</td>
<td>-15</td>
<td>51</td>
</tr>
<tr class="odd">
<td class="firstcol">Orders/Yr Ago</td>
<td>26</td>
<td>23</td>
<td>-4</td>
<td>16</td>
<td>16</td>
<td>89%</td>
<td>32</td>
<td>-24</td>
<td>56</td>
</tr>
<tr>
<td class="firstcol">Sales: Time/Yr</td>
<td>12</td>
<td>28</td>
<td>8</td>
<td>13</td>
<td>15</td>
<td>61%</td>
<td>29</td>
<td>-15</td>
<td>44</td>
</tr>
<tr class="odd">
<td class="firstcol">Stocks: Sales</td>
<td>7</td>
<td>15</td>
<td>8</td>
<td>8</td>
<td>8</td>
<td>53%</td>
<td>22</td>
<td>-10</td>
<td>32</td>
</tr>
</tbody>
</table>
UK Manufacturing Survey Turns Lower 
by <a href="/comment/Brusca.html">Robert
Brusca</a> November 1, 2007


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101k.jpg" align="left" class="large">
The CIPS/NTC index of MFG for the UK shows a rather rapid
downturn is in play. But the index reading at 52.9 is still reasonably
upbeat by the historic standards of this survey. While the index is
down from a peak of about 56 in August that nearly matches past peaks
of around 56 back in 2004, the current reading is still in the 58th
percentile of its range - a firm reading and solid location. Still, the
table shows that the index has been falling and is now down over 6
months and 12 months even though the fall is rather recent. The depth
of the plunge is notable. The two-month 3.03 point drop is the largest
change in the index since it rose by 3.03 points in January of this
year. We have to go back to May of 2005 to find a larger two-month
drop. So despite the reasonably cozy position of the index in its range
we should be on the outlook for more weakness given the speed of this
drop.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" colspan="8"> MFG PMI
CIPS/NTC</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Monthly readings</td>
<td colspan="3">Change over:</td>
<td>percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>3MO</td>
<td>6MO</td>
<td>12MO</td>
<td>of range</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>52.93</td>
<td>54.73</td>
<td>55.96</td>
<td>-2.61</td>
<td>-1.07</td>
<td>-1.12</td>
<td>58.4</td>
</tr>
<tr class="grey1">
<td colspan="8" class="firstcol">Range since
January 1992</td>
</tr>
</tbody>
</table>
Australian Economy Remains Strong,
But Strong A$ May Already Be Generating Some Restraint 
by <a href="/comment/Stone.html">Carol
Stone</a> November 1, 2007


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101g.jpg" class="large" align="left">The deficit in Australia's trade in goods and
services
increased further in September as exports declined and an accompanying
decline in imports was smaller. The overall deficit was A$1,862
million, up from A$1,665 million in August (seasonally adjusted). The
year-ago figure was A$761 million.
We have highlighted here before (See May 4, 2007 commentary)
the role of raw materials, particularly mineral resources, in
Australia's international trade. The SITC 3 categories, "crude
materials, inedible, ex fuels" and "mineral fuels, etc" together
constitute about half of the nation's total goods exports. These
exports have brought considerable revenue into the Australian economy.
Australia's economy has been strong recently. Indeed, today, a report
of September retail trade shows a gain of 0.9% in that month, extending
a trend of notable growth in consumer spending.
However, the commodities markets are priced in US dollars. The
Australian dollar, perhaps bolstered by the vigorous economy, has risen
markedly. Yesterday, according to the New York Federal Reserve Bank, it
was priced at US$0.9271, the highest month-end value since March 1984.
[In fact, a retail purchase in New York City yesterday came right at
par.] This rapid increase in the exchange rate means that world
commodities, with US dollar prices, bring relatively fewer Australian
dollars than before. Thus, it is not surprising to see a moderation in
the value of these key Australian exports, which have averaged over the
last six months only 0.5% above a year ago.
This point is more clearly made in the commodity price index
compiled by the Reserve Bank of Australia; the RBA publishes this in
both US$ and A$. See the difference in the third graph. Flexible
currency values are, of course, one of the important transmission
mechanisms for global trade adjustment and for monetary policy. The
strong Australian dollar can help restrain inflation in Australia and
by slowing the Australian-dollar value of tradable goods, it can also
modulate economic activity, an "automatic stabilizer". Still, today's
strong retail trade report brought further talk the the RBA might raise
interest rates at its next policy meeting. This talk too can bring more
strength to the currency -- at least until it is evident that that very
strength is restraining the economy.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101h.jpg" class="small"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101i.jpg" class="small">


 
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">AUSTRALIA
(Mil.A$)</th>
<th scope="col">Sept 2007</th>
<th scope="col">Aug 2007</th>
<th scope="col">Jul 2007</th>
<th scope="col">Sept 2006</th>
<th scope="col" colspan="3">Monthly Averages</th>
</tr>
<tr>
<th scope="col" class="firstclass" colspan="5"></th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Balance on Goods
&amp; Services</td>
<td>-1,862</td>
<td>-1,665</td>
<td>-1,011</td>
<td>-761</td>
<td>-969</td>
<td>-1,399</td>
<td>-1,985</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods Credits
(Exports)</td>
<td>13,764</td>
<td>14,558</td>
<td>14,200</td>
<td>14,009</td>
<td>13,809</td>
<td>11,690</td>
<td>9,881</td>
</tr>
<tr>
<td class="firstcol">Goods Debits
(Imports)</td>
<td>15,848</td>
<td>16,408</td>
<td>15,408</td>
<td>14,908</td>
<td>14,871</td>
<td>13,147</td>
<td>11,922</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Services</td>
<td>223</td>
<td>185</td>
<td>190</td>
<td>138</td>
<td>93</td>
<td>58</td>
<td>58</td>
</tr>
<tr>
<td class="firstcol">Raw Material Exports* (NSA)</td>
<td>6,404</td>
<td>7,077</td>
<td>6,681</td>
<td>6,556</td>
<td>6,544</td>
<td>5,475</td>
<td>3,908</td>
</tr>
</tbody>
</table>
</body>
</html>

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

US production rebounded in Q2, but demand continued to slow

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

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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

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

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

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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The **PCE chain price index** increased 0.2% (2.6% y/y) after rising an unrevised 0.3% in June and an unrevised 0.2% in May. The y/y gain steadied at 2.6%. It was increased from 2.2% y/y in April. Energy prices fell 1.1% (-2.7% y/y) after rising 0.9%, while food & beverage prices eased 0.1% (+1.9% y/y) following a 0.3% rise. The price index excluding food & energy rose a steady 0.3%, after two straight 0.2% increases. The y/y gain edged up to 2.9% last month from 2.8% in June. It was increased from a low of 2.6% in April.

Durable goods prices eased 0.1% (+1.1% y/y) in July, after rising 0.5% in June. Home furnishings & appliance prices edged 0.1% higher (2.5% y/y), after increasing 1.3%. Recreational goods & vehicle costs declined 0.9% (-0.3% y/y) and reversed the 0.9% June strengthening. Motor vehicle & parts prices rose 0.2% (1.6% y/y), after a 0.4% June decline.

Prices of nondurable goods eased 0.1% (+0.2% y/y) last month after rising 0.4% in June. Clothing prices held steady both m/m and y/y after rising 0.3% in June. Food & beverage prices eased 0.1% (+1.9% y/y), following a 0.4% June increase. Gasoline & other energy prices fell 1.7% (-9.6% y/y), after rising 0.9% in June.

Services prices in July rose 0.3% (3.6% y/y), after four straight 0.2% increases. Housing & utility prices rose 0.2% (4.3% y/y), after two consecutive 0.3% increases, and services prices excluding energy & healthcare gained 0.4% (3.7% y/y) after two 0.2% gains. Healthcare prices rose 0.2% (2.7% y/y), after rising 0.4%. The cost of financial services & insurance jumped 1.2% (5.5% y/y) after rising 0.4% in June. Recreation services costs rose 0.3% (3.2% y/y) after rising 0.1%. Transportation prices gained 0.2% (4.4% y/y), following a 0.1% rise, while hotel & restaurant prices improved 0.1% (2.8% y/y) after a slight June decline.

**Personal consumption expenditures (PCE)** rose 0.5% (4.7% y/y) last month after increasing 0.4% in June, revised from 0.3%, after holding steady in May. The July rise matched expectations in the Action Economics Forecast Survey. When adjusted for price changes, PCE improved 0.3% in July (2.1% y/y) after rising 0.1% in June.

Real spending on durable goods increased 2.0% (3.2% y/y) in July, after falling for three straight months. Real spending on motor vehicles jumped 4.5% (3.5% y/y), after falling sharply in both June and May. Real outlays on furnishings & appliances improved 0.2% (0.9% y/y), after falling in each of the prior month. Real spending on recreational goods & vehicles increased 1.5% (4.9% y/y) last month, after falling 0.4% in June. Spending on “other” durable goods improved 0.4% (2.6% y/y) after rising 0.2% in June.

Nondurable goods spending in real terms rose 0.3% (2.7% y/y) in July after gaining 0.6% in June. Real clothing & footwear purchases rose 0.6% (4.9% y/y) last month, following a 0.5% rise during June. Real food & beverage purchases strengthened 0.7% (1.7% y/y) after rising 0.4%. Real outlays on gasoline & other energy products fell 1.3% (-1.5% y/y), after rising 1.5%. Real spending on “other” nondurable goods edged 0.1% higher (4.1% y/y) last month, following a 0.6% rise in June.

Real spending on services improved 0.1% (1.7% y/y) in July for the second straight month. Real spending on housing & utilities rose 0.1% (1.1% y/y) in July, for a second consecutive month, while real health care spending also rose 0.1% (3.9% y/y) after rising 0.2%. Real spending on food services & accommodations eased 0.2% (+1.7% y/y), after rising 0.4% in June. Real spending on financial services & insurance rose 0.2% (2.4% y/y) after increasing 0.4% in June. Real spending on transportation services rose 0.3% (-0.0% y/y) in July, after falling 0.6% in June. Recreation spending slipped 0.1% (+1.0% y/y), the same as in June. Spending on “other” services rose 0.3% (2.7% y/y) for the second straight month.

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**Personal income** rose 0.4% last month (5.0% y/y) after increasing 0.3% in June. A 0.5% gain was expected. Wages & salaries moved 0.6% higher (5.3% y/y), following a 0.1% increase during June. Rental income increased 0.5% (4.0% y/y) in July, after falling for three straight months. Proprietors’ income improved 0.7% (2.3% y/y), after a minimal 0.1% increase. Income from assets rose 0.1% (1.4% y/y), after holding steady in June, and current transfer receipts were unchanged (8.3% y/y) following a 1.1% June increase.

Disposable personal income increased 0.4% (4.6% y/y) during July following a 0.3% June rise. After adjusting for price changes, disposable income improved 0.2% (2.0% y/y) after holding steady in June.

The personal saving rate held steady in July at 4.4%, after falling from 5.0% in April. It still stands well above low of 3.5% in December of last year. Personal saving fell 1.7% (+5.8% y/y) in July, after declining 0.9% in June.

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

**Let’s Get On with It** from Fed Governor Christopher J. Waller is available [here](https://www.federalreserve.gov/newsevents/speech/waller20250828a.htm).

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- Core price increase y/y matches highest since February.
- Real spending moderation centers on services.
- Real disposable income improves; personal savings rate steadies.

U.S. Core PCE Price Inflation Up in July; Real Spending Slows Y/Y 

Winnie Tapasanun

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The advance estimate of the U.S. international trade deficit in goods widened to a larger-than-expected $103.57 billion in July after narrowing to $84.85 billion in June, data from the U.S. Census Bureau showed. The July reading, the second widening in the goods trade deficit in three months, was slightly smaller than a $103.92 billion shortfall in July 2024. A deficit of $90.2 billion for July had been expected by the Action Economics Forecast Survey. The deficit reached a record $161.95 billion in March. In Q2'25, the goods trade deficit narrowed to $266.96 billion, the smallest since Q4'23, after ballooning to a record $465.035 billion in Q1'25; the monthly deficit averaged $88.99 billion in Q2'25, down from a record $155.01 billion in Q1'25.

Total goods exports dipped 0.1% m/m (+3.0% y/y), the third consecutive monthly decline, to $177.97 billion in July, the lowest level since January, after a 0.7% decrease to $178.08 billion in June. April registered a record high of $190.08 billion. Exports were up 9.6% from a June 2023 low but down 2.1% from a July 2022 high. The m/m decline in exports in July reflected exports m/m drops of 2.4% (+16.3% y/y) in other goods, 0.9% (+5.1% y/y) in nonfood consumer goods excluding autos, and 0.8% (-1.2% y/y) in industrial supplies & materials. To the upside, exports for the following end-use categories rose m/m in July: automotive vehicles & parts (2.2%; -4.0% y/y), capital goods excluding autos (0.7%; 7.0% y/y), and foods, feeds & beverages (0.5%; 1.4% y/y).

Total goods imports rebounded 7.1% m/m (1.7% y/y), the first monthly increase since March, to a four-month-high $281.54 billion in July following a 4.6% drop to $262.94 billion in June. March registered a record high of $344.59 billion. Imports were up 11.9% from a June 2023 low but down 2.6% from a March 2022 high. The m/m rebound in imports in July reflected m/m rises in most imports end-use categories. These included a 25.4% surge (the first m/m increase and the largest since January; 4.9% y/y) in industrial supplies & materials as well as rises of 11.5% (23.5% y/y) in other goods, 4.8% (14.7% y/y) in capital goods excluding autos, 2.4% (4.9% y/y) in foods, feeds & beverages, and 2.1% (-12.2% y/y) in nonfood consumer goods excluding autos. In contrast, imports of automotive vehicles & parts, the only end-use category with a monthly decline in July, fell 3.2% (-14.1% y/y), the third m/m fall in four months, on top of a 3.6% June decrease.

The advance international trade data can be found in Haver's **USECON** database. The expectation figure is from the Action Economics Forecast Survey, which is in **AS1REPNA**.

- Deficit: $103.57 bil. in July, jumping 22.1% from June’s $84.85 bil.
- Exports -0.1%, down for the third straight month, led by a 2.4% decline in exports of other goods.
- Imports +7.1%, up for the first time since March, led by a 25.4% surge in imports of industrial supplies & materials.

U.S. Goods Trade Deficit Balloons in July; Largest Since March’s Record High

Robert Brusca

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Inflation in the monetary union was tepid across the large, early-reporting, economies in August. The HICP rose by 0.2% on the month in Germany, rose by 0.1% in France, while it was flat in both Italy and Spain. However, these outstanding readings followed several months of stronger inflation; in particular in July German prices rose by 0.2%, in Italy the gauge rose by 0.3%, in France by 0.4%, and in Spain by 0.5%.

As a result, over three months, inflation is running hot on the headline gauge, over 2% in France, Italy, and Spain, and just below it, at a 1.8% annual rate in Germany. Over 12 months, inflation is well behaved, but that headline is up 0.8% in France, rises by 1.7% over 12 months in Italy, by 2.1% in Germany, and at a 2.6% pace in Spain. That is a bit more mixed but still quite solid set of results. The EMU-wide HICP for July – on a one-month lag- rises by 2.1% over 12 months with a core at 2.3%.

Core inflation is not well reported on an early basis. The Italian core rate rose 0.2% in August with Spain at 0.3%; both Italy and Spain logged increases of 0.3% in July and in June and as a result the 3-month inflation rate on the core for Italy and Spain runs at 2.7% in Italy and at 3.8% for Spain. These, of course, are much higher and more disturbing numbers for inflation. The 6-month inflation rate for core Italy and Spain runs at 2.9% and 3.1%, respectively, while over 12 months the Italian core is up by only 2.1% and the Spanish core is up by only 2.4%. The kick up and inflation for the core is a relatively recent phenomenon.

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These statistics give the ECB some room and some time to maneuver, since headline inflation is in pretty good shape and the inflation issues are scattered and have emerged more recently from the core and with growth still weak and with rising unemployment in Germany where it just topped 3 million for the first time in a decade. There may not be any impetus to have to raise rates to cool inflation. The European Central Bank, like the Federal Reserve, is likely playing a watch and wait game with the economic statistics, and this month the watch and wait game turned pretty much in its favor with very good headline figures although still having some difficult core figures. It will take a little time before we get the core numbers for the rest of the monetary union members to fill in to understand exactly where those trends sit.

However, based on the early returns, the ECB is probably relatively happy with how inflation is sitting even with the core rates slightly excessive and varied. There doesn't appear to be any burgeoning inflation problem; there's some kind of a modest core inflation issue building in Italy and Spain and we'll have to watch that in the coming months. For now, the ECB should be relatively content.

Europe

EMU Large Country Inflation Runs Cold – Over Tepid Cores

Andrew Cates

**The US labour market**
The latest data highlight a growing sense of fragility in the US labour market. The unemployment rate, while still relatively low by historical standards, has been edging higher through the course of this year. More telling, however, is the signal from this week’s consumer confidence survey from Conference Board and specifically the labour market differential — the gap between the share of consumers saying jobs are plentiful versus those saying jobs are hard to get. That balance has narrowed sharply, moving back toward levels historically associated with softer labour demand and rising unemployment.

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**Goods and services inflation** 
Haver’s breakdown of goods and services CPI inflation in the advanced economies highlights where fresh risks are emerging. Goods inflation, which had been receding sharply after the pandemic supply shocks, has recently shown signs of firming again. Some of this probably reflects the impact of US tariff policies, which are raising import costs and putting renewed upward pressure on traded goods prices. While services inflation remains the more stubborn component in most advanced economies, the risk is that tariffs could reintroduce stickiness into goods prices, slowing the overall disinflation process.

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**China, Europe and US trade policy**
A consequence of US tariff policies has been a sharp contraction in Chinese exports to the US market, with much of the surplus redirected elsewhere. Europe in particular has recorded near double-digit import growth in recent months, raising concerns that Beijing is deflecting its industrial overcapacity problem rather than resolving it, effectively transferring the pressure onto trading partners. China’s authorities, however, have begun to push back, introducing measures to curb excess supply and rein in so-called “involution,” including clampdowns on price wars across several industries.

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**China’s excess capacity and Europe**
A closer look at Europe–China trade shows that electric vehicles remain a key flashpoint. Import volumes from China have continued to rise even as per-unit prices fall sharply from a year ago —evidence suggesting that industrial overcapacity persists, with low-cost Chinese EVs increasingly challenging European automakers. The surge has carried on despite EU tariffs of up to 45% on battery EVs, as Chinese producers have adapted by pushing plug-in hybrids and expanding onshore production in Europe to bypass duties and defend market share.

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**Wage growth in the US and Europe** 
Turning back to inflation dynamics, the UK stands out for its persistent wage pressures. While posted wage growth has cooled across the US and euro area, the UK measure has remained elevated at around 6% year-on-year, well above pre-pandemic norms. This stickiness reflects a still-tight labour market in key service sectors, even as broader activity has slowed and unemployment has edged higher. For the Bank of England, it underscores the dilemma: headline inflation is easing, but underlying pay growth risks keeping services inflation uncomfortably high, complicating the timing and scale of policy easing.

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**The UK economy**
The UK’s net international investment position has deteriorated noticeably in recent years, with both direct investment and portfolio flows showing persistent weakness. The latest data underline how net FDI has turned increasingly negative, while the portfolio investment balance has also eroded, leaving the UK more reliant on volatile short-term funding sources. This deterioration comes against a backdrop of heightened investor unease about the riskiness of UK debt markets, where elevated gilt yields and rising debt-servicing costs have amplified concerns over fiscal sustainability. Taken together, these trends underscore the vulnerability of the UK’s external position at a time when global capital is arguably proving more selective and risk sensitive.

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Global markets have continued to rally into late summer, buoyed by AI optimism, dovish signals from central bankers at Jackson Hole, and expectations of easier policy ahead. Yet beneath the surface, risks to the world economy are accumulating. In the US, labour market indicators point to softening conditions (chart 1), while tariff-driven pressures are beginning to push goods prices higher (chart 2). Global trade flows are being reshaped by US policy, with China’s excess capacity increasingly diverted toward Europe, most visibly through surging exports of electric vehicles (EVs) (charts 3 and 4). At the same time, wage growth remains stubbornly elevated in the UK, complicating disinflation (chart 5), while concerns are mounting over the country’s external vulnerabilities as net FDI and portfolio positions weaken against the backdrop of jittery debt markets (chart 6). Together, these dynamics highlight the tension between buoyant market performance and a global economy still grappling with structural fragilities.

Charts of the Week: Riskbusters

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Real GDP grew 3.3% (SAAR) during the second quarter of 2025, revised from a 3.0% gain reported initially. The increase followed an unrevised 0.5% decline in Q1. A 3.1% rise had been expected in the Action Economics Forecast Survey. Growth during the last four quarters of 2.1% compared to 2.0% y/y in Q1, and remained below its most recent high of 3.2% in Q4 2023.

After-tax corporate profits without IVA & CCA adjustment increased 1.4% (7.0% y/y) last quarter after easing 0.8% in Q1. Before-tax earnings with IVA & CCA rose 1.7% (4.3% y/y) after falling 2.3% in Q1. Financial sector earnings rose 1.4% (15.3% y/y) after rising 2.3% in Q1. Nonfinancial corporate profits rose 2.2% (2.5% y/y) after falling 2.5% in Q1. Earnings from abroad eased 0.7% (-0.4% y/y) following a 7.3% Q1 decline.

Foreign trade balance improvement added 4.95 percentage points to growth last quarter after subtracting 4.61 percentage points in Q1. Imports fell 29.8% (+1.3% y/y) after surging 38.0% in Q1. Exports declined 1.3% (+2.0% y/y) after improving 0.4% in Q1. Inventories subtracted 3.29 percentage points from growth after adding 2.59 percentage point to Q1 growth.

Real final sales to domestic purchasers grew 1.6% (2.4% y/y), revised from 1.1%, in Q2 after rising 1.5% in Q1. Personal consumption expenditures rose 1.6% (2.4% y/y), revised from 1.4%, following a 0.5% gain. Durable goods spending rose 2.6% (4.6% y/y) after falling 3.7% in Q1. Motor vehicle purchases strengthened 11.7% (6.7% y/y) after declining 11.2% in Q1. Spending on home furnishings & appliances weakened 2.1% (+3.5% y/y) following a 1.5% rise. Recreational goods & vehicle outlays fell 3.5% (+4.3% y/y) last quarter after a 0.4% Q1 gain.

Nondurable goods outlays in constant dollars rose 2.3% (3.0% y/y) following 2.1% growth in Q1. Apparel spending increased 5.4% (4.8% y/y) following a 7.0% rise. Food & beverage buying gained 0.3% (1.5% y/y) after a 1.0% increase. Gasoline & fuel oil purchases weakened 1.4% (+0.9% y/y) after gaining 3.6% in Q1.

Real spending on services increased 1.2% (1.9% y/y) after a 0.6% gain. Outlays on housing & utilities eased 0.4% (+1.1% y/y) after rising 2.9% in Q1. Health care expenditures rose 4.2% (4.8% y/y) after a 3.1% increase. Transportation outlays declined 2.9% (-0.6% y/y) after a 1.4% rise, while recreation spending rose 3.6% (0.7% y/y) following a 5.1% decline. Restaurant & hotel expenditures increased 5.1% (1.9% y/y) after falling 1.8%. Financial services expenditures rose 1.9% (2.3% y/y) following a 0.1% Q1 increase.

Business fixed investment in constant dollars increased 5.7% last quarter (4.2% y/y), revised from 1.9%, following a 10.3% surge in Q1. Expenditures on structures declined 8.9% (-3.4% y/y), after falling 2.4% in Q1. Expenditures on producers’ durable equipment increased 7.4% (7.7% y/y), revised from 4.8%, after surging 23.7% in Q1. Outlays on information processing equipment rose 10.1% (20.1% y/y), revised from 5.5%, after soaring 72.8% during Q1. Industrial equipment investment rose 6.7% (4.0% y/y) after a 4.7% rise. Transportation equipment investment surged 20.4% (6.8% y/y) after a 6.9% gain. Intellectual property product spending rose 12.8% last quarter (5.2% y/y) following a 6.0% rise.

Residential structures investment in real terms declined a little-revised 4.7% (-1.3% y/y), the fourth decline in the last five quarters.

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Government spending eased 0.2%, revised from up 0.5% in Q2 (+1.8% y/y) after a 0.6% decline. Federal government expenditures declined 4.7% (+0.7% y/y) after falling 4.6% in Q1. National defense expenditures increased 1.4% (3.0% y/y) after declining 7.1% in Q1. State & local government spending rose 2.6% (2.5% y/y) following a 2.0% rise.

The GDP chain price index rose an unrevised and expected 2.0% last quarter (2.5% y/y) after increasing 3.8% in Q1. The PCE chain price index increased 2.0% (2.4% y/y) following a 3.7% rise. The PCE price index excluding food and energy rose 2.5% (2.7% y/y) after increasing 3.5% in Q1. The business fixed investment price index edged 0.5% lower (+1.1% y/y) after a 0.4% rise. The residential price index rose 1.1% (2.6% y/y) after a 4.1% rise while the government price index increased 3.3% (3.1% y/y) following a 4.6% rise.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- Business investment strengthens & consumer spending firms.
- U.S. business earnings reverse Q1 decline.
- Increase in price index is unrevised, remaining roughly half of Q1’s gain.

Economy in Brief: November 2007

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U.S. Personal Spending Up 0.3%, Income Rose 0.4%

U.S. Personal Spending Up 0.3%, Income Rose 0.4%