Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041122a.jpg" width="353">
The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) rose last week for the fourth period in the last five. The 0.4% w/w rise eased the decline in the index&#39;s smoothed six-month growth rate to -0.7% from -1.6% late last month.
Successive positive growth in the weekly index as recently tallied occurred last this past March after which the index&#39;s forward momentum eased, foreshadowing a slowdown in real GDP growth into the 3-4% range from the 4-7% range.
Past recessionary periods in the US economy were signaled by negative growth in the ECRI Leading Index in the -5 to -10% range. During the last ten years there has been a 69% correlation between the six-month growth in the ECRI leading index of the US economy and two quarter growth in real GDP.
The components of the ECRI weekly leading index are money supply plus stock &amp; bond mutual funds, the JOC-ECRI industrial materials price index, mortgage applications, bond quality spreads, stock prices, bond yields, and initial jobless insurance claims.
The ECRI Leading Index&#39;s recent pattern generally mirrors the Conference Board&#39;s Index of Leading Economic Indicators, with a slight lead. Construction of the ECRI Leading Index differs from the Conference Board Index but there has been a 70% correlation between the y/y percent change in the two series over the last 10 years.
The median lead of the ECRI index at business cycle peaks has been 10.5 months and at cycle troughs 3.0 months.
The latest from ECRI is available <a href="http://www.businesscycle.com/"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/weekly/@W8/@W801/@W801.HTM">ECRI Leading Index</a></th>
<th scope="col">11/12/04</th>
<th scope="col">11/05/04</th>
<th scope="col">Growth Rate</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Weekly</td>
<td>132.7</td>
<td>132.2</td>
<td>-0.7%</td>
<td>6.5%</td>
<td>1.1%</td>
<td>-5.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Oct</td>
<td>Sept</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Monthly</td>
<td>131.2</td>
<td>131.7</td>
<td>-1.2%</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
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The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) rose last week for the fourth period in the last five. The 0.4% w/w rise eased the decline in the index's smoothed six-month growth [...]

ECRI U.S. Leading Index Moved Up

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041119d.jpg" width="353">
The Cabinet Office of the Japanese Government announced yesterday that it would shift GDP calculations to chain-weighting beginning with the release of revised Q3 data on December 8. It will also switch the reference year from 1995 to 2000 and incorporate new input data in various components.
Beneficially for users, the Cabinet Office released &quot;Interim series&quot;, in which the current official data are converted to a chain-weighted basis, so the effect of the chain-weighting alone can be seen. Total GDP in 1995 yen is reduced from &yen;567.6 trillion in Q3 to &yen;550.2 trillion, or about 3.1%. The hesitant growth in the latest couple of quarters is eliminated all together.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041119c.jpg" width="353">
While this now flat pattern in Japanese GDP might be disappointing, some growth is still evident over the last year, and the pattern now in evidence allows a more realistic appraisal. Chain-weighting or chain-linking reduces the numerical impact on total growth of components for which prices are falling rapidly. Since computer prices are the main single source of price decline, the adjustment to growth is most apparent in fixed investment. Private fixed investment is lowered by &yen;5.2 trillion or 5.3% in the latest quarter. While in nominal yen, investment is 15.5% of total GDP, its share of the chaining adjustment is 30%. Interestingly, this negative difference is, however, a recent development, and in the late 1990s, chained investment was sometimes slightly larger than fixed-weight investment. This unusual situation bears closer investigation and may be related to the overall pattern of deflation in the Japanese economy.
The &quot;interim&quot; chain-weight series are now contained in Haver&#39;s JAPAN database, right in the &quot;National Accounts&quot; menus. Our colleagues at Nomura Research Institute in Tokyo assisted with a quick translation of the release tables into English.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Trillion Yen</th>
<th scope="col">3 Qtr 2004</th>
<th scope="col">2 Qtr 2004</th>
<th scope="col">Year Ago</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP: Chain Weighted</td>
<td>550.2</td>
<td>550.4</td>
<td>535.8</td>
<td>535.9</td>
<td>528.9</td>
<td>530.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>-0.0</td>
<td>0.0</td>
<td>2.7</td>
<td>1.3</td>
<td>-0.4</td>
<td>0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Fixed Weighted</td>
<td>567.6</td>
<td>567.2</td>
<td>546.9</td>
<td>546.4</td>
<td>533.3</td>
<td>534.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.1</td>
<td>0.3</td>
<td>3.8</td>
<td>2.5</td>
<td>-0.2</td>
<td>0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Private Fixed Investment: Chain Weighted</td>
<td>93.9</td>
<td>94.6</td>
<td>87.4</td>
<td>88.2</td>
<td>82.6</td>
<td>88.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>-0.8</td>
<td>0.2</td>
<td>7.4</td>
<td>6.8</td>
<td>-6.3</td>
<td>0.7</td>
</tr>
<tr>
<td class="firstcol">Fixed Weighted</td>
<td>99.1</td>
<td>99.3</td>
<td>90.7</td>
<td>91.1</td>
<td>83.1</td>
<td>89.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>-0.2</td>
<td>0.6</td>
<td>9.2</td>
<td>9.6</td>
<td>-6.9</td>
<td>1.7</td>
</tr>
</tbody>
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The Cabinet Office of the Japanese Government announced yesterday that it would shift GDP calculations to chain-weighting beginning with the release of revised Q3 data on December 8. It will also switch the reference year from 1995 to [...]

Chain-Linking Comes to Japan's GDP Accounts

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041119a.jpg" width="353">
The Philadelphia Fed&#146;s November index of general business conditions in the manufacturing sector eased to 20.7 from 28.5. A decline to 23.2 had been the Consensus expectation.
During the last ten years there has been a 71% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 53% correlation with q/q growth in real GDP.
Most of the sub indexes declined with the notable exception of the index for the number of employees which rose to 17.4 and recovered most of the prior month&#39;s.
The business conditions index reflects a separate survey question, not the sub indexes.
The separate index of expected business conditions in six months reversed virtually all of the prior two months&#39; declines with a 24.5 point jump to 52.1. That was still off the highs last year in the 60s.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041119b.jpg" width="353">
The prices paid index fell to 53.9. Expectations for prices rose to the highest level since March. During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the PPI for intermediate goods. The correlation with the finished goods PPI has been 41% and with the CPI it&#39;s been 45%.
The Philadelphia Fed index is based on a survey of 250 regional manufacturing firms, but these firms sell nationally and internationally.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos1104.html">here</a>.
Today&#39;s comments by Fed Chairman Greenspan on the Euro can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2004/20041119/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">Nov</th>
<th scope="col">Oct</th>
<th scope="col">Nov &#39;03</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>20.7</td>
<td>28.5</td>
<td>27.9</td>
<td>10.6</td>
<td>7.7</td>
<td>-17.2</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>53.9</td>
<td>57.1</td>
<td>26.2</td>
<td>16.7</td>
<td>12.2</td>
<td>-0.9</td>
</tr>
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The Philadelphia Feds November index of general business conditions in the manufacturing sector eased to 20.7 from 28.5. A decline to 23.2 had been the Consensus expectation. During the last ten years there has been a 71% correlation [...]

Philadelphia Fed Activity Index Eased

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041118c.jpg" width="353">
Hesitant improvement are evident in labor market conditions reported today by two widely disparate areas, Hong Kong and Sweden. Both have undergone economic &quot;adjustments&quot; over the last couple years, but it now looks that both are starting to turn around.
This is clearer in Hong Kong, where employment growth in the three months ended in October is a notable 2.8% above year-earlier levels. Month-to-month moves, even in this moving average series, are fairly irregular, but the longer trend looks favorable, especially after two years of contraction in 2002 and 2003. The unemployment rate is falling too, reaching 6.7% in the October period, down from a peak of 8.6% in mid-2003 and the lowest since early 2002.
In Sweden, the employment figures are not so buoyant, still on the downside compared with a year ago, but the decline now seems to be occurring more gradually. More hopeful is a reduction in the unemployment rate, which fell below 5% for the first time in 14 months and well off its high of 6.0% in February and much higher levels in prior years.
For both regions, the price of energy remains a wildcard as a potential block to further progress. As in the US, fuel prices for both transportation and heating have climbed sharply. Thus it remains to be seen if these recently better labor force developments will continue or be constrained by ballooning energy budgets. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Labor Force Data</th>
<th scope="col">Oct 2004</th>
<th scope="col">Sept 2004</th>
<th scope="col">Aug 2004</th>
<th scope="col">Year Ago</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Hong Kong Employment &nbsp; (3-mo Avg, Mil., SA)</td>
<td>3.30</td>
<td>3.28</td>
<td>3.30</td>
<td>3.21</td>
<td>3.22</td>
<td>3.23</td>
<td>3.25</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Chg</td>
<td>0.5</td>
<td>-0.4</td>
<td>0.1</td>
<td>2.8</td>
<td>-0.4</td>
<td>-0.6</td>
<td>1.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>6.7</td>
<td>6.8</td>
<td>6.8</td>
<td>8.0</td>
<td>8.0</td>
<td>7.3</td>
<td>5.1</td>
</tr>
<tr>
<td class="firstcol">Underemployment Rate</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Sweden Employment &nbsp; (Mil., NSA)</td>
<td>4.20</td>
<td>4.20</td>
<td>4.27</td>
<td>4.22</td>
<td>4.23</td>
<td>4.24</td>
<td>4.24</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Chg</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>-0.6</td>
<td>-0.2</td>
<td>0.1</td>
<td>2.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.9</td>
<td>5.8</td>
<td>5.5</td>
<td>5.1</td>
<td>4.9</td>
<td>4.0</td>
<td>4.0</td>
</tr>
</tbody>
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</body>
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Hesitant improvement are evident in labor market conditions reported today by two widely disparate areas, Hong Kong and Sweden. Both have undergone economic "adjustments" over the last couple years, but it now looks that both are [...]

Unemployment Rates Down in Hong Kong & Sweden

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041118a.jpg" width="353">
Last week, initial claims for unemployment insurance fell 3,000 to 334,000 from an upwardly revised 337,000 the prior week. The Consensus expectation had been for 333,000 claims and the federal government&#39;s closure in observance of the Veterans Day holiday during the week had no impact on the data.
The latest figure covers the survey period for November nonfarm payrolls and claims rose 4,000 (1.2%) from the October period.
The four week moving average of initial claims rose slightly to 338,250 (-9.4% y/y).
During the last ten years there has been a (negative) 73% correlation between the level of initial claims and the m/m change in payroll employment.
Continuing claims for unemployment insurance fell 16,000 following a downwardly revised gain of 15,000 the prior week.
The insured rate of unemployment remained at 2.2% for the sixth week.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">11/13/04</th>
<th scope="col">11/06/04</th>
<th scope="col">Y/Y</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>334</td>
<td>337</td>
<td>-10.0%</td>
<td>402</td>
<td>404</td>
<td>406</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>2,792</td>
<td>-19.3%</td>
<td>3,531</td>
<td>3,570</td>
<td>3,018</td>
</tr>
</tbody>
</table>
</body>
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Last week, initial claims for unemployment insurance fell 3,000 to 334,000 from an upwardly revised 337,000 the prior week. The Consensus expectation had been for 333,000 claims and the federal government's closure in observance of [...]

Initial Claims for Unemployment Insurance Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/041118b.jpg" width="353">
The October Composite Index of Leading Economic Indicators published by the Conference Board fell by 0.3% for the fourth consecutive month and marked the fifth month of decline. A 0.1% decline had been the Consensus expectation.
Six-month growth in the leaders of -1.4% was the weakest since mid-2002 and does not herald firm economic growth. Negative growth in excess of 2.5% preceded past periods when the US economy entered recession.
Three quarters of the 10 components of the leading index fell over a one month span with a narrower yield curve, lower consumer expectations and slower money supply growth providing the largest negative influences. Over a six month span 65% of the leaders fell.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators rose 0.3% and the six-month growth rate held at 2.1%, down from the high of 3.3% early this year. During the last ten years there has been an 82% correlation between the six month growth in the coincident indicators and two quarter growth in real GDP.
The lagging indicators rose for the second consecutive month. The ratio of the coincident to the lagging indicators, a measure of how the economy is performing relative to its excesses, rose slightly but has moved sideways since the Spring.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
&quot;Monetary Policy and Inflation Dynamics&quot; from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/pubs/feds/2004/200462/200462pap.pdf"> here</a>.
&quot;A Neutral Fed Funds Rate?&quot; from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/mt/20041201/cover.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/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">Oct</th>
<th scope="col">Sept</th>
<th scope="col">6-Month Chg</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>-0.3%</td>
<td>-0.3%</td>
<td>-1.4%</td>
<td>1.3%</td>
<td>2.2%</td>
<td>-0.8%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.1%</td>
<td>0.4%</td>
<td>-0.5%</td>
<td>-0.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.9%</td>
<td>-2.2%</td>
<td>-2.8%</td>
<td>-1.4%</td>
</tr>
</tbody>
</table>
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The October Composite Index of Leading Economic Indicators published by the Conference Board fell by 0.3% for the fourth consecutive month and marked the fifth month of decline. A 0.1% decline had been the Consensus expectation. Six- [...]

Leading Indicators Down Again

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

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

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The **Industrial Materials Price Index** from the Foundation for International Business and Economic Research (FIBER) declined 1.7% during the last four weeks, after easing 0.4% in the prior four weeks. Together, these declines left prices unchanged during the last twelve months. During July, factory sector production rose an improved 1.4% y/y.

**Crude Oil & Benzene** group costs led the overall price weakening as they moved 3.3% lower (-12.6% y/y) in the latest four week period. The price of West Texas Intermediate crude oil declined 5.0% to $62.94 per barrel and remained 14.7% lower y/y. It had fallen to a low of $58.50 per barrel in the second week of May. The cost of the petrol-chemical benzene, used for making plastics & synthetic fibers, weakened 7.0% (-32.3% y/y). Excluding crude oil, the industrial commodity price index weakened 1.5% (+1.0% y/y) during the last four weeks.

Lower **Miscellaneous** group prices followed with a 2.9% weakening in the latest four week period, but prices remained up 4.0% y/y. Lumber prices fell 9.9% (+15.2% y/y) during the last four weeks. Natural rubber prices also were fairly weak as they fell 6.9% (-11.5% y/y) in four weeks. Working higher, tallow costs (used in the soap industry) improved 0.6% (32.9% y/y) over the last four weeks.

**Metals** group prices fell 1.2% (+1.1% y/y) over four weeks. Lead prices declined 2.6% (-4.3% y/y) while copper scrap prices weakened 1.6% (+5.9% y/y). Aluminum prices were off 1.5% in four weeks (+7.5% y/y), and the cost of zinc declined 1.4% (+0.5% y/y). Tin prices eased 0.4% (+4.4% y/y), but steel scrap costs edged 0.2% higher (-6.7% y/y) over four weeks.

Prices in the **Textile** group moved 0.3% higher (2.0% y/y) during the last four weeks. Burlap costs improved 3.9% (15.9% y/y), but cotton prices fell 0.9% (+2.3% y/y) in four weeks.

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

**Monetary Policy and the Fed’s Framework Review** is the title of today’s speech by Fed Chair Jerome H. Powell, and it can be found [here](https://www.federalreserve.gov/newsevents/speech/powell20250822a.htm).

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- Decline reverses earlier strength.
- Crude oil costs lead the weakening.
- Lumber & metals prices follow, but textile costs rise.

FIBER: Industrial Commodity Prices Decline Sharply in Latest Four Weeks

Andrew Cates

**The US housing market**
This first chart below highlights the growing downside risks to the US economic outlook stemming from the housing market. The S&P Case-Shiller home price index has slowed sharply from the pandemic-era surge, while the NAHB (National Association of Homebuilders) housing market index has weakened to levels historically associated with falling home prices. Housing matters because it is not just a cyclical sector but also a key transmission channel for the broader economy: consumer confidence, household balance sheets and credit conditions are all heavily influenced by shifts in the housing market.

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**China’s economy**
The latest run of data from China has also reinforced downside risks for the broader world economy. As the Citigroup Economic Surprise Indices show below, China-specific data have more consistently undershot expectations in recent days. China’s July releases in particular disappointed: retail sales growth slowed to just 3.7% y/y, with weakness in autos and furniture hinting that earlier policy-driven boosts are fading. Industrial output and fixed-asset investment also came in below consensus, while property prices continued to fall and retail sector investment contracted by double digits. Even the labour market showed strain, with unemployment edging higher. The worry is not just China’s slowdown in isolation, but the spillovers. Softer Chinese demand feeds directly into global supply chains, commodity markets, and regional trade partners. Combined with tariff and non-tariff headwinds from the US, the risk is that China’s structural challenges spill into weaker global growth momentum.

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**UK inflation** 
Persistently high services inflation remains one of the biggest headaches for UK monetary policy - and the UK is far from unique in that regard. Services are wage- and demand-sensitive, and their stickiness complicates the calibration of monetary policy even as broader disinflation takes hold. This week’s July upside surprise to UK services inflation was driven in no small part by airfares, which spiked 30% month-on-month – the largest July rise on record. While such volatility may prove temporary, it nonetheless lifted year-on-year services inflation to 5.0%, well above comfort levels. Still, the offsets are important: stripping out airfares and other volatile components, underlying services momentum appears to have eased, while broader data on wages, employment, and activity point to cooling demand. Nevertheless, this tension – headline stickiness versus softer underlying trends – underscores why the Bank of England is treading carefully.

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**Inflation expectations and energy**
US medium-term inflation expectations have been unusually decoupling from oil prices in recent weeks. Normally, falling oil prices would help anchor breakevens, yet the 5-year forward inflation rate has edged higher of late even as WTI has slipped. This probably reflects US tariff policies that are shifting inflation dynamics away from energy and toward trade-related costs. At the same time, a weaker dollar has lifted imported prices, and the upward creep in expectations suggests markets may be more actively questioning whether the Fed’s “higher for longer” stance is sufficient to contain medium-term inflation risks.

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**Clean energy**
Pivoting to more structural issues, the stark divergence between the global clean energy equity market index and the broader S&P 500 underlines the mounting challenges facing the renewables sector at present. While US equities have pushed to record highs, clean energy stocks have languished, weighed down by policy uncertainty, higher financing costs, and a more sceptical public mood. In the US, shifting political winds and uneven implementation of green subsidies have clouded the outlook for investment, while globally, resistance to renewables has grown as consumers and businesses grapple with high energy bills. Rising interest rates have further undermined the economics of capital-intensive clean energy projects, eroding returns and delaying investment pipelines. At the same time, bottlenecks in transmission infrastructure, permitting delays, and questions over the pace of the net-zero transition have all dented confidence. The result is a sector underperforming dramatically even as the urgency of the climate challenge grows.

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**Renewables versus non-renewables**
Global energy consumption data show how limited—and in some respects, stalled—the transition away from fossil fuels has become. Oil, gas, and coal still dominate the energy mix, with shares that have proven remarkably resilient over the past several years. In fact, coal use has ticked higher of late as countries turned back to cheaper, more secure supplies amid energy price spikes and supply disruptions. While renewables have grown rapidly in percentage terms, their absolute contribution remains small compared with the scale of fossil fuel demand. Nuclear and hydro have also struggled to gain ground, leaving the overall mix looking more like a story of continuity than transformation. The result is a global transition that has not just slowed but, in key areas, has partially reversed—highlighting the gulf between climate ambitions and energy realities.

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Recent financial market gains have been underpinned by resilient global data, AI-fuelled optimism, and hopes that most central banks will continue to loosen monetary policy. Yet beneath the surface, a more complicated picture may be emerging. In the US, housing indicators are flashing warnings about household balance sheets and credit channels (chart 1), while China’s latest data—covering retail sales, industrial output, and property—underscore persistent weakness (chart 2). In the UK, this week’s data showing sticky services inflation is complicating the Bank of England’s easing path (chat 3), while back in the US, medium-term inflation expectations have been rising despite softer oil prices (chart 4), hinting at a more disruptive role for trade policy. Against this cyclical backdrop sit deeper structural challenges: global energy consumption remains overwhelmingly dependent on fossil fuels, the clean energy sector has lost momentum amid high costs and policy uncertainty, and equity markets have punished renewables even as climate imperatives intensify (charts 5 and 6). Together, these dynamics suggest that while markets continue to trade on optimism, the mix of weak housing signals, patchy Chinese demand, sticky inflation, and an uneven energy transition potentially leaves the global outlook more fragile than headline performance implies.

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Charts of the Week: Cracks Beneath The Shine

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Existing home sales rose 2.0% (0.8% y/y) to 4.01 million (SAAR) in July after falling 2.7% in June to an unrevised to 3.93 million and rising 1.0% to 4.04 million in May, according to the National Association of Realtors (NAR). The Action Economics Forecast Survey expected 3.91 million unit sales in July. Last month’s sales decline accompanied a decline in the effective 30-year mortgage interest rate to 6.72% from 6.82% in June. The sales figures are based on closings of sales signed over the past couple of months.

Existing single-family home sales rose 2.0% (1.1% y/y) during July to 3.64 million units after a 3.0% decline to 3.57 million in June and a 1.4% May rise to 3.68 million. Sales of condos and co-ops rose 2.8% (-2.6% y/y) to 370,000 after holding steady in June.

Sales were mixed across the country last month. Sales in the Northeast increased 8.7% (2.0% y/y) to 500,000 following an 8.0% June decline. Sales in the South improved 2.2% both m/m and y/y to 1.85 million, after falling 2.2% in June. Sales in the West rose 1.4% (-4.0% y/y) to 720,000 after a 1.4% June gain. Falling by 1.1% (+1.1% y/y) to 940,000 were sales in the Midwest after falling 4.0% in June.

The median price of all existing homes (NSA) in July weakened 2.4% (+0.2% y/y) from the June record to $422,400. The median price of an existing single-family home fell 2.3% (+0.3% y/y) to $428,500 in July, and the median price of condos & co-ops declined 3.1% (-1.2% y/y) to $362,600 last month. Prices for homes in the West declined 1.1% (-1.4% y/y) to $620,700 while prices in the Northeast fell 6.3% (+0.8% y/y) to $509,300. In the South, prices were off 1.8% (-0.6% y/y) to $367,400 while in the Midwest, home prices fell 1.1% (+3.9% y/y) to $333,800.

The number of existing homes for sale (NSA) rose 0.6% (15.7% y/y) to 1.55 million units in July. The supply of homes on the market at the current selling rate (NSA) slipped to 4.6 months, still nearly the highest level in nine years, up from a low of 1.6 months in January 2022.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. Mortgage interest rates can be found in the **WEEKLY** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

The minutes to the latest **FOMC** meeting can be found [here](https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20250730.pdf).

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- Home sales remain below recent high in December.
- Sales are slightly higher m/m in most of country.
- Median sales price slips from record high.

U.S. Existing Home Sales Rise Slightly in July; Home Prices Decline

Sandy Batten

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The Current Activity Diffusion Index from the latest Manufacturing Business Outlook Survey (MBOS) conducted by the Federal Reserve Bank of Philadelphia, fell more than 16 points to -0.3 in August from 15.9 in July. The index has posted negative readings, which indicate that activity is declining, in four of the previous five months. A reading of +5.0 for August had been expected by the Action Economics Forecast Survey. Nearly 30% of respondents reported an increase in activity in August, down from 31.7% in July, while 30% reported a decline, up markedly from 16% in July. Responses to this month's survey were collected from August 11 to August 18.

The headline index reflects the answer to a single question on activity. Haver Analytics calculates an ISM-adjusted current activity diffusion index from five key components using the methodology employed in constructing the national ISM index. That calculated index fell to 49.1 in August, the first reading below the critical 50 level that separates expansion from contraction since April, from 51.2 in July.

Looking at the component indexes, both new orders and shipments posted significant declines in August with orders plummeting into negative territory at -1.9 versus 18.4 in July. This was the first negative reading for new orders since the tariff-induced plunge in April. Thirty-four percent of respondents reported an increase in orders in August, little changed from 35% in July. In contrast, 36% reported a decline in orders in August, up markedly from 17% in July. Shipments also declined significantly in August although they remained in positive territory at 4.5 versus 23.7 in July. Twenty-nine percent of respondents reported an increase in shipments, down slightly from 32% in July. In contrast, 24% reported a decline, up markedly from 9% in July.

Firms continued to report overall increases in employment, but at a slower pace. The employment index fell 4 points to 5.9 in August from 10.3 in July. Most firms continued to report no change in employment levels (74%), while the share of firms reporting increases (16%) exceeded the share reporting decreases (10%, up from 7% in July). The average workweek index rose from 0.4 in July to 4.7 in August, its highest reading since March.

There was still no indication that increased tariffs have damaged supply chains. The delivery times index slipped further below zero to -5.4 in August, the fourth negative reading in five months indicating that delivery times are shortening, from -4.7 in July. Thirteen percent of respondents reported an increase in delivery times in August, up from 8% in July, while 18% reported a decrease versus 13% in July.

Inflation indicators continued to rise in August. The prices paid index jumped to 66.8 in August, its highest reading since May 2022, from an already elevated 58.8 in July. Nearly 67% of respondents reported an increase in input prices while no respondent reported a decline. The prices received index edged up to 36.1 in August, its highest reading in three months, from 34.8 in July. In the answer to a special question, firms expected a 4.1% increase in the prices of their own products over the coming year, up from 3.8% when this question was last asked in the May survey.

The outlook for the next six months brightened marginally in August with the Future Activity Index rising to 25.0 following an increase to 21.5 in July. Forty-one percent of respondents expect activity to increase over the coming six months, the same as in July, while 16% expect it to decline, down from 20% in July. The pace of increase in both new orders and shipments is expected to pick up. Delivery times are expected to increase only slightly. Employment growth is expected to slow. The outlook for capital expenditures rose markedly to 38.4 in August, the highest reading since January.

The Manufacturing Business Outlook Survey (MBOS), conducted by the Federal Reserve Bank of Philadelphia, is a monthly survey of manufacturers in the Third Federal Reserve District. Participants indicate the direction of change in overall business activity and in the various measures of activity at their plants. The diffusion indexes in the MBOS represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. The series from the survey dating back to May 1968 can be found in Haver's **SURVEYS** database. The expectations forecast figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- The headline index fell more than 16 points to -0.3, led by outsized declines in both new orders and shipments.
- The ISM-adjusted composite fell below the critical 50 level for the first time in four months, also pointing to a decline in activity.
- Delivery times shortened further while both prices paid and prices received indexes posted gains.

U.S. Philly Fed Manufacturing Index Dipped Below Zero in August

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Initial claims for unemployment insurance rose to 235,000 during the week ended August 16 after falling to an unrevised 224,000 in the prior week. The Action Economics Forecast Survey expected 226,000 initial claims for last week. The four-week moving average of initial claims increased to 226,250 from 221,750. It was the highest level since the second week of July.

In the week ended August 9, the total number of unemployment insurance beneficiaries – also known as “continuing claims” – rose to 1.972 million from 1.942 million in the prior week, revised from 1.953 million. The four-week moving average rose to 1.955 million, the highest level in five weeks.

In the week ending August 9, the insured rate of unemployment (the number of beneficiaries as a percent of covered employment) was 1.3% for the eleventh straight week.

The insured unemployment rate varied greatly across individual states and territories. In the week ended August 2, the highest unemployment rates were in New Jersey (2.74%), Puerto Rico (2.62%), Rhode Island (2.52%), California (2.14%), Minnesota (2.20%) and Massachusetts (2.15%). The lowest were in South Dakota (0.27%), Florida (0.39%), North Carolina (0.47%), Kansas (0.58%), Georgia (0.59%) and Louisiana (0.61%). Rates in other notable states include Pennsylvania (1.90%), Illinois (1.72%), New York (1.73%), Texas (1.25%) and Michigan (1.17%). These state data are not seasonally adjusted.

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

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- Initial claims surge to highest level in eight weeks.
- Continuing claims extend upward trend.
- Insured unemployment rate holds steady.

Economy in Brief: 2004

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ECRI U.S. Leading Index Moved Up

ECRI U.S. Leading Index Moved Up

Chain-Linking Comes to Japan's GDP Accounts

Philadelphia Fed Activity Index Eased

Philadelphia Fed Activity Index Eased

Unemployment Rates Down in Hong Kong & Sweden

Initial Claims for Unemployment Insurance Fell

Leading Indicators Down Again