Tom Moeller

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 The outplacement firm of Challenger, Grey &amp; Christmas reported that
 job cut announcements during October totaled just 42,759 following the
 September surge of 115,730. The latest figure was the lowest since June.
 The lessened rise in announcements was led by fewer the cuts in the
 education, energy, financial, government (military), media and
 transportation industries. Increases were logged by the automotive,
 chemical, construction, consumer products, entertainment/ leisure and
 insurance industries. During the last ten years there has been a 67%
 correlation between the three-month moving average of announced job cuts
 and the three-month change in payroll employment. Job cut announcements
 differ from layoffs. Many are achieved through attrition, early retirement
 or just never occur.
 Challenger also samples firms' hiring plans which surged to 159,177.
 That was the highest level, by far, of the current recovery. The retail,
 media &amp; insurance industries showed the bulk of the gain.
 The Challenger figures are available in Haver's SURVEYS
 database.
 
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		<colgroup><col><col><col><col><col><col><col><col></colgroup>
		<thead>
	 <tr>
 <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger,
 Gray &amp; Christmas</a></th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Aug</th>
 <th scope="col" >Y/Y%</th>
 <th scope="col" >2010</th>
 <th scope="col" >2009</th>
 <th scope="col" >2008</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Announced Job Cuts</td>
 <td>42,759</td>
 <td>115,730</td>
 <td>51,114</td>
 <td>12.6</td>
 <td>529,973</td>
 <td>1,288,030</td>
 <td>1,223,993</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Announced Hiring Plans</td>
 <td>159,177</td>
 <td>76,551</td>
 <td>15,201</td>
 <td>27.6</td>
 <td>402,638</td>
 <td>272,573</td>
 <td>118,600</td>
 </tr>
 </tbody>
 </table>
 
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The outplacement firm of Challenger, Grey & Christmas reported that job cut announcements during October totaled just 42,759 following the September surge of 115,730. The latest figure was the lowest since June. The lessened rise in [...]

U.S. Challenger Reports Job Market Healing

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 The labor market continues on the mend, just not too quickly. According
 to the payroll processor Automatic Data Processing (ADP) and economic
 consultants Macroeconomic Advisers, private nonfarm payrolls grew
 110,000 (0.1%) during October following a 116,000 increase in
 September, revised from 91,000. The latest exceeds Consensus expectations
 for a 105,000 rise. The recent small monthly increases left the
 three-month growth rate at 1.1% (AR), down from February's 2.4%.
 The U.S. Bureau of Labor Statistics will report October payroll
 employment this Friday. Economists expect a 44,000 worker increase in
 jobs. By comparison, the September increase of 116,000 in ADP's measure of
 private nonfarm payrolls was accompanied by a 137,000 rise in the BLS
 measure of private sector jobs. According to ADP and Macro-Advisers, the
 correlation between the monthly percentage change in the ADP estimate and
 that in the BLS data is 0.90. ADP compiles the estimate from its database
 of individual companies' payroll information. Macroeconomic Advisers, LLC,
 the St. Louis economic consulting firm, developed the methodology for
 transforming the raw data into an economic indicator.
 A 114,000 increase in service-producing payrolls led the gain in the
 latest ADP estimate while goods-producing payrolls fell 4,000. Factory
 sector jobs slipped 8,000. Overall, small-sized payrolls grew 58,000 m/m
 (1.8% y/y) while medium-sized payrolls rose 53,000 (1.9% y/y). Large
 payrolls slipped another 1,000 (+0.3% y/y). Construction employment
 slipped 1,000 and the number of financial activities jobs ticked up 1,000.
 The ADP National Employment Report data is maintained in Haver's USECON
 database; historical figures date back to December 2000. The figures in
 this report cover only private sector jobs and exclude employment in the
 public sector. The ADP methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf">here</a>.
 The expectations figures are available in Haver's AS1REPNA database.
 
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		<colgroup><col><col><col><col><col><col><col><col></colgroup>
		<thead>
	 <tr>
 <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB25/@EB25.HTM">ADP
 National Employment Report</a></th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Aug</th>
 <th scope="col" >Y/Y </th>
 <th scope="col" >2010</th>
 <th scope="col" >2009</th>
 <th scope="col" >2008</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Nonfarm Private Payroll Employment
 (m/m Chg., 000s)</td>
 <td>110</td>
 <td>116</td>
 <td>85</td>
 <td>1.6%</td>
 <td>-1.1%</td>
 <td>-4.8%</td>
 <td>-0.6%</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Small Payroll (1-49)</td>
 <td>58</td>
 <td>64</td>
 <td>56</td>
 <td>1.8</td>
 <td>-0.8</td>
 <td>-3.9</td>
 <td>0.0</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Medium Payroll (50-499)</td>
 <td>53</td>
 <td>48</td>
 <td>31</td>
 <td>1.9</td>
 <td>-1.0</td>
 <td>-5.6</td>
 <td>-0.9</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Large Payroll (&gt;500)</td>
 <td>-1</td>
 <td>4</td>
 <td>1</td>
 <td>0.3</td>
 <td>-2.0</td>
 <td>-5.6</td>
 <td>-1.9</td>
 </tr>
 <tr>
 <td class="firstcol" >Goods Producing</td>
 <td>-4</td>
 <td>-6</td>
 <td>5</td>
 <td>1.0</td>
 <td>-5.1</td>
 <td>-12.3</td>
 <td>-3.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Manufacturing</td>
 <td>-8</td>
 <td>-7</td>
 <td>-8</td>
 <td>1.2</td>
 <td>-3.3</td>
 <td>-11.3</td>
 <td>-3.2</td>
 </tr>
 <tr>
 <td class="firstcol" >Service Producing</td>
 <td>114</td>
 <td>122</td>
 <td>80</td>
 <td>1.7</td>
 <td>-0.2</td>
 <td>-3.1</td>
 <td>0.1</td>
 </tr>
 </tbody>
 </table>
 
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The labor market continues on the mend, just not too quickly. According to the payroll processor Automatic Data Processing (ADP) and economic consultants Macroeconomic Advisers, private nonfarm payrolls grew 110,000 (0.1%) during [...]

ADP Reports Another Modest Employment Gain

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 New model offerings by vehicle manufacturers helped
 spur sales last month. Unit sales of light vehicles during
 October rose an expected, according to Bloomberg, 1.2%
 from September to 13.26M units (SAAR) after an 8.0% September jump. Sales
 were at the highest level since February.
 The overall gain was led by autos which
 rose 6.0%, about as they did in September, to 6.43M units. That was the
 highest level since April. Sales of domestic cars rose 4.8% to 4.27M but
 still were down from the April high. Sales of more fuel efficient imported
 models rose 8.4% to 2.16M, the highest level in twelve months. Sales
 of light trucks fell 2.9% m/m to 6.83M. Domestic model sales fell
 2.1% to 5.84M while sales of imported light trucks fell 7.4% to 0.98M.
 That reversed the September gain.
 Imports' share of the U.S. light vehicle market again rose
 slightly to 23.7%. (Imported vehicles are those produced outside the United States.) 
 Imports' share of the U.S. car market rose m/m to 33.6% versus the record 34.7% 
 for all of 2009. Imports' share of the light truck market slipped to 14.4% versus 19.7% in 2009.
 The U.S. vehicle sales figures can be found in Haver's USECON database.
 
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		<colgroup><col><col><col><col><col><col><col><col></colgroup>
		<thead>
	 <tr>
 <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light
 Vehicle Sales (SAAR, Mil. Units)</a></th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Aug</th>
 <th scope="col" >Y/Y %</th>
 <th scope="col" >2010</th>
 <th scope="col" >2009</th>
 <th scope="col" >2008</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td>13.26</td>
 <td>13.10</td>
 <td>12.12</td>
 <td>8.9</td>
 <td>11.58</td>
 <td>10.38</td>
 <td>13.22</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Autos</td>
 <td>6.43</td>
 <td>6.07</td>
 <td>5.71</td>
 <td>9.6</td>
 <td>5.79</td>
 <td>5.45</td>
 <td>6.76</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Domestic</td>
 <td>4.27</td>
 <td>4.07</td>
 <td>3.97</td>
 <td>16.7</td>
 <td>3.78</td>
 <td>3.56</td>
 <td>4.44</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Imported</td>
 <td>2.16</td>
 <td>1.99</td>
 <td>1.74</td>
 <td>-2.2</td>
 <td>2.00</td>
 <td>1.89</td>
 <td>2.32</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Light Trucks</td>
 <td>6.83</td>
 <td>7.03</td>
 <td>6.41</td>
 <td>8.2</td>
 <td>5.79</td>
 <td>4.93</td>
 <td>6.46</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Domestic</td>
 <td>5.84</td>
 <td>5.97</td>
 <td>5.43</td>
 <td>9.4</td>
 <td>4.84</td>
 <td>3.96</td>
 <td>5.28</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Imported</td>
 <td>0.98</td>
 <td>1.06</td>
 <td>0.99</td>
 <td>1.4</td>
 <td>0.96</td>
 <td>0.97</td>
 <td>1.18</td>
 </tr>
 </tbody>
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New model offerings by vehicle manufacturers helped spur sales last month. Unit sales of light vehicles during October rose an expected, according to Bloomberg, 1.2% from September to 13.26M units (SAAR) after an 8.0% September jump. [...]

U.S. Vehicle Sales Continue To Rise

Louise Curley

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	 The British Office for National Statistics (ONS) released its first estimate
 of third quarter real GDP today. Total GDP is estimated to have
 increased 0.5% from the second quarter, as shown in the first chart. 
 Production rose 0.5% while construction declined 0.6% and services rose
 0,7%. The estimate for total GDP was a bit better than expected, but
 has not allayed fears of a slow down in the fourth quarter due to the
 unsettled economic conditions surrounding the Europe's debt crisis and the
 impact of Prime Minister Cameron's budget squeeze. Moreover,
 part of the growth in the third quarter can be attributed to the
 restoration of supply lines that had been disrupted by the earthquake and tsunami
 in Japan and, in part to the absence of a royal wedding that reduced the
 number of working days.
 In October, the first month of the fourth
 quarter, purchasing managers began to sound the alarm. The PMI for
 Manufacturing in the United Kingdom fell to 47.4% from 50.8% (With
 50+ = Expansion) in September. Three other European countries have
 recently reported purchasing managers indexes. Sweden showed a
 slight increase from 48.1% to 49.8% in its manufacturing PMI, but it is
 still below the expansion phase. The manufacturing PMI for
 Denmark was down sharply in October to 43.6% from 55.2% in
 September.& Norway does not produce a breakdown of its composite
 index. so we have used that in the following table and in the second
 chart. The composite was down significantly to 50.8% in October from
 54.1% in September.
 Note: PMIs for a number of countries are found
 in the data base, PMI--MARKIT PURCHASING MANAGERS SURVEYS. For those
 countries not in this database--Norway and Sweden for example, PMIs can
 frequently be found in the Country Sourced data in the Business Cycle
 Indicators and Surveys section. 
 
 
 <table class="centered" border="0" cellSpacing="0" width="100%">
	 <colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
	 <tr>
		 <th scope="col" class="firstcol" >Percent Change Q/Q</th>
		 <th scope="col" >Q3 11</th>
		 <th scope="col" >Q2 11</th>
		 <th scope="col" >Q1 11</th>
		 <th scope="col" >Q4 10</th>
		 <th scope="col" >Q3 10</th>
		 <th scope="col" >Q2 10</th>
		 <th scope="col" >Q1 10</th>
		 <th scope="col" >Q4 09</th>
		 </tr>
		 </thead>
		 <tbody>
		 <tr>
		 <td class="firstcol">Gross National Product</td>
		 <td>0.5</td>
		 <td>0.1</td>
		 <td>0.4</td>
		 <td>-0.5</td>
		 <td>0.6</td>
		 <td>1.1</td>
		 <td>0.2</td>
		 <td>0.7</td>
		 </tr>
		 <tr class="odd">
		 <td class="firstcol">Production</td>
		 <td>0.5</td>
		 <td>-1.2</td>
		 <td>-0.1</td>
		 <td>0.1</td>
		 <td>0.3</td>
		 <td>1.2</td>
		 <td>1.3</td>
		 <td>0.3</td>
		 </tr>
		 <tr>
		 <td class="firstcol">Construction</td>
		 <td>-0.6</td>
		 <td>1.1</td>
		 <td>-2.7</td>
		 <td>-1.8</td>
		 <td>3.2</td>
		 <td>8.2</td>
		 <td>0.9</td>
		 <td>0.3</td>
		 </tr>
		 <tr class="odd">
		 <td class="firstcol">Services</td>
		 <td>0.7</td>
		 <td>0.3</td>
		 <td>0.7</td>
		 <td>-0.4</td>
		 <td>0.4</td>
		 <td>0.4</td>
		 <td>-0.1</td>
		 <td>0.8</td>
		 </tr>

		 <tr class="grey3">
		 <td class="firstcol" colspan=3>Diffusion Index Manufacturing&nbsp; PMI</td>
		 <td colspan=3>Oct 11</td>
		 <td colspan=3>Sep 11</td>

		 </tr>
		 <tr>
		 <td class="firstcol" colspan=3>United Kingdom</td>
		 <td colspan=3>47.4</td>
		 <td colspan=3>50.8</td>
		 </tr>
		 <tr class="odd">
		 <td class="firstcol" colspan=3>Denmark</td>
		 <td colspan=3>43.6</td>
		 <td colspan=3>55.2</td>
		 </tr>
		 <tr>
		 <td class="firstcol" colspan=3>Norway*</td>
		 <td colspan=3>50.8</td>
		 <td colspan=3>54.1</td>
		 </tr>
		 <tr class="odd">
		 <td class="firstcol" colspan=3>Sweden</td>
		 <td colspan=3>49.8</td>
		 <td colspan=3>48.1</td>
		 </tr>

 </tbody>
</table>
</body></html>

The British Office for National Statistics (ONS) released its first estimate of third quarter real GDP today. Total GDP is estimated to have increased 0.5% from the second quarter, as shown in the first chart. Production rose 0.5% [...]

A Better Than Expected Rise In UK's Q3 GDP But Still a Cloudy Outlook

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 Construction spending during September ticked up an expected 0.2%
 following a little-revised 1.6% August increase. However, the decline in
 July was revised deeper to -3.3% from -1.4%. Therefore, the y/y comparison
 remained negative although activity was 3.2% above the March low.
 
 Private sector spending paced last month's
 increase with a 0.6% rise. Residential
 building rose 0.9% led by a 1.4% gain (-0.6% y/y) in the value of
 home-improvements. The value of single-family building rose 0.5% (-0.1%
 y/y), although its downward revision in July led most other components.
 Multi-family building ticked up 0.2% (6.5% y/y). Nonresidential building activity
 notched up 0.3% (7.4% y/y) with the y/y strength led by a one-quarter gain
 in power, a 16.8% rise in transportation and a 4.1% rise in manufacturing.
 Health care and amusements building fell y/y.
 Public construction activity slipped 0.6% (-9.2% y/y) after its 3.5%
 August jump. Commercial (-5.2% m/m), public safety (-9.7% y/y),
 transportation (-19.2% y/y) and conservation &amp; development (-5.8% y/y)
 each fell hard m/m. Higher office building (-18.6% y/y), amusements &amp;
 recreation (-18.7% y/y), power (-11.5% y/y) and highways &amp; streets
 (-6.3% y/y) offset the monthly drop.
 The construction put-in-place figures are available in Haver's USECON
 database. The expectations figure is contained in Haver's AS1REPNA
 database.
 
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	 <colgroup><col><col><col><col><col><col><col><col></colgroup>
 <thead>
	 <tr>
 <th class="firstcol" scope="col" >Construction Put in Place (%)</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Aug</th>
 <th scope="col" >Jul</th>
 <th scope="col" >Y/Y</th>
 <th scope="col" >2010</th>
 <th scope="col" >2009</th>
 <th scope="col" >2008</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Total</td>
 <td>0.2</td>
 <td>1.6</td>
 <td>-3.3</td>
 <td>-1.3</td>
 <td>-11.3</td>
 <td>-15.3</td>
 <td>-7.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Private</td>
 <td>0.6</td>
 <td>0.6</td>
 <td>-3.9</td>
 <td>3.9</td>
 <td>-15.2</td>
 <td>-22.4</td>
 <td>-12.2</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;&nbsp;Residential</td>
 <td>0.9</td>
 <td>0.4</td>
 <td>-7.7</td>
 <td>0.1</td>
 <td>-2.9</td>
 <td>-29.9</td>
 <td>-29.0</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;&nbsp;Nonresidential</td>
 <td>0.3</td>
 <td>0.8</td>
 <td>-0.5</td>
 <td>7.4</td>
 <td>-24.0</td>
 <td>-16.0</td>
 <td>10.5</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Public</td>
 <td>-0.6</td>
 <td>3.5</td>
 <td>-2.2</td>
 <td>-9.2</td>
 <td>-3.9</td>
 <td>2.1</td>
 <td>6.6</td>
 </tr>
 </tbody>
 </table>
</body></html>

Construction spending during September ticked up an expected 0.2% following a little-revised 1.6% August increase. However, the decline in July was revised deeper to -3.3% from -1.4%. Therefore, the y/y comparison remained negative [...]

U.S. Construction Spending Improves

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 As foreshadowed by yesterday's report from the Chicago Purchasing
 Managers, the Institute for Supply Management reported today that its
 October Composite Index of factory sector activity slipped. The decline to
 50.8 was from an unrevised 51.6 in September and it remained near the
 lowest since the economic recovery began two years ago. The latest reading
 was lower than Consensus expectations for improvement to 52.0.
 Nevertheless, the index indicated positive, but slower, factory growth and
 was the twenty-seventh consecutive monthly figure above the break-even
 level of 50.
 Most of the index's five components were off m/m. The new orders series
 rose but the production, supplier delivery, inventory, and employment
 series each slipped or fell. During the last ten years there has been an
 89% correlation between the employment series level and the m/m change in
 factory sector payrolls. 
 The price reading fell sharply to 41.0. It was the first reading below
 the break-even level of 50 since the recovery began. Just fourteen percent
 of firms raised prices, the least since the recession's end, while an
 increased one-third lowered them. During the last ten years there has been
 an 83% correlation between the index and the m/m change in the core
 intermediate producer price index.
 The separate index of new export orders fell to 50.0, its lowest level
 since the recovery began. Reflecting weakness in the U.S. economic
 recovery, the imports series fell below break-even, also the lowest level
 since recovery began.
 The ISM figures are diffusion indexes and can be found in Haver's USECON
 database. The expectations data are in the AS1REPNA database.
 
 <a href="/comment/111101k_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/111101k.png"></a>
	 <a href="/comment/111101l_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/111101l.png"></a>
 
 <table class="centered" border="0" cellSpacing="0" width="100%">
		<colgroup><col><col><col><col><col><col><col><col></colgroup>
		<thead>
	 <tr>
 <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/SURVEYS/@S2/@S201/@S201.HTM">ISM
 Mfg</a></th>
 <th scope="col" >Oct</th>
 <th scope="col" >Sep</th>
 <th scope="col" >Aug</th>
 <th scope="col" >Oct'10</th>
 <th scope="col" >2010</th>
 <th scope="col" >2009</th>
 <th scope="col" >2008</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Composite Index</td>
 <td>50.8</td>
 <td>51.6</td>
 <td>50.6</td>
 <td>56.9</td>
 <td>57.3</td>
 <td>46.3</td>
 <td>45.5</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;New Orders</td>
 <td>52.4</td>
 <td>49.6</td>
 <td>49.6</td>
 <td>59.9</td>
 <td>59.3</td>
 <td>51.7</td>
 <td>42.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Employment</td>
 <td>53.5</td>
 <td>53.8</td>
 <td>51.8</td>
 <td>57.9</td>
 <td>57.3</td>
 <td>40.6</td>
 <td>43.1</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Production</td>
 <td>50.1</td>
 <td>51.2</td>
 <td>48.6</td>
 <td>61.4</td>
 <td>61.1</td>
 <td>50.5</td>
 <td>45.1</td>
 </tr>
 <tr>
 <td class="firstcol" >&nbsp;Supplier Deliveries</td>
 <td>51.3</td>
 <td>51.4</td>
 <td>50.6</td>
 <td>52.3</td>
 <td>58.1</td>
 <td>51.5</td>
 <td>51.6</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >&nbsp;Inventories</td>
 <td>46.7</td>
 <td>52.0</td>
 <td>52.3</td>
 <td>53.2</td>
 <td>50.8</td>
 <td>37.1</td>
 <td>45.5</td>
 </tr>
 <tr>
 <td class="firstcol" >Prices Paid Index (NSA)</td>
 <td>41.0</td>
 <td>56.0</td>
 <td>55.5</td>
 <td>71.0</td>
 <td>68.9</td>
 <td>48.3</td>
 <td>66.5</td>
 </tr>
 </tbody>
 </table>
</body></html>

As foreshadowed by yesterday's report from the Chicago Purchasing Managers, the Institute for Supply Management reported today that its October Composite Index of factory sector activity slipped. The decline to 50.8 was from an [...]

U.S. ISM Factory Index Slips Back

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<html><head>
</head>
<body>
 		 
 			
 			
 			
 			
 			<a href="/comment/111101e_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/111101e.png"></a>
	 <a href="/comment/111101f_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/111101f.png"></a>
	 
		 Chain stores sales rose 0.7% last week and reversed the prior week's
		 decline. For the last six weeks, sales have moved sideways and have fallen
		 3.6% below the July peak. During the last ten years there has been a 66%
		 correlation between the y/y change in chain store sales and the change in
		 retail sales at general merchandise stores. That correlation recently has
		 increased. General merchandise store sales account for 15% of total retail
		 sales.
		 The ICSC-Goldman Sachs retail chain-store sales index is constructed
		 using the same-store sales (stores open for one year) reported by 78
		 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C.
		 Penney, Sears and Wal-Mart. During the last ten years there has been a 69%
		 correlation between the year-to-year growth in chain store sales and the
		 growth in general merchandise retail sales.
		 The leading indicator of chain store sales ticked up 0.2% w/w (0.7%
		 y/y) in the latest period and reversed part of the prior week's decline.
		 The composite leading economic indicator is compiled from four series: (1)
		 The MBA's volume index of mortgage applications for home purchase (2) The
		 ABC News/Money magazine's survey of consumer buying conditions (3) New
		 filings for jobless benefits and (4) The 30-year government bond yield.
		 The chain store sales data are in Haver's SURVEYW.
		 GDP-Based Recession Indicator from the Federal
		 Reserve Bank of Atlanta can be found <a href="http://www.frbatlanta.org/cqer/researchcq/gdpbased_RII.cfm">here</a>.
		 
		 <a href="/comment/111101g_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/111101g.png"></a>
	 <a href="/comment/111101h_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/111101h.png"></a>
		 
 <table class="centered" border="0" cellSpacing="0" width="100%">
		<colgroup><col><col><col><col><col><col><col><col></colgroup>
		<thead>
	 <tr>
 <th scope="col" >ICSC-UBS (SA, 1977=100)</th>
 <th scope="col" >10/29/11</th>
 <th scope="col" >10/22/11</th>
 <th scope="col" >10/15/11</th>
 <th scope="col" >Y/Y</th>
 <th scope="col" >2010</th>
 <th scope="col" >2009</th>
 <th scope="col" >2008</th>
 </tr>
 </thead>
 <tbody>
 <tr class="odd">
 <td class="firstcol" >Total Weekly Chain Store Sales</td>
 <td>515.9</td>
 <td>512.3</td>
 <td>516.6</td>
 <td>3.0%</td>
 <td>2.9%</td>
 <td>0.1%</td>
 <td>1.4%</td>
 </tr>
 </tbody>
 </table>
 
 </body></html>

Chain stores sales rose 0.7% last week and reversed the prior week's decline. For the last six weeks, sales have moved sideways and have fallen 3.6% below the July peak. During the last ten years there has been a 66% correlation [...]

U.S. Chain Store Sales Tick Higher

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
</head>
<body>
 		 
 
 
 
 <a href="/comment/111101a_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/111101a.png"></a>
	 <a href="/comment/111101b_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/111101b.png"></a>
 The modest improvement in the U.S. economy has helped slow the
 earlier decline in petroleum prices. The pump price for regular
 gasoline slipped one penny last week to $3.45 per gallon but was
 two cents higher than early-October. Prices remained down versus May
 when they averaged $3.91. Retail prices usually start to ease this
 time of year with reduced seasonal demand. To account for this
 pattern, Haver Analytics calculates seasonal factors. As a result,
 the adjusted gasoline price rose to $3.58 per gallon, up seventeen
 cents in the last four weeks. Yesterday, the wholesale price for a
 gallon of unleaded slipped to $2.69, down five cents from last
 week's average.
 Crude oil prices moved higher last week. Light Sweet Crude
 averaged $92.32 versus $79.71 averaged during the first week of
 October. Yesterday prices were even higher at $93.19. They remained
 down from the late-April peak of $113.93. Brent crude remained
 relatively expensive versus WTI and yesterday sold for $109.76 per
 barrel. Prices peaked earlier at $126.21.
 Finally, natural gas prices ticked up last week to $3.62
 per mmbtu, up 9.5% y/y. Prices remained lower versus last year's
 early-January peak of $6.50. Yesterday, prices held at $3.62. These
 figures compare to a 0.2% y/y gain in the September CPI for piped
 gas service. 
 Gasoline demand slipped 2.7% on average during the last
 four weeks versus last year. Demand for residual fuel oil, used for
 heating, fell 2.6% y/y but distillate demand rose 7.5%. Inventories
 of crude oil and petroleum products fell 5.4% year-to-year compared
 to 10.0% growth in the middle of 2009.
 The energy price data are reported by the U.S. Department of
 Energy and can be found in Haver's WEEKLY database. The daily
 figures are in DAILY and the gasoline demand figures are in OILWKLY
 
 <a href="/comment/111101c_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/111101c.png"></a>
	 <a href="/comment/111101d_big.png" name="modal"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/111101d.png"></a>
 
 <table class="centered" border="0" cellSpacing="0" width="100%">
		<colgroup><col><col><col><col><col><col><col><col></colgroup>
		<thead>
	 <tr>
 <th class="firstcol" scope="col" ><a href="http://www.haverselect.com/dlx/WEEKLY/@W4/@W4.HTM">Weekly
 Price</a></th>
 <th scope="col" >10/31/11</th>
 <th scope="col" >10/24/11</th>
 <th scope="col" >10/17/11</th>
 <th scope="col" >Y/Y%</th>
 <th scope="col" >2010</th>
 <th scope="col" >2009</th>
 <th scope="col" >2008</th>
 </tr>
 </thead>
 <tbody>
 <tr>
 <td class="firstcol" >Retail Regular Gasoline ($
 per Gallon, Regular)</td>
 <td>3.45</td>
 <td>3.46</td>
 <td>3.48</td>
 <td>23.0</td>
 <td>2.78</td>
 <td>2.35</td>
 <td>3.25</td>
 </tr>
 <tr class="odd">
 <td class="firstcol" >Light Sweet Crude Oil, WTI ($
 per bbl.)</td>
 <td>92.32</td>
 <td>86.71</td>
 <td>85.56</td>
 <td>12.6</td>
 <td>79.51</td>
 <td>61.39</td>
 <td>100.16</td>
 </tr>
 <tr>
 <td class="firstcol" >Natural Gas ($/mmbtu)</td>
 <td>3.62</td>
 <td>3.61</td>
 <td>3.49</td>
 <td>9.5</td>
 <td>4.40</td>
 <td>3.95</td>
 <td>8.88</td>
 </tr>
 </tbody>
 </table>
</body></html>

The modest improvement in the U.S. economy has helped slow the earlier decline in petroleum prices. The pump price for regular gasoline slipped one penny last week to $3.45 per gallon but was two cents higher than early-October. [...]

U.S. Gasoline Price Is Roughly Stable but Crude Oil Moves Higher

PMIs showing widespread revival of global economy

Crude oil price has returned to pre-conflict level but traffic through Hormuz still subpar

Surging orders for computers and electronics propelling durable goods orders

Next year's inflation forecasts are on the rise and above target

Disrupted global supply chains placing upward pressure on US goods prices

Construction of data centers has overtaken transportation construction in US

Elevated energy prices putting intense upward pressure on input prices around the globe

US is big leader in global surge in private AI investment

Larger-than-usual income tax refunds this year are supporting consumer spending

Sharply rising share of AI-related jobs

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

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Michael J. Moran

260713A.jpg

260713B.jpg

Most analysts were looking for a dip in the CPI because of a likely retreat in gasoline prices, but the published decline of 0.4% in the headline index was noticeably softer than the consensus estimate of -0.1%. Gasoline prices did not disappoint, with a drop of 9.7% offsetting approximately one-quarter of the cumulative surge in the prior three months. Prices of fuel oil fell almost as much as gasoline prices, and electricity charges contributed to the softness with a decline of 1.0%. The price of natural gas services was the only major energy item to increase in June (0.5%). All told, the energy component of the CPI fell 5.7% after climbing 19.6% in the prior three months.

The drop in energy prices was notable, but the core component provided a bigger surprise by posting a decline, the first since a series of three consecutive decreases during the pandemic. Before the pandemic-related retreat, the core component fell only twice from 1990 to 2019. The drop in June was minuscule (-0.02%), but the fact that it carried a minus sign was striking.

Both the goods and services components of the core index contributed to the restraint. Prices of goods other than food and energy fell 0.1%. The Bureau of Labor Statistics publishes six key subcategories of core goods, and five of them fell in June. Apparel prices stood out with a decline of 0.6%. Prices of core services were nearly unchanged at 0.03%, restrained by declines in medical services and motor vehicle insurance. Airfares, which showed upward pressure from rising fuel prices in the prior three months, posted a nondescript increase of 0.2%. The modest increase in the prices of core services led to a dip in the 12-month average increase after stepping up in April and May. The trend in core goods prices continued its gradual deceleration (chart, below right).

Food prices in June rose 0.2%, a reading comfortably within the range of the past few years.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

260713C.jpg

260713D.jpg

- The energy component retraced a portion of its surge in the prior three months.
- Prices excluding food and energy provided a surprise by posting a rare decline.

June CPI: Cooling Energy Prices and a Restrained Core Component

Robert Brusca

260714E.jpg

Industrial output in Norway fell by 1% in May after rising by 0.6 in April and falling by 1.1% in March. The seesaw act for output continues. Over broader horizons, however, output is falling. It falls by 0.1% over 12 months, falls at a 1.1% annual rate over six months, and falls at a 6.2% annual rate over three months, giving us a clear sequential trend toward falling and decelerating output. Utilities output has chaotic trends, as do mining and quarrying; however, manufacturing shows a clear trend toward output acceleration, with a 2.1% output increase over 12 months, a 2.6% annual rate rise over six months, and a 9% annual rate increase over three months.

Manufacturing sectors show consumer goods output increasing in May, also showing secular acceleration from 12 months to six months to three months. Durable goods, however, are the fly in the ointment, with output up 2.2% over 12 months, accelerating over six months, and then dropping at a 20.4% annual rate over three months. However, consumer nondurables show growth and acceleration, with a 12-month gain of 1.8%, rising to a 3.6% annual rate increase over six months and a 10.9% annual rate increase over three months. Intermediate goods output trends return to more difficult times and show declines over 12 months, six months, and three months, but not a clear path of deceleration. Capital goods output is up 5.4% over 12 months and at an 8.5% annual rate over three months, but there is an intervening soft spot with output up at only a 3.4% annual rate over six months.

Against this background, inflation in Norway showed solid increases in May, rising by 0.2% overall and by 0.3% for the core HICP. However, sequentially inflation gains 3% over 12 months, rises at a 3.8% annual rate over six months, and then backs down to a 1.2% annual rate over three months. The core HICP is steadier, with a 3.4% gain over 12 months, rising to a 3.8% annual rate over six months, and then backing down to 3.2% at an annual rate over three months. That's a set of growth rates that are more stable than either accelerating or decelerating.

In the quarter-to-date (QTD) basis, industrial production is falling 4.6%; this is two months into the second quarter. On the other hand, manufacturing output is rising QTD at a 4.9% annual rate, with consumer nondurables showing strong positive growth along with intermediate goods output. There is a solid gain of 3.1% at an annual rate from capital goods. The QTD inflation trends remain somewhat mixed, with a weak headline showing a 1.6% annual rate, against a core HICP at a 3.4% annual rate rise, the latter gain being well in step with its sequential results.

The far right-hand column compares industrial production over the broad period from just before COVID (in January 2020) looking at the ratio of the level of output in May 2026 to its index value in January 2020. Remember that IP data are inflation-adjusted, so these are real data. Over this span, industrial production excluding construction is up by approximately 10%, with utilities output up at about 21%, mining and quarrying up about 5%, and manufacturing up a little more than 7%. This is a 5½-year period. Consumer goods output is up by 2.7%, led by consumer nondurables which rise 4.1% on the period and against durable goods output where there is a decline of about 13% on that timeline. Intermediate goods output drops slightly on the timeline by less than half a percentage point, while capital goods output is up at a solid and strong 23% gain. Looking at prices over the same period, the headline HICP is higher by 27% while the core is higher by 24%.

The weakened output shows the stresses and strains of the period, with weak gains in place over the last 5½ years and with the consumer showing considerable wear and tear, leaving consumer goods output lower on balance over this 5½-year span. It hasn't been such a bad time for capital goods, where output rose by 23% over the period. Inflation got out-of-the-box and grew quite strongly. The headline HICP grew by 27% since January 2020, a duration of time during which, sticking to its target, would have implied a gain in the price level of only 11.5%.

**Ongoing overshooting**
Even now central banks are trying to decide how to come to grips with the inflation pressures from that. Pressures continue to linger and threaten the economies. Of course, there are some new factors in place, but that's the nature of inflation: if it's not one thing, it's something else. And failing to respond to the one thing means that you're going to get hit even worse when it becomes something else. This is the lesson the central banks haven't learned during this period. 

**Have central banks learned their lesson?**
Noting that inflation is over target and then forecasting that it's going to come back down to target over some period ahead puts the inflation performance at risk to whatever happens between now and the end of that period ‘ahead.’ If that forecast isn't perfectly right and if there's something else that disturbs the path of prices, what will happen is that an inflation that is already over the top of the target will push even farther over the top of the target and the dilemma faced by the central bank will become even worse. This is why kicking the can down the road generally is not a very good strategy, but it's one that virtually all the central banks pursued in the wake of COVID. So, will central bankers come to see inflation that is here and now as a here-and-now problem to be addressed here and now, or as a candidate for tomorrow land? The ECB seems to be changing, and the Fed has formed task forces. What about Norway and the rest of the world? Norway did push its target rate up as the ECB hiked. But what is its plan?

260713.jpg

Norway

Norwegian IP Struggles, but Manufacturing Shows Some Strength

Tian Yong Woon

In this week's Letter, we examine the underbelly of the AI boom, the risks that sit beneath its optimism. Start with the public mood: American concern about AI has grown alongside adoption over the past three to four years (chart 1). Those worries span mass job displacement, misuse of top-end models by bad actors, and fears of being left behind. The first of these is already surfacing: in June, AI was again the most cited reason for announced US layoffs, with year-to-date AI-linked cuts above 100,000 (chart 2). Technology led all sectors in overall cuts, though the data do not isolate how many were AI-driven. Among those hit, the young are arguably the most exposed to these labour effects. They enter a labour pool swollen by displaced professionals, just as AI masters the entry-level tasks where they would start. India and Indonesia illustrate the stakes on youth NEET, the share not in education, employment, or training, both above 20% and among Asia's highest (chart 3). Beyond the labour market, the same optimism reshapes asset prices. The rally has lifted AI-related valuations to historic highs and concentrated a few names in cap-weighted indexes (chart 4). That raises correlation and the risk of a sharper index fall should the rally unravel. The same concentration runs through economies via exports, from Taiwan's advanced chips to South Korea's memory (chart 5). Its footprint is physical too, and cuts both ways: data-centre investment has lifted growth in Johor, Malaysia (chart 6) while straining local power and water. None of this argues against riding the AI wave, which still promises real productivity and welfare gains. Rather, these are caveats that investors and policymakers must keep in view, since the story is not all upside.

**AI-related concerns**
AI adoption has exploded over the past three to four years, and Americans' concerns have risen alongside it (chart 1). That is understandable, given how advanced and broad AI's proven applications have become. They now span everyday tasks and subject-specific work across fields such as finance and production, as well as tech and development, the sector AI was born in. Major concerns run from mass AI-induced job displacement to a more recent fear, that top-end models fall into the wrong hands and are used by bad actors. A further worry is distributional: AI advances are powerful and could deliver leaps in productivity, yet they may also leave many people behind. Those most exposed include workers already displaced from their jobs and people facing scarcer basic resources as AI demand competes for them. Others simply lack equitable access to AI tools or their benefits.

260713T1.jpg

**AI-driven job displacement**
Some of the fears US workers first had about AI-driven job displacement are already playing out. In June, AI was again the most cited reason for announced job cuts in the US (chart 2). That pushed year-to-date job cuts attributed to AI above 100,000, more than half of all AI-tagged cuts since AI became a selectable reason in 2023. The data come from the latest survey by Challenger, Gray & Christmas. This likely reflects AI's disproportionately heavy impact on certain industries such as technology, which again led all sectors in cuts. At the same time, announced hiring plans stayed subdued, leaving laid-off workers with limited opportunities to find new roles. All of this is occurring even as market valuations remain elevated on the broader wave of AI optimism.

260713T2.jpg

**AI and youth unemployment**
Arguably among those bearing the brunt of these labour-related effects are the youth. Many have graduated on a curriculum built largely for a pre-AI era. They now enter a labour pool swollen by experienced professionals whom AI has displaced. At the same time, AI is proving especially capable at the entry-level tasks on which young workers usually start. An elevated youth unemployment rate only intensifies the competition young people face for gainful employment. On the broader NEET measure, which also captures youth who are neither working nor studying, India and Indonesia stand out. On the latest available WDI data, both have youth NEET rates above 20%, among the highest in Asia and above the global average (chart 3). Should employers in these economies adopt AI aggressively across processes and production, including physical AI such as humanoid robots, the problem could worsen. Yet firms that stay purely labour-intensive risk losing out to rivals using more efficient, and perhaps cheaper, AI-driven methods.

260713T3.jpg

**Concentration risk**
The recent wave of AI optimism has pushed the equity valuations of major AI developers and AI-related goods producers to historically high levels. These gains are partly backed by strong earnings and upbeat forward guidance. Most major indexes are weighted by market capitalisation, so a counter's weight tracks its price. As these counters have outperformed their peers (chart 4), their index weight has risen close to mechanically, when holding the number of shares constant. This raises concentration risk, since a small group of counters now carries more of the index and moves it more closely. So, if the rally in these counters were to unravel deeply, it would drag the broader index down more heavily with it.

260713T4.jpg

AI-related concentration risk is not confined to equity indexes; it also shows up in the growth of major economies. In Asia, that risk usually runs through a country's exports. Take Taiwan, the world's largest advanced semiconductor exporter, as an example. As chart 5 shows, its recent export growth has come more than entirely from integrated circuits and from infocomm and audiovisual equipment. Other goods categories have often contributed negatively in recent months. This is good news for the Taiwanese economy, which sits right at the centre of the global AI boom. Yet it is also a source of concentration risk, should AI-related goods demand collapse or substantial alternative supply emerge elsewhere. A similar story applies to South Korea, through its role in supplying high-end memory chips.

260713T5.jpg

**Data centres, energy, and water**
Finally, rapidly advancing AI promises major productivity gains and broad improvements to daily life. Yet AI infrastructure rests on resource-intensive inputs: the energy needed for data centre compute, and the water needed to cool those centres. Both may deprive real people of the very resources they need to survive. One recent hotspot is Malaysia, which has courted a wave of foreign direct investment to expand its data centre footprint in the state of Johor. These capital inflows are welcome, and have lifted state-level growth through the construction sector (chart 6). But they have also raised concerns about straining local grids and water supplies, possibly leaving less for residents. Among estimates, a recent one puts data centres at around 40% of Johor's electricity demand by 2035. That is pressuring the state to expand generation capacity and grid access to match the data centre pipeline already in place. Its neighbour Singapore faced similar strains earlier, and has since repositioned itself as a hub for the most advanced and efficient data centres, partly because of its severe land constraints. 

260713T6.jpg

Asia

Economic Letter from Asia: The AI Underbelly

260710E.jpg

Manufacturing output in the countries of the European Monetary Union continues to underperform. The median change for the 11 countries reporting on the table is a 0.5% decline in May following a 0.3% increase in April. However, only 41.7% of the reporters are accelerating in May, compared to 25% in April, although in March over half of the reporters had showed some acceleration, with output at 61.5%.

In May, of these eleven early reporters, seven showed month-to-month declines in output. This compares to four showing declines in April and four showing declines in March.

**Sequential trends**
Over 12 months, output is declining in four of these eleven countries: Germany, Luxembourg, Ireland, and Portugal. Over six months, output declines in five of the eleven countries. Over three months, output declines in four of the eleven countries. Over these broader sequential periods, output is increasing in most cases; only one country, Ireland, shows consistent declines in output over three months, six months, and 12 months. However, among EMU countries, only Italy shows output expanding on all three timelines, although Sweden, an EU member country, also shows output increasing in all three periods.

Amid the output weakness in May, the quarter-to-date calculation for industrial production growth is also broadly weak. In May, seven of the eleven quarter-to-date changes in industrial production are negative. Positive results, increases in the quarter-to-date, are registered by Germany, Luxembourg, Greece, and Portugal.

The ranking of the year-over-year growth rates shows seven countries with output growth rate rankings below 50%, marking them as below their respective medians. The comparisons for output growth are taken back to 2006, a period of about 20 years.

Four EMU countries rank above their twenty-year medians: France, Italy, Luxembourg, and Greece.

The snapshot of industry in the monetary union is consistent, showing little momentum, little strength, and relatively low rankings for current growth rates; only a minority of reporters show an acceleration in growth in May compared to April. With the situation in the Strait of Hormuz deteriorating again, the outlook for industrial production has to remain guarded.

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Europe

Industrial Sector Remains Under Pressure in EMU

Andrew Cates

**Growth Surprises Continue to Underpin Equity Resilience**
Global equity markets have proved remarkably resilient in recent weeks, shrugging off intermittent bouts of geopolitical and policy uncertainty to grind higher. Chart 1 below helps explain why: it tracks the relationship between global growth-versus-inflation surprises and world equity markets, and on that measure the recent run of global growth data has continued to surprise on the upside relative to inflation outturns — a combination that has historically been supportive for risk assets. Whether that resilience persists will depend on whether the growth-surprise advantage evident in the chart below can be sustained in the face of the inflationary pressures explored below.

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**PMIs Confirm a Broadly Solid Global Expansion**
This week's final composite PMI readings for June reinforced the broader impression of resilient global growth. As chart 2 below shows, most major economies posted readings comfortably in expansionary territory, with India continuing to lead the pack and the US not far behind. Even the laggards in the sample are hovering close to the expansion threshold rather than falling decisively below it, suggesting stabilisation rather than outright contraction (and with the UK a notable exception).

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**Inflation Surprises Are Creeping Back, and Bond Yields Are Taking Notice**
The US growth picture painted by Haver's surprise indices broadly echoes the message from the global PMI data. Chart 3 below shows the combined growth-and-inflation surprise index drifting higher this week, and closer inspection suggests growth is doing most of that work, with activity data continuing to outperform expectations. That is, on the face of it, good news. But it has not stopped bond markets from taking notice: short-dated Treasury yields have remained elevated in recent weeks, as stronger growth keeps alive the possibility that the Federal Reserve holds rates higher for longer or even lifts them in coming weeks.

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**Supply Chains Are Tightening** 
Latest data show that global supply chain pressures tightened by less in June than they had the month before, likely reflecting the easing of Middle East tensions through much of the period. Chart 4 below shows that pressures troughed in the middle of last year and have been building gradually since, though June's slower pace of tightening suggests that easing had started to feed through. Still, today's flare-up threatens to undo that improvement, particularly if it affects shipping routes or energy flows through the region once again.

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**Extreme Weather: An Old Supply-Side Risk Returns**
Geopolitics is not the only source of supply-side risk currently in play. Large parts of Europe have been gripped this week by another intense and prolonged heatwave, with temperatures in several major cities running well above seasonal norms. Extreme heat of this kind carries real economic costs: it depresses labour productivity, particularly in outdoor and manufacturing-adjacent sectors, strains electricity grids as air-conditioning demand spikes, and can disrupt agricultural output and river-based transport when water levels fall. Episodes like this have become more frequent in recent years, and while any single heatwave rarely shifts the macro picture on its own, the cumulative effect of more frequent and more severe weather events could start showing up in productivity and inflation data across the advanced economies. It is a reminder that the supply side of the global economy faces structural as well as cyclical challenges, and that climate-related disruption deserves a permanent place alongside geopolitics and demographics in any assessment of medium-term inflation risk.

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**AI Investment: The Other Side of the Supply Equation**
Set against these supply-side headwinds is a genuinely positive structural development: the extraordinary scale of private investment now flowing into artificial intelligence. Chart 6 below shows just how sharply that investment has grown in recent years, reaching a fresh high last year. If even a fraction of that investment translates into genuine productivity gains, it could provide a meaningful long-run offset to the energy, climate and geopolitical constraints highlighted elsewhere in this week's charts. The scale of the bet now being placed on AI is large enough that it is beginning to show up in aggregate investment and capital expenditure data across the advanced economies, and it is likely to remain one of the defining structural themes shaping the global growth outlook over the remainder of this decade.

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Global markets head into this week’s closing stages digesting a mixed set of signals. Last week's US non-farm payrolls report undershot expectations, adding to questions about the durability of the US labour market even as broader activity data have continued to hold up well. Compounding that picture, news broke today of renewed instability in the Middle East, reintroducing a geopolitical risk premium into markets just as investors had begun to look past it. Global equity markets have nonetheless remained resilient, continuing to track the broadly encouraging tone of incoming activity data (chart 1). That resilience was reinforced by a solid set of global PMIs across most major economies over the past few days (chart 2). Haver's surprise indices tell a similar story of positive growth momentum in the US, but with an important caveat: incoming inflation data have also been surprising to the upside, driven largely by higher oil prices (chart 3). These inflation risks could persist moreover, as global supply chain pressures have picked up in recent months and today's flare-up in the Middle East threatens to add further strain (chart 4). The world economy remains vulnerable to other supply-side shocks too, such as the extreme heat gripping much of Europe this week (chart 5). Still, on the other side of the ledger the enormous scale of investment now flowing into artificial intelligence could be a genuine source of supply-side potential (chart 6).

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