Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019h.jpg" align="right" border="0" height="265" width="353">
While
purchasing power parity (PPP) is not a major factor in determining a
country's actual exchange rate, it can be used as a rough guide in
deciding whether a particular currency is under or over
valued.&nbsp;&nbsp; Most developing countries with growing
current account balances, have preferred to pile up foreign exchange
reserves rather than let their currencies appreciate.&nbsp;
Meanwhile, the purchasing power parity of their currencies has
generally increased slowly and steadily as their economies have
prospered. As a result their currencies have continued to be
undervalued.
 Data on the purchasing power parity of currencies can be
derived from data in the Haver data base, The World
Development Indicators.&nbsp;<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019f.jpg" align="right" border="0" height="265" width="353">
The data are annual so the
latest data point is 2008.&nbsp; PPP conversion factors for the
world countries are included in the section "Exchange Rates and
Prices".&nbsp; We&nbsp; chose four countries as examples:
China, Korea, Singapore and Brazil and the PPP Conversion
Factor (GDP) to market exchange rate ratio.
The conversion
factor is the ratio of PPP exchange rate to the actual exchange rate.
One minus the conversion factor, therefore is the percentage of under
or over valuation of the particular exchange rate relative to the
dollar.&nbsp; Thus for Korea,&nbsp; the conversion factor of
.684 in 2008 means that the Korea's actual exchange rate was 31.6%
undervalued relative to the dollar.&nbsp; <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019g.jpg" align="right" border="0" height="265" width="353">
Since the actual exchange
rate is 1102.09 Won/$, a conversion factor of .684 means that the PPP
exchange rate is 753.98 Won/$ (.684 * 1102.09).&nbsp; The actual
exchange rates, the PPP exchange rates and the percent of
undervaluation of the currencies of the four countries are shown in the
table below.· Brazil has allowed its currency to appreciate
considerably.&nbsp; From an undervaluation of 61.9 in 2002, the
Rial was only 18.4% undervalued in 2008, as shown in the first
chart.&nbsp; By contrast, China has permitted only moderate
appreciation of the yuan as shown in the same chart. The Singapore
dollar has steadily reduced its undervaluation as can be seen in the
second chart.&nbsp; Korea, on the other hand experienced a sharp
increase in its undervaluation in 2008, also shown in the second
chart.
 The third chart brings up to date the actual exchange
rates of the four countries.&nbsp; They have, to varying degrees,
appreciated in 2009.&nbsp; Again, the Chinese Yuan has appreciated
the least and the Brazilian Real, the most. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003&nbsp;</th>
<th scope="col">2002 </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">China</td>
<td>&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">Actual exchange rate
(Yuan/$)</td>
<td>6.95</td>
<td>7.61</td>
<td>7.97</td>
<td>8.19</td>
<td>8.28</td>
<td>8.28</td>
<td>8.28</td>
</tr>
<tr>
<td class="firstcol">PPP exchange rate</td>
<td>3.39</td>
<td>3.38</td>
<td>3.46</td>
<td>3.45</td>
<td>3.43</td>
<td>3.29</td>
<td>3.28</td>
</tr>
<tr>
<td class="firstcol">Undervaluation (%)
(1-Conversion factor)</td>
<td>51.1</td>
<td>55.5</td>
<td>56.6</td>
<td>57.9</td>
<td>58.6</td>
<td>60.1</td>
<td>60.3</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Korea</td>
</tr>
<tr>
<td class="firstcol">Actual exchange rate (Won/$)</td>
<td>1102.1</td>
<td>929.3</td>
<td>954.8</td>
<td>1024.1</td>
<td>1145.3</td>
<td>1191.1</td>
<td>1251.1</td>
</tr>
<tr>
<td class="firstcol">PPP exchange rate</td>
<td>754.0</td>
<td>747.9</td>
<td>760.7</td>
<td>788.9</td>
<td>794.3</td>
<td>795.7</td>
<td>769.8</td>
</tr>
<tr>
<td class="firstcol">Undervaluation (%)
(1-Conversion factor)</td>
<td>31.5</td>
<td>19.3</td>
<td>20.3</td>
<td>23.0</td>
<td>30.7</td>
<td>32.2</td>
<td>38.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Singapore</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Actual exchange rate
(S$/US$)</td>
<td>1.41</td>
<td>1.51</td>
<td>1.59</td>
<td>1.66</td>
<td>1.69</td>
<td>1.74</td>
<td>1.79</td>
</tr>
<tr>
<td class="firstcol">PPP exchange rate</td>
<td>1.08</td>
<td>1.09</td>
<td>1.06</td>
<td>1.08</td>
<td>1.10</td>
<td>1.09</td>
<td>1.12</td>
</tr>
<tr>
<td class="firstcol">Undervaluation (%)
(1-Conversion factor)</td>
<td>&nbsp;23.7</td>
<td>27.7</td>
<td>33.3</td>
<td>35.7</td>
<td>34.9</td>
<td>37.6</td>
<td>37.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Brazil</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Actual exchange rate
(Rial/$)</td>
<td>1.83</td>
<td>1.94</td>
<td>2.18</td>
<td>2.43</td>
<td>2.93</td>
<td>3.08</td>
<td>2.93</td>
</tr>
<tr>
<td class="firstcol">PPP exchange rate</td>
<td>1.50</td>
<td>1.41</td>
<td>1.40</td>
<td>1.36</td>
<td>1.31</td>
<td>1.22</td>
<td>1.11</td>
</tr>
<tr>
<td class="firstcol">Undervaluation (%)
(1Conversion
factor)</td>
<td>&nbsp;18.4</td>
<td>27.6</td>
<td>35.8</td>
<td>44.2</td>
<td>55.3</td>
<td>57.6</td>
<td>61.9</td>
</tr>
</tbody>
</table>






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While purchasing power parity (PPP) is not a major factor in determining a country's actual exchange rate, it can be used as a rough guide in deciding whether a particular currency is under or over valued. Most developing countries [...]

Actual Exchange Rates in the Developing World and Purchasing Power Parity

Robert Brusca

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<body>
 



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019e.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s Tertiary index (service sector index) rose in August
for the third month in a row. The chart above puts these increases in
perspective. While a nice, stable uptrend is emerging, the pace of the
rise is relatively moderate; yet the level of the index is well short
of the past cycle peak. 
 

The mining/MFG index fell extremely sharply in the depth of
the recession and while it has had a very sharp bounce back, it is too
soon to tell if the bounce-back will be complete. At a level of 83.9
the mining/MFG index is up sharply from its low of 69.5 but is still
&#8216;light-years&#8217; away from the past peak at 110.1. 
 

The rebound in the various sector indices is a good sign for
Japan&#8217;s beleaguered economy. Even so these bounces have a long way to
go to restore Japan to its precession levels of activity. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="10" scope="col">Up to date Japan Industry Survey</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Aug-2009</td>
<td>Jul-2009</td>
<td>Jun-2009</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr class="odd">
<td class="firstcol">Mining and MFG</td>
<td>83.9</td>
<td>82.6</td>
<td>80.9</td>
<td>82.5</td>
<td>78.7</td>
<td>83.4</td>
<td>110.1</td>
<td>69.5</td>
<td>35.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Tertiary</td>
<td>97.1</td>
<td>96.8</td>
<td>96.1</td>
<td>96.7</td>
<td>96.1</td>
<td>97.8</td>
<td>103.5</td>
<td>89.1</td>
<td>55.6%</td>
</tr>
<tr>
<td colspan="10">Ranges, Max, Min since 1993</td>
</tr>
</tbody>
</table>
</body></html>

Japan’s Tertiary index (service sector index) rose in August for the third month in a row. The chart above puts these increases in perspective. While a nice, stable uptrend is emerging, the pace of the rise is relatively moderate; yet [...]

So Far, So Good: Japan Service Sector Advance Again

Tom Moeller

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<body>
 




<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019a.jpg" align="right" border="0" height="265" width="353">The U.S. government ran a budget deficit of $1.417 trillion
during Fiscal Year 2009. The figure was by far a record and more than
tripled the 2008 deficit of $454.8 billion. While somewhat below the
Congressional Budget Office's recent estimate for a deficit of $1.7
trillion, it nevertheless reached roughly 10% of GDP, the largest since
1945.
The recession in the U.S. economy drove the deficit higher
last year as revenues lagged sharply and spending increased. Net
revenues during FY09 were down 16.6% from FY08. Individual income tax
receipts fell 20.1% reflecting higher unemployment while corporate tax
receipts fell by more than one-half as profits dried up. Social
security contributions fell for the first time since 1995 and estate
&amp; gift taxes fell 18.6% after 10.8% growth last fiscal year.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019b.jpg" align="right" border="0" height="265" width="353">
The wars in Iraq &amp; Afghanistan and the U.S. recession
boosted overall Federal spending by 18.2% versus FY08, double last
year's growth. Defense spending (19% of total outlays) rose 7.1% during
FY09. Though outlays for military personnel rose just 6.1% last year
after 8.9% growth during FY08, Army procurement jumped 15.8% after
36.9% growth during '08. On the home front, growth in Medicare
expenditures (12% of outlays) doubled and "income security" spending
(11% of outlays) jumped by one-quarter with higher unemployment. Social
security payments rose an elevated 10.7% but net interest payments
continued to fall sharply with lower interest rates.
Net outlays under the Government's Troubled Asset Relief
Program (TARP) started to fall by the end of FY09 but, for the fiscal
year as a whole, they amounted to $333.3B. The U.S. Treasury has
adopted the view that these TARP expenditures should be counted like
any other spending. When the banks repay the Treasury, these funds will
be counted as revenue. Accounted for in this way, TARP causes a surge
in the budget deficit when the funds are distributed to the banks, but
leads to a smaller deficit, or perhaps a surplus, when repayments are
received.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019c.jpg" align="right" border="0" height="265" width="353">
The Government's financial data are available in Haver's USECON
database, with extensive detail available in the specialized GOVFIN.
The Office of Management &amp; Budget's 2010
Budget can be found <a href="http://www.whitehouse.gov/omb/"> here.</a>
The Budget &amp; Economic Outlook: An Update from
the Congressional Budget Office can be found <a href="http://www.cbo.gov/ftpdocs/105xx/doc10521/08-25-BudgetUpdate.pdf">
here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E106/@E10602/@E106021.HTM">US
Government Finance</a> &nbsp;</th>
<th scope="col">FY 2009</th>
<th scope="col">FY 2008</th>
<th scope="col">FY 2007</th>
<th scope="col">FY 2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>-$1,417.1B</td>
<td>-$454.8B</td>
<td>-$161.5B</td>
<td>-$248.197B</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; as a
percent of GDP</td>
<td>-10.0%</td>
<td>-3.2%</td>
<td>-1.2%</td>
<td>-1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Net
Revenues (Y/Y % Change)</td>
<td>-16.6%</td>
<td>-1.7%</td>
<td>6.7%</td>
<td>11.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Individual Income Taxes</td>
<td>-20.1</td>
<td>-1.5</td>
<td>11.5</td>
<td>12.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Corporate Income Taxes</td>
<td>-54.6</td>
<td>-17.8</td>
<td>4.6</td>
<td>27.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Social Insurance Taxes</td>
<td>-1.0</td>
<td>3.5</td>
<td>3.8</td>
<td>5.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Net
Outlays (Y/Y % Change)</td>
<td>18.2</td>
<td>9.1</td>
<td>2.8</td>
<td>7.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Nat'l Defense</td>
<td>7.6</td>
<td>11.8</td>
<td>4.1</td>
<td>6.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Health</td>
<td>19.1</td>
<td>5.4</td>
<td>5.5</td>
<td>0.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Medicare</td>
<td>10.1</td>
<td>4.1</td>
<td>13.8</td>
<td>10.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Income Security</td>
<td>24.9</td>
<td>16.8</td>
<td>3.5</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Social Security</td>
<td>10.7</td>
<td>5.3</td>
<td>6.9</td>
<td>4.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Interest</td>
<td>-24.5</td>
<td>6.3</td>
<td>5.0</td>
<td>23.2</td>
</tr>
</tbody>
</table>
</body></html>

The U.S. government ran a budget deficit of $1.417 trillion during Fiscal Year 2009. The figure was by far a record and more than tripled the 2008 deficit of $454.8 billion. While somewhat below the Congressional Budget Office's [...]

U.S. FY '09 Federal Budget Deficit Tops $1.4 Trillion

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019a.jpg" align="right" border="0" height="265" width="353">The U.S. government ran a
budget deficit of $1.417 trillion
during Fiscal Year 2009. The figure was by far a record and more than
tripled the 2008 deficit of $454.8 billion. While somewhat below the
Congressional Budget Office's recent estimate for a deficit of $1.7
trillion, it nevertheless reached roughly 10% of GDP, the largest since
1945.
The recession in the U.S. economy drove the deficit higher
last year as revenues lagged sharply and spending increased. Net
revenues during FY09 were down 16.6% from FY08. Individual income tax
receipts fell 20.1% reflecting higher unemployment while corporate tax
receipts fell by more than one-half as profits dried up. Social
security contributions fell for the first time since 1995 and estate
&amp; gift taxes fell 18.6% after 10.8% growth last fiscal year.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019b.jpg" align="right" border="0" height="265" width="353">
The wars in Iraq &amp; Afghanistan and the U.S. recession
boosted overall Federal spending by 18.2% versus FY08, double last
year's growth. Defense spending (19% of total outlays) rose 7.1% during
FY09. Though outlays for military personnel rose just 6.1% last year
after 8.9% growth during FY08, Army procurement jumped 15.8% after
36.9% growth during '08. On the home front, growth in Medicare
expenditures (12% of outlays) doubled and "income security" spending
(11% of outlays) jumped by one-quarter with higher unemployment. Social
security payments rose an elevated 10.7% but net interest payments
continued to fall sharply with lower interest rates.
Net outlays under the Government's Troubled Asset Relief
Program (TARP) started to fall by the end of FY09 but, for the fiscal
year as a whole, they amounted to $333.3B. The U.S. Treasury has
adopted the view that these TARP expenditures should be counted like
any other spending. When the banks repay the Treasury, these funds will
be counted as revenue. Accounted for in this way, TARP causes a surge
in the budget deficit when the funds are distributed to the banks, but
leads to a smaller deficit, or perhaps a surplus, when repayments are
received.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019c.jpg" align="right" border="0" height="265" width="353">
The Government's financial data are available in Haver's USECON
database, with extensive detail available in the specialized GOVFIN.
The Office of Management &amp; Budget's 2010
Budget can be found <a href="http://www.whitehouse.gov/omb/"> here.</a>
The Budget &amp; Economic Outlook: An Update from
the Congressional Budget Office can be found <a href="http://www.cbo.gov/ftpdocs/105xx/doc10521/08-25-BudgetUpdate.pdf">
here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E1/@E106/@E10602/@E106021.HTM">US
Government Finance</a> &nbsp;</th>
<th scope="col">FY 2009</th>
<th scope="col">FY 2008</th>
<th scope="col">FY 2007</th>
<th scope="col">FY 2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>-$1,417.1B</td>
<td>-$454.8B</td>
<td>-$161.5B</td>
<td>-$248.197B</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; as a
percent of GDP</td>
<td>-10.0%</td>
<td>-3.2%</td>
<td>-1.2%</td>
<td>-1.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Net
Revenues (Y/Y % Change)</td>
<td>-16.6%</td>
<td>-1.7%</td>
<td>6.7%</td>
<td>11.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Individual Income Taxes</td>
<td>-20.1</td>
<td>-1.5</td>
<td>11.5</td>
<td>12.6</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Corporate Income Taxes</td>
<td>-54.6</td>
<td>-17.8</td>
<td>4.6</td>
<td>27.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Social Insurance Taxes</td>
<td>-1.0</td>
<td>3.5</td>
<td>3.8</td>
<td>5.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Net
Outlays (Y/Y % Change)</td>
<td>18.2</td>
<td>9.1</td>
<td>2.8</td>
<td>7.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Nat'l Defense</td>
<td>7.6</td>
<td>11.8</td>
<td>4.1</td>
<td>6.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Health</td>
<td>19.1</td>
<td>5.4</td>
<td>5.5</td>
<td>0.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Medicare</td>
<td>10.1</td>
<td>4.1</td>
<td>13.8</td>
<td>10.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Income Security</td>
<td>24.9</td>
<td>16.8</td>
<td>3.5</td>
<td>2.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Social Security</td>
<td>10.7</td>
<td>5.3</td>
<td>6.9</td>
<td>4.8</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Interest</td>
<td>-24.5</td>
<td>6.3</td>
<td>5.0</td>
<td>23.2</td>
</tr>
</tbody>
</table>
So Far, So Good: Japan Service
Sector Advance
Again
 
by <a href="/comment/Brusca.html">Robert
Brusca</a> October 19, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019e.jpg" align="left" border="0" height="265" width="353">
Japan&#8217;s Tertiary index (service sector index) rose in August
for the third month in a row. The chart above puts these increases in
perspective. While a nice, stable uptrend is emerging, the pace of the
rise is relatively moderate; yet the level of the index is well short
of the past cycle peak. 
 

The mining/MFG index fell extremely sharply in the depth of
the recession and while it has had a very sharp bounce back, it is too
soon to tell if the bounce-back will be complete. At a level of 83.9
the mining/MFG index is up sharply from its low of 69.5 but is still
&#8216;light-years&#8217; away from the past peak at 110.1. 
 

The rebound in the various sector indices is a good sign for
Japan&#8217;s beleaguered economy. Even so these bounces have a long way to
go to restore Japan to its precession levels of activity. 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col">Up to
date Japan Industry Survey</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>Aug-2009</td>
<td>Jul-2009</td>
<td>Jun-2009</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr class="odd">
<td class="firstcol">Mining and MFG</td>
<td>83.9</td>
<td>82.6</td>
<td>80.9</td>
<td>82.5</td>
<td>78.7</td>
<td>83.4</td>
<td>110.1</td>
<td>69.5</td>
<td>35.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Tertiary</td>
<td>97.1</td>
<td>96.8</td>
<td>96.1</td>
<td>96.7</td>
<td>96.1</td>
<td>97.8</td>
<td>103.5</td>
<td>89.1</td>
<td>55.6%</td>
</tr>
<tr>
<td colspan="10">Ranges, Max, Min since 1993</td>
</tr>
</tbody>
</table>
Actual Exchange Rates in the
Developing World and Purchasing Power Parity 
by <a href="/comment/Curley.html">Louise
Curley</a> October 19, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019h.jpg" align="right" border="0" height="265" width="353">While
purchasing power parity (PPP) is not a major factor in determining a
country's actual exchange rate, it can be used as a rough guide in
deciding whether a particular currency is under or over
valued.&nbsp;&nbsp; Most developing countries with growing
current account balances, have preferred to pile up foreign exchange
reserves rather than let their currencies appreciate.&nbsp;
Meanwhile, the purchasing power parity of their currencies has
generally increased slowly and steadily as their economies have
prospered. As a result their currencies have continued to be
undervalued.

 Data on the purchasing power parity of currencies can be
derived from data in the Haver data base, The World
Development Indicators.&nbsp;<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019f.jpg" align="right" border="0" height="265" width="353">
The data are annual so the
latest data point is 2008.&nbsp; PPP conversion factors for the
world countries are included in the section "Exchange Rates and
Prices".&nbsp; We&nbsp; chose four countries as examples:
China, Korea, Singapore and Brazil and the PPP Conversion
Factor (GDP) to market exchange rate ratio.
The conversion
factor is the ratio of PPP exchange rate to the actual exchange rate.
One minus the conversion factor, therefore is the percentage of under
or over valuation of the particular exchange rate relative to the
dollar.&nbsp; Thus for Korea,&nbsp; the conversion factor of
.684 in 2008 means that the Korea's actual exchange rate was 31.6%
undervalued relative to the dollar.&nbsp; <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019g.jpg" align="right" border="0" height="265" width="353">
Since the actual exchange
rate is 1102.09 Won/$, a conversion factor of .684 means that the PPP
exchange rate is 753.98 Won/$ (.684 * 1102.09).&nbsp; The actual
exchange rates, the PPP exchange rates and the percent of
undervaluation of the currencies of the four countries are shown in the
table below.· Brazil has allowed its currency to appreciate
considerably.&nbsp; From an undervaluation of 61.9 in 2002, the
Rial was only 18.4% undervalued in 2008, as shown in the first
chart.&nbsp; By contrast, China has permitted only moderate
appreciation of the yuan as shown in the same chart. The Singapore
dollar has steadily reduced its undervaluation as can be seen in the
second chart.&nbsp; Korea, on the other hand experienced a sharp
increase in its undervaluation in 2008, also shown in the second
chart.
 The third chart brings up to date the actual exchange
rates of the four countries.&nbsp; They have, to varying degrees,
appreciated in 2009.&nbsp; Again, the Chinese Yuan has appreciated
the least and the Brazilian Real, the most. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004&nbsp;</th>
<th scope="col">2003&nbsp;</th>
<th scope="col">2002 </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">China</td>
<td>&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">Actual exchange rate
(Yuan/$)</td>
<td>6.95</td>
<td>7.61</td>
<td>7.97</td>
<td>8.19</td>
<td>8.28</td>
<td>8.28</td>
<td>8.28</td>
</tr>
<tr>
<td class="firstcol">PPP exchange rate</td>
<td>3.39</td>
<td>3.38</td>
<td>3.46</td>
<td>3.45</td>
<td>3.43</td>
<td>3.29</td>
<td>3.28</td>
</tr>
<tr>
<td class="firstcol">Undervaluation (%)
(1-Conversion factor)</td>
<td>51.1</td>
<td>55.5</td>
<td>56.6</td>
<td>57.9</td>
<td>58.6</td>
<td>60.1</td>
<td>60.3</td>
</tr>
<tr class="odd">
<td colspan="8" class="firstcol">Korea</td>
</tr>
<tr>
<td class="firstcol">Actual exchange rate (Won/$)</td>
<td>1102.1</td>
<td>929.3</td>
<td>954.8</td>
<td>1024.1</td>
<td>1145.3</td>
<td>1191.1</td>
<td>1251.1</td>
</tr>
<tr>
<td class="firstcol">PPP exchange rate</td>
<td>754.0</td>
<td>747.9</td>
<td>760.7</td>
<td>788.9</td>
<td>794.3</td>
<td>795.7</td>
<td>769.8</td>
</tr>
<tr>
<td class="firstcol">Undervaluation (%)
(1-Conversion factor)</td>
<td>31.5</td>
<td>19.3</td>
<td>20.3</td>
<td>23.0</td>
<td>30.7</td>
<td>32.2</td>
<td>38.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Singapore</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Actual exchange rate
(S$/US$)</td>
<td>1.41</td>
<td>1.51</td>
<td>1.59</td>
<td>1.66</td>
<td>1.69</td>
<td>1.74</td>
<td>1.79</td>
</tr>
<tr>
<td class="firstcol">PPP exchange rate</td>
<td>1.08</td>
<td>1.09</td>
<td>1.06</td>
<td>1.08</td>
<td>1.10</td>
<td>1.09</td>
<td>1.12</td>
</tr>
<tr>
<td class="firstcol">Undervaluation (%)
(1-Conversion factor)</td>
<td>&nbsp;23.7</td>
<td>27.7</td>
<td>33.3</td>
<td>35.7</td>
<td>34.9</td>
<td>37.6</td>
<td>37.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Brazil</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Actual exchange rate
(Rial/$)</td>
<td>1.83</td>
<td>1.94</td>
<td>2.18</td>
<td>2.43</td>
<td>2.93</td>
<td>3.08</td>
<td>2.93</td>
</tr>
<tr>
<td class="firstcol">PPP exchange rate</td>
<td>1.50</td>
<td>1.41</td>
<td>1.40</td>
<td>1.36</td>
<td>1.31</td>
<td>1.22</td>
<td>1.11</td>
</tr>
<tr>
<td class="firstcol">Undervaluation (%)
(1Conversion
factor)</td>
<td>&nbsp;18.4</td>
<td>27.6</td>
<td>35.8</td>
<td>44.2</td>
<td>55.3</td>
<td>57.6</td>
<td>61.9</td>
</tr>
</tbody>
</table>


U.S. Home Builders' Index Recovery
Stuttering This Month 
by <a href="/comment/Moeller.html">Tom
Moeller</a> October 19, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019i.jpg" align="left" border="0" height="265" width="353">
Housing continues to turn the corner toward recovery, but of
late that recovery stuttered. The National Association of Home Builders
reported that its October Composite Housing Market Index fell to 18
from 19 in September. Though the index remained double the low of 8
this past January, it's rate of improvement has slowed since the
Spring. The index is compiled from survey questions asking builders to
rate market conditions as &#8220;good&#8221;, &#8220;fair&#8221;, &#8220;poor&#8221; or &#8220;very high&#8221; to
&#8220;very low&#8221;. The figure is a diffusion index,
therefore, numerical results over 50 indicate a predominance of &#8220;good&#8221;
readings.
The sub-index of sales during the next six months fell to 27
which was the lowest level since August. The present sales index also
fell to 17 which equaled the 3Q average. Much of easing in the October
composite index was due to a sharp decline in the West (+27.3% y/y). In
the Midwest (+30.5% y/y) and in the South (+12.5% y/y) the index fell
slightly while in the Northeast (+56.3% y/y) there was a continued gain.
The Home Builders' Association also reported that traffic of
prospective buyers slipped during October after firm gains this past
Spring and Summer.
The Home Builders' Housing Opportunity Index, which is the
share of homes sold that could be considered affordable to a family
earning the median income, fell slightly in the second quarter. It had
jumped earlier to a record high of 72.5% buoyed by lower home prices,
lower interest rates and higher income. (There is a break in the series
from 2002 to 2003.)<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091019j.jpg" align="right" border="0" height="265" width="353">
The NAHB has compiled the Housing Market Index
since 1985. The weights assigned to the
individual index components are .5920 for single family detached sales,
present time; .1358 for single family detached sales, next six months;
and .2722 for traffic of prospective buyers. The results, along with
other housing and remodeling indexes from NAHB Economics, are included
in Haver&#8217;s SURVEYS database.
Asia and the Global Financial Crisis is
today's speech by Fed Chairman Ben S. Bernanke and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20091019a.htm">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S4/@S4.HTM">Nat'l
Association of Home Builders</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">&nbsp;October '08</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Housing Market Index
(All Good = 100)</td>
<td>18</td>
<td>19</td>
<td>14</td>
<td>16</td>
<td>27</td>
<td>42</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales</td>
<td>17</td>
<td>18</td>
<td>14</td>
<td>16</td>
<td>27</td>
<td>45</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Single-Family Sales:
Next Six Months</td>
<td>27</td>
<td>29</td>
<td>19</td>
<td>25</td>
<td>37</td>
<td>51</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Traffic of
Prospective Buyers</td>
<td>14</td>
<td>17</td>
<td>11</td>
<td>14</td>
<td>21</td>
<td>30</td>
</tr>
</tbody>
</table>
</body></html>

U.S. FY '09 Federal Budget DeficitTops $1.4 Trillion

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
<style>
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background-color:#edf5ff;
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.even{
background-color:#dde5ef;
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</head>
<body>
 



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016e.jpg" align="left" border="0" height="265" width="353">
Italy&#8217;s exports and imports both dropped on the month with
exports dropping faster. As a result, the trade gap widened. But the
gap has improved from its worst level at end of 2008. True, the deficit
has expanded again from it best level in May of 2009, but both exports
and imports are on the mend. The export drop this month was
particularly large and therefore it is hard to put in context; it will
take several more months to figure out if this is a new trend of sorts,
or an oddity. 
 

One problem is that Germany, too, had reported a sharp and
unexpected drop in exports. So the Italian drop may have something to
it. Even so it could be that the same rogue factor affected both of
them, it could be a coincidence, or it could be a fundamental weakening
in exports. It will take time to tell 
 

Because of the relatively sharp drop this month, -15.9% for
exports Vs -8.8% for imports, the Yr/Yr trends are probably distorted.
But both export and import growth are down sharply across major
category components (see the table, at the bottom). 
 

While all nations are banking on trade to become an engine of
growth, US demand seems to be slow in starting and most industrialized
economies are having a hard time getting into gear, too. It is in this
environment in which it is hard to see why up to this point exports
have responded so well in the cycle. One man&#8217;s export is another&#8217;s
import and ultimately is linked to domestic demand which remains
globally challenged: that is the part that is hard to figure out. Whose
export demands have been strong and will they stay that way? 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Italy's
Trade Trends</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/mo % monthly rate</td>
<td colspan="4">Period Specified saar</td>
</tr>
<tr class="grey3">
<td class="firstcol">Seasonally Adjusted</td>
<td>Aug-09</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>3-MO</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr-Ago</td>
</tr>
<tr class="grey2">
<td class="firstcol">Current Account Bal</td>
<td>&#8364;&#8364;(3,237)</td>
<td>&#8364;&#8364;(1,382)</td>
<td>&#8364;&#8364;(2,378)</td>
<td>&#8364;&#8364;(2,332)</td>
<td>&#8364;&#8364;(2,099)</td>
<td>&#8364;&#8364;(3,656)</td>
<td>&#8364;&#8364;(3,927)</td>
</tr>
<tr class="grey2">
<td class="firstcol">Goods
Balance</td>
<td>&#8364;&#8364;(1,086)</td>
<td>&#8364;&#8364;814</td>
<td>&#8364;&#8364;939</td>
<td>&#8364;&#8364;222</td>
<td>&#8364;&#8364;592</td>
<td>&#8364;&#8364;163</td>
<td>&#8364;&#8364;86</td>
</tr>
<tr class="grey1">
<td class="firstcol">
Exports</td>
<td>-15.9%</td>
<td>11.8%</td>
<td>-1.3%</td>
<td>-25.7%</td>
<td>-22.4%</td>
<td>-24.4%</td>
<td>-8.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">
Imports</td>
<td>-8.8%</td>
<td>12.9%</td>
<td>1.2%</td>
<td>17.9%</td>
<td>-10.9%</td>
<td>-26.0%</td>
<td>-2.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Services
Balance</td>
<td>&#8364;&#8364; 352</td>
<td>&#8364;&#8364; (399)</td>
<td>&#8364;&#8364; (788)</td>
<td>&#8364;&#8364; (278)</td>
<td>&#8364;&#8364; (585)</td>
<td>&#8364;&#8364; (766)</td>
<td>&#8364;&#8364; (458)</td>
</tr>
<tr class="grey1">
<td class="firstcol">Exports</td>
<td>10.4%</td>
<td>5.8%</td>
<td>-0.4%</td>
<td>83.3%</td>
<td>41.6%</td>
<td>-0.7%</td>
<td>-2.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Imports</td>
<td>-1.7%</td>
<td>-0.8%</td>
<td>3.3%</td>
<td>3.0%</td>
<td>-15.6%</td>
<td>-12.1%</td>
<td>-3.3%</td>
</tr>
<tr class="grey4">
<td class="firstcol" colspan="7">Not
Seasonally Adjusted</td>
<td>All Yr/Yr</td>
</tr>
<tr class="grey3">
<td class="firstcol">Exports</td>
<td colspan="2">Aug-09</td>
<td colspan="2">Aug-08</td>
<td colspan="2">Aug-07</td>
<td>Aug-06</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food&amp;Bev</td>
<td colspan="2">-1.7%</td>
<td colspan="2">-1.7%</td>
<td colspan="2">7.2%</td>
<td>10.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Capital Gds</td>
<td colspan="2">-24.9%</td>
<td colspan="2">-8.2%</td>
<td colspan="2">15.9%</td>
<td>12.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Transport</td>
<td colspan="2">-23.9%</td>
<td colspan="2">-7.9%</td>
<td colspan="2">9.0%</td>
<td>14.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Consumer Gds</td>
<td colspan="2">-14.1%</td>
<td colspan="2">-11.5%</td>
<td colspan="2">8.0%</td>
<td>8.3%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Other Gds</td>
<td colspan="2">-44.2%</td>
<td colspan="2">4.3%</td>
<td colspan="2">4.5%</td>
<td>20.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Imports</td>
<td colspan="2">Aug-09</td>
<td colspan="2">Aug-08</td>
<td colspan="2">Aug-07</td>
<td>Aug-06</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food&amp;Bev</td>
<td colspan="2">-10.5%</td>
<td colspan="2">-0.5%</td>
<td colspan="2">6.4%</td>
<td>6.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Capital Gds</td>
<td colspan="2">-22.4%</td>
<td colspan="2">-10.5%</td>
<td colspan="2">13.1%</td>
<td>6.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Transport</td>
<td colspan="2">-21.9%</td>
<td colspan="2">-6.2%</td>
<td colspan="2">11.6%</td>
<td>5.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol"> Consumer Gds</td>
<td colspan="2">-8.5%</td>
<td colspan="2">-5.7%</td>
<td colspan="2">8.3%</td>
<td>9.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Other Gds</td>
<td colspan="2">-42.6%</td>
<td colspan="2">9.7%</td>
<td colspan="2">-0.1%</td>
<td>33.4%</td>
</tr>
<tr class="grey4">
<td colspan="8" class="firstcol">Balances
in Mlns of euros</td>
</tr>
</tbody>
</table>
</body></html>

Italy’s exports and imports both dropped on the month with exports dropping faster. As a result, the trade gap widened. But the gap has improved from its worst level at end of 2008. True, the deficit has expanded again from it best [...]

Italy's Trade Gap Widens On Weaker Exports

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016f.jpg" align="right" border="0" height="265" width="353"> Consumer
sentiment sagged this month but retraced just half of the rise during
September. The University of Michigan's mid-month October reading of
consumer sentiment fell to 69.4 from a September reading of 73.5.
Despite the decline sentiment remained up by roughly one-quarter from
the low last Fall. Consensus expectations had been for no change this
month versus September. During the last ten years, there has been a 69%
correlation between the level of sentiment and the growth in real
consumer spending during the next five months.The reading of expected
economic conditions fell the hardest this month with an 8.0% m/m
decline. That mostly erased September's gain. Despite the decline,
however, the index remained up by one-third from the February low.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016g.jpg" align="right" border="0" height="265" width="353">
The
latest decline was led by a sharp 18.7% drop in expected business
conditions during the next five years which reversed much of the recent
improvement. Expected conditions during the next year fell just
modestly and the index remained more than double the February low.
Conversely, the expected change in personal finances improved and the
index was up nearly one-quarter from the low during 2008 with the
higher stock market. The reading of current economic condition fell
just moderately as the reading of personal finances slipped m/m. It has
remained range-bound this year with higher unemployment. The reading of
buying conditions for large household goods held steady m/m but it is
up by one-third from the November low due to low prices. Expected
price inflation during the next year amounted to 3.1%; up slightly from
September but down from a high of 7% during May of last year. A low of
0.3% inflation was expected by 25% of respondents but 5.0% inflation
was expected by another quarter. Inflation of 3.4% during the next 5-10
years was the mean expectation.&nbsp;The opinion of
government policy, which may eventually influence economic
expectations, fell slightly from September and remained near
the&nbsp; lowest level since February. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016h.jpg" align="right" border="0" height="265" width="353">
Thirty percent of
respondents thought that a poor job was being done by government. A
reduced 19% thought that a good job was being done. It had hit 30% in
April.The University of Michigan survey data is not seasonally
adjusted. The reading is based on telephone interviews with about 500
households at month-end; the mid-month results are based on about 300
interviews. The summary indexes are in Haver's USECON database
with details in the proprietary UMSCA database.Optimism
Amid Uncertainty from the Federal Reserve Bank of Dallas is
available <a href="http://dallasfed.org/research/update-us/index.cfm">
here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">Mid-October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Oct y/y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>69.4</td>
<td>73.5</td>
<td>65.7</td>
<td>20.5%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>72.1</td>
<td>73.4</td>
<td>66.6</td>
<td>23.5</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>67.6</td>
<td>73.5</td>
<td>65.0</td>
<td>18.6</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>
</body></html>

Consumer sentiment sagged this month but retraced just half of the rise during September. The University of Michigan's mid-month October reading of consumer sentiment fell to 69.4 from a September reading of 73.5. Despite the decline [...]

Michigan Consumer Sentiment Sags M/M But Remains Improved From Its Low

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016a.jpg" align="left" border="0" height="265" width="353">
Industrial production is hardly overheating, but the nation's
industrial plant is starting to hum again. Output rose a surprising
0.7% during September after gains of 1.2% and 0.8% during the prior two
months. An uptick of a meager 0.1% had been the Consensus expectation,
based on the decline in factory sector employment last month. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016b.jpg" align="right" border="0" height="265" width="353">
The
productivity of those still working thus soared. The recent output
recovery follows a decline of 14.5% during the 21 months of recession
beginning in January of 2008.
Output of consumer goods rose a firm 1.1% for the third month
of increase following a 10.1% drop during the recession. Production of
autos led the increase with a 7.3% rise, after two months of decline
and a recession loss of 38.5%. Furniture &amp; appliance output
rose a lesser 0.3% which was the second in the last three months.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016c.jpg" align="right" border="0" height="265" width="353">
Working the other way, the output of computers, video &amp; audio
equipment showed no sign of recovery, posting a 1.4% (-16.5% y/y)
decline. Outside of the auto and high-tech sectors output ticked 0.3%
higher (-5.3% y/y) during September for the third consecutive monthly
gain. That's against the 12.8% decline during the prior 21 months.
Apparel output rose for third consecutive month of strong gain
and the 2.2% increase cut the y/y decline to 11.4%. The output of
business equipment rose 0.2% (-8.0% y/y) but the output of construction
supplies continued 0.4% (-16.8% y/y) lower after four months of
relative stability. Construction supplies output fell 23.4% during this
recession.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016d.jpg" align="right" border="0" height="265" width="353">
Excess industrial capacity diminished during September for the
third consecutive month. In the factory sector alone, the rise to 67.5%
also was the third consecutive monthly gain but it nevertheless left
the figure near its lowest of the postwar period. Across industries,
utilization remained the smallest since WWII.
The industrial production data are available in Haver's USECON
database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">INDUSTRIAL
PRODUCTION (SA, %)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Output </td>
<td>0.7</td>
<td>1.2</td>
<td>-6.0</td>
<td>-2.2</td>
<td>1.5</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>0.8</td>
<td>1.2</td>
<td>-7.8</td>
<td>-3.2</td>
<td>1.4</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Consumer Goods</td>
<td>1.1</td>
<td>1.5</td>
<td>-1.8</td>
<td>-2.6</td>
<td>0.9</td>
<td>0.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Business Equipment</td>
<td>0.2</td>
<td>1.1</td>
<td>-8.0</td>
<td>-1.1</td>
<td>2.7</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Construction Supplies</td>
<td>-0.4</td>
<td>0.5</td>
<td>-16.8</td>
<td>-6.3</td>
<td>-2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>-0.7</td>
<td>1.9</td>
<td>-2.1</td>
<td>0.3</td>
<td>3.4</td>
<td>-0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>70.5</td>
<td>69.9</td>
<td>74.5 (Sept. '08)</td>
<td>77.5</td>
<td>80.6</td>
<td>80.9</td>
</tr>
</tbody>
</table>
</body></html>

Industrial production is hardly overheating, but the nation's industrial plant is starting to hum again. Output rose a surprising 0.7% during September after gains of 1.2% and 0.8% during the prior two months. An uptick of a meager [...]

U.S. Factory Production Climbs For Third Month While Plant Utilization Reaches Seven-Month High

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016a.jpg" align="left" border="0" height="265" width="353">
Industrial production is hardly overheating, but the nation's
industrial plant is starting to hum again. Output rose a surprising
0.7% during September after gains of 1.2% and 0.8% during the prior two
months. An uptick of a meager 0.1% had been the Consensus expectation,
based on the decline in factory sector employment last month. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016b.jpg" align="right" border="0" height="265" width="353">
The
productivity of those still working thus soared. The recent output
recovery follows a decline of 14.5% during the 21 months of recession
beginning in January of 2008.
Output of consumer goods rose a firm 1.1% for the third month
of increase following a 10.1% drop during the recession. Production of
autos led the increase with a 7.3% rise, after two months of decline
and a recession loss of 38.5%. Furniture &amp; appliance output
rose a lesser 0.3% which was the second in the last three months.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016c.jpg" align="right" border="0" height="265" width="353">
Working the other way, the output of computers, video &amp; audio
equipment showed no sign of recovery, posting a 1.4% (-16.5% y/y)
decline. Outside of the auto and high-tech sectors output ticked 0.3%
higher (-5.3% y/y) during September for the third consecutive monthly
gain. That's against the 12.8% decline during the prior 21 months.
Apparel output rose for third consecutive month of strong gain
and the 2.2% increase cut the y/y decline to 11.4%. The output of
business equipment rose 0.2% (-8.0% y/y) but the output of construction
supplies continued 0.4% (-16.8% y/y) lower after four months of
relative stability. Construction supplies output fell 23.4% during this
recession.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016d.jpg" align="right" border="0" height="265" width="353">
Excess industrial capacity diminished during September for the
third consecutive month. In the factory sector alone, the rise to 67.5%
also was the third consecutive monthly gain but it nevertheless left
the figure near its lowest of the postwar period. Across industries,
utilization remained the smallest since WWII.
The industrial production data are available in Haver's USECON
database.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">INDUSTRIAL
PRODUCTION (SA, %)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Output </td>
<td>0.7</td>
<td>1.2</td>
<td>-6.0</td>
<td>-2.2</td>
<td>1.5</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Manufacturing</td>
<td>0.8</td>
<td>1.2</td>
<td>-7.8</td>
<td>-3.2</td>
<td>1.4</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Consumer Goods</td>
<td>1.1</td>
<td>1.5</td>
<td>-1.8</td>
<td>-2.6</td>
<td>0.9</td>
<td>0.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Business Equipment</td>
<td>0.2</td>
<td>1.1</td>
<td>-8.0</td>
<td>-1.1</td>
<td>2.7</td>
<td>9.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;
Construction Supplies</td>
<td>-0.4</td>
<td>0.5</td>
<td>-16.8</td>
<td>-6.3</td>
<td>-2.0</td>
<td>2.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Utilities</td>
<td>-0.7</td>
<td>1.9</td>
<td>-2.1</td>
<td>0.3</td>
<td>3.4</td>
<td>-0.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Capacity Utilization</td>
<td>70.5</td>
<td>69.9</td>
<td>74.5 (Sept. '08)</td>
<td>77.5</td>
<td>80.6</td>
<td>80.9</td>
</tr>
</tbody>
</table>
Michigan Consumer Sentiment Sags
M/M But Remains Improved From Its Low 
by <a href="/comment/Moeller.html">Tom
Moeller</a> October 16, 2009



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016f.jpg" align="right" border="0" height="265" width="353"> Consumer
sentiment sagged this month but retraced just half of the rise during
September. The University of Michigan's mid-month October reading of
consumer sentiment fell to 69.4 from a September reading of 73.5.
Despite the decline sentiment remained up by roughly one-quarter from
the low last Fall. Consensus expectations had been for no change this
month versus September. During the last ten years, there has been a 69%
correlation between the level of sentiment and the growth in real
consumer spending during the next five months.

The reading of expected
economic conditions fell the hardest this month with an 8.0% m/m
decline. That mostly erased September's gain. Despite the decline,
however, the index remained up by one-third from the February low.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016g.jpg" align="right" border="0" height="265" width="353">
The
latest decline was led by a sharp 18.7% drop in expected business
conditions during the next five years which reversed much of the recent
improvement. Expected conditions during the next year fell just
modestly and the index remained more than double the February low.
Conversely, the expected change in personal finances improved and the
index was up nearly one-quarter from the low during 2008 with the
higher stock market.

The reading of current economic condition fell
just moderately as the reading of personal finances slipped m/m. It has
remained range-bound this year with higher unemployment. The reading of
buying conditions for large household goods held steady m/m but it is
up by one-third from the November low due to low prices.

Expected
price inflation during the next year amounted to 3.1%; up slightly from
September but down from a high of 7% during May of last year. A low of
0.3% inflation was expected by 25% of respondents but 5.0% inflation
was expected by another quarter. Inflation of 3.4% during the next 5-10
years was the mean expectation.&nbsp;

The opinion of
government policy, which may eventually influence economic
expectations, fell slightly from September and remained near
the&nbsp; lowest level since February. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016h.jpg" align="right" border="0" height="265" width="353">
Thirty percent of
respondents thought that a poor job was being done by government. A
reduced 19% thought that a good job was being done. It had hit 30% in
April.

The University of Michigan survey data is not seasonally
adjusted. The reading is based on telephone interviews with about 500
households at month-end; the mid-month results are based on about 300
interviews. The summary indexes are in Haver's USECON database
with details in the proprietary UMSCA database.

Optimism
Amid Uncertainty from the Federal Reserve Bank of Dallas is
available <a href="http://dallasfed.org/research/update-us/index.cfm">
here</a>.&nbsp;

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">Mid-October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Oct y/y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>69.4</td>
<td>73.5</td>
<td>65.7</td>
<td>20.5%</td>
<td>63.8</td>
<td>85.6</td>
<td>87.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>72.1</td>
<td>73.4</td>
<td>66.6</td>
<td>23.5</td>
<td>73.7</td>
<td>101.2</td>
<td>105.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>67.6</td>
<td>73.5</td>
<td>65.0</td>
<td>18.6</td>
<td>57.3</td>
<td>75.6</td>
<td>75.9</td>
</tr>
</tbody>
</table>

Italy's Trade Gap Widens On Weaker
Exports 
by <a href="/comment/Brusca.html">Robert
Brusca</a> October 16, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/091016e.jpg" align="left" border="0" height="265" width="353">
Italy&#8217;s exports and imports both dropped on the month with
exports dropping faster. As a result, the trade gap widened. But the
gap has improved from its worst level at end of 2008. True, the deficit
has expanded again from it best level in May of 2009, but both exports
and imports are on the mend. The export drop this month was
particularly large and therefore it is hard to put in context; it will
take several more months to figure out if this is a new trend of sorts,
or an oddity. 
 

One problem is that Germany, too, had reported a sharp and
unexpected drop in exports. So the Italian drop may have something to
it. Even so it could be that the same rogue factor affected both of
them, it could be a coincidence, or it could be a fundamental weakening
in exports. It will take time to tell 
 

Because of the relatively sharp drop this month, -15.9% for
exports Vs -8.8% for imports, the Yr/Yr trends are probably distorted.
But both export and import growth are down sharply across major
category components (see the table, at the bottom). 
 

While all nations are banking on trade to become an engine of
growth, US demand seems to be slow in starting and most industrialized
economies are having a hard time getting into gear, too. It is in this
environment in which it is hard to see why up to this point exports
have responded so well in the cycle. One man&#8217;s export is another&#8217;s
import and ultimately is linked to domestic demand which remains
globally challenged: that is the part that is hard to figure out. Whose
export demands have been strong and will they stay that way? 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col">Italy's
Trade Trends</th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="3">m/mo % monthly rate</td>
<td colspan="4">Period Specified saar</td>
</tr>
<tr class="grey3">
<td class="firstcol">Seasonally Adjusted</td>
<td>Aug-09</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>3-MO</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr-Ago</td>
</tr>
<tr class="grey2">
<td class="firstcol">Current Account Bal</td>
<td>&#8364;&#8364;(3,237)</td>
<td>&#8364;&#8364;(1,382)</td>
<td>&#8364;&#8364;(2,378)</td>
<td>&#8364;&#8364;(2,332)</td>
<td>&#8364;&#8364;(2,099)</td>
<td>&#8364;&#8364;(3,656)</td>
<td>&#8364;&#8364;(3,927)</td>
</tr>
<tr class="grey2">
<td class="firstcol">Goods
Balance</td>
<td>&#8364;&#8364;(1,086)</td>
<td>&#8364;&#8364;814</td>
<td>&#8364;&#8364;939</td>
<td>&#8364;&#8364;222</td>
<td>&#8364;&#8364;592</td>
<td>&#8364;&#8364;163</td>
<td>&#8364;&#8364;86</td>
</tr>
<tr class="grey1">
<td class="firstcol">
Exports</td>
<td>-15.9%</td>
<td>11.8%</td>
<td>-1.3%</td>
<td>-25.7%</td>
<td>-22.4%</td>
<td>-24.4%</td>
<td>-8.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">
Imports</td>
<td>-8.8%</td>
<td>12.9%</td>
<td>1.2%</td>
<td>17.9%</td>
<td>-10.9%</td>
<td>-26.0%</td>
<td>-2.4%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Services
Balance</td>
<td>&#8364;&#8364; 352</td>
<td>&#8364;&#8364; (399)</td>
<td>&#8364;&#8364; (788)</td>
<td>&#8364;&#8364; (278)</td>
<td>&#8364;&#8364; (585)</td>
<td>&#8364;&#8364; (766)</td>
<td>&#8364;&#8364; (458)</td>
</tr>
<tr class="grey1">
<td class="firstcol">Exports</td>
<td>10.4%</td>
<td>5.8%</td>
<td>-0.4%</td>
<td>83.3%</td>
<td>41.6%</td>
<td>-0.7%</td>
<td>-2.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Imports</td>
<td>-1.7%</td>
<td>-0.8%</td>
<td>3.3%</td>
<td>3.0%</td>
<td>-15.6%</td>
<td>-12.1%</td>
<td>-3.3%</td>
</tr>
<tr class="grey4">
<td class="firstcol" colspan="7">Not
Seasonally Adjusted</td>
<td>All Yr/Yr</td>
</tr>
<tr class="grey3">
<td class="firstcol">Exports</td>
<td colspan="2">Aug-09</td>
<td colspan="2">Aug-08</td>
<td colspan="2">Aug-07</td>
<td>Aug-06</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food&amp;Bev</td>
<td colspan="2">-1.7%</td>
<td colspan="2">-1.7%</td>
<td colspan="2">7.2%</td>
<td>10.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Capital Gds</td>
<td colspan="2">-24.9%</td>
<td colspan="2">-8.2%</td>
<td colspan="2">15.9%</td>
<td>12.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Transport</td>
<td colspan="2">-23.9%</td>
<td colspan="2">-7.9%</td>
<td colspan="2">9.0%</td>
<td>14.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Consumer Gds</td>
<td colspan="2">-14.1%</td>
<td colspan="2">-11.5%</td>
<td colspan="2">8.0%</td>
<td>8.3%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Other Gds</td>
<td colspan="2">-44.2%</td>
<td colspan="2">4.3%</td>
<td colspan="2">4.5%</td>
<td>20.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Imports</td>
<td colspan="2">Aug-09</td>
<td colspan="2">Aug-08</td>
<td colspan="2">Aug-07</td>
<td>Aug-06</td>
</tr>
<tr class="grey1">
<td class="firstcol">Food&amp;Bev</td>
<td colspan="2">-10.5%</td>
<td colspan="2">-0.5%</td>
<td colspan="2">6.4%</td>
<td>6.9%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Capital Gds</td>
<td colspan="2">-22.4%</td>
<td colspan="2">-10.5%</td>
<td colspan="2">13.1%</td>
<td>6.0%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Transport</td>
<td colspan="2">-21.9%</td>
<td colspan="2">-6.2%</td>
<td colspan="2">11.6%</td>
<td>5.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol"> Consumer Gds</td>
<td colspan="2">-8.5%</td>
<td colspan="2">-5.7%</td>
<td colspan="2">8.3%</td>
<td>9.1%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Other Gds</td>
<td colspan="2">-42.6%</td>
<td colspan="2">9.7%</td>
<td colspan="2">-0.1%</td>
<td>33.4%</td>
</tr>
<tr class="grey4">
<td colspan="8" class="firstcol">Balances
in Mlns of euros</td>
</tr>
</tbody>
</table>
</body></html>

U.S. Factory Production Climbs ForThird Month While Plant Utilization Reaches Seven-Month High

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

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

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Andrew Cates

**Front-End Yields Reflect Policy Reassessment**
Against a backdrop of key central bank meetings either having just taken place or imminent, short-dated government bond yields have moved decisively higher across most major economies since the escalation of the Middle East conflict, with the sharpest increase seen in the UK. The rise in 2-year yields reflects a repricing of near-term monetary policy expectations, as markets respond to the inflationary implications of higher energy prices and the growing likelihood that central banks will delay easing cycles. Moves have been most pronounced in economies where inflation is expected to be more persistent—most notably the UK—while increases have been more modest in the US and particularly Japan, where policy normalisation remains gradual. In effect, the front end of the curve is signalling a shift away from the “rate cuts soon” narrative that prevailed earlier in the year toward a more cautious, higher-for-longer policy outlook.

260430Z1.jpg

**US Recession Risks Remain Contained—For Now**
Despite the recent deterioration in the macro backdrop, real-time recession risk indicators for the US remain relatively subdued. This is notable given the combination of softer growth momentum, higher bond yields and heightened geopolitical risk. The nowcast—derived from a blend of high-frequency activity data and financial stress measures—has historically tended to move sharply when conditions turn, rather than drift higher gradually. That asymmetry is important in the current environment. While recession risks are not yet flashing red, past cycles suggest they can reprice abruptly, and arguably at present if energy-driven inflation were to feed much more forcefully into financial conditions or begin to weigh more materially on demand.

260430Z2.jpg

**Consumer Confidence Diverges: Europe and UK Slide, US Stabilises**
Consumer confidence has weakened across the major economies, but the deterioration has been more pronounced in the euro area and the UK than in the US. While sentiment in the US has recently edged up, it remains at relatively subdued levels. By contrast, confidence in Europe and the UK has fallen more sharply, reflecting greater exposure to higher energy costs and a more direct squeeze on real household incomes. This divergence is consistent with broader macro trends, suggesting that demand in Europe may prove more sensitive to the current shock, with weaker sentiment feeding more quickly into consumption.

260430Z3.jpg

**Euro area Credit Conditions Turn More Restrictive**
The latest ECB lending survey points to a clear tightening in credit conditions across the euro area, with banks raising lending standards for both firms and households while loan demand weakens. This combination—more restrictive supply alongside softer demand—is typically associated with a cooling in activity, particularly in interest-sensitive sectors. Recent evidence suggests that higher perceived risks, rising funding costs and geopolitical uncertainty are all weighing on banks’ willingness to lend, while weaker confidence and reduced investment appetite are dampening borrowing needs. The result is a tightening in financial conditions that is likely to amplify the broader slowdown already evident in survey data, reinforcing the more fragile growth dynamics now emerging across the region.

260430Z4.jpg

**An Intensifying AI Boom with Supply-Side Undercurrents**
Against the backdrop of surging AI-related investment, semiconductor prices are not just high—they are rising at an increasingly rapid pace. This chart shows a clear acceleration in both prices and export values, pointing to an intensifying boom in global chip demand. While this is in part a reflection of strong, structural demand, supply-side factors may also be playing a growing role. Although the Middle East is not a direct source of key chip-making minerals, it is central to the energy and petrochemical inputs that underpin semiconductor production. Ongoing geopolitical tensions are therefore likely feeding into higher costs and renewed frictions across supply chains. The combination of accelerating demand and tightening supply conditions suggests that semiconductor inflation could prove more persistent—and more globally consequential—than currently assumed.

260430Z5.jpg

**Labour Markets Reflect the AI Acceleration**
Our final chart this week highlights the extent to which the current AI boom is now feeding through into labour markets. This high-frequency indicator—based on the share of job listings containing AI-related keywords—shows a sharp and sustained increase since the widespread adoption of generative AI tools in late 2022. What began as a more traditional build-out in machine learning roles has evolved into a broader and more intense wave of hiring tied to generative AI capabilities, with demand accelerating markedly across multiple economies. The scale and persistence of this trend point to a structural shift rather than a cyclical upswing, reinforcing the view that AI is becoming an increasingly important driver of investment, productivity expectations and, potentially, broader macroeconomic dynamics.

260430Z6.jpg

Against a backdrop of persistent geopolitical tensions, firmer energy prices and a busy week of central bank meetings—including the Fed, ECB, BoE and BoJ—financial markets have remained notably resilient, even as the macro narrative has softened at the margin. The message from this week’s charts is one of growing tension beneath that surface calm. Front-end bond yields have moved higher, signalling a shift toward a more cautious, “higher-for-longer” policy outlook (chart 1). At the same time, real-time recession indicators for the United States suggest risks remain contained for now (chart 2). Consumer confidence data paint a more uneven picture, with sharper declines in the euro area and UK than in the US, highlighting regional vulnerabilities to the current energy shock (chart 3). The ECB’s latest bank lending survey reinforces this, pointing to tighter credit conditions and weaker demand—factors that are likely to weigh further on European growth (chart 4). By contrast, developments in the semiconductor sector underline a different dynamic: an intensifying global boom, with accelerating price pressures reflecting both strong AI-driven demand and emerging supply-side constraints linked indirectly to energy and logistics disruptions (chart 5). Finally, labour market data confirm that the AI surge is not merely a market narrative but a tangible structural shift, with hiring for AI-related roles accelerating across economies (chart 6). Taken together, these signals point to a more complex macro environment—one in which resilient markets coexist with softening growth, more persistent inflation risks and increasingly delicate policy trade-offs.

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/20j2LcPyLFkPvV7NrquXuj?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Tension Beneath the Surface

Michael J. Moran

260430N.jpg

260430O.jpg

Real GDP grew at an annual rate of 2.0% in the first quarter of 2026, almost identical to the expected advance of 2.1%. The latest change was comfortably within the range of recent observations and close to the economy’s potential rate of growth. The year-over-year change totaled 2.7%, but that shift reflected what might be viewed as a special factor (robust growth in the second and third quarters that offset a trade-tariff-induced drop in 2025-Q1 GDP).

Business fixed investment was the star of the show in the first quarter, registering growth of 10.4%. Outlays for information processing equipment and software were especially strong, while outlays for industrial equipment and Research & Development contributed positively as well. Outlays for structures remained decidedly soft, dropping for the ninth consecutive quarter. Building of data centers have been vigorous, but softness in offices and manufacturing facilities has dwarfed the strength in this new area.

Federal spending surged 9.4% in Q1, but the rise reflected the reopening of most federal agencies after their closure during much of the fourth quarter. Excluding this noise, support from the federal government has been softening. Nondefense outlays peaked in the fourth quarter of 2024, and they were 6.9% shy of that total in the first quarter. Defense spending also peaked in 2024-Q4 and has eased 2.4% since then. Defense spending most likely will grow in coming quarters because of the efforts in the Middle East. Orders for defense goods have already started to rise.

Consumer spending rose 1.5% in the first quarter, a bit shy of the 2.1% pace over the four quarters of last year and less than half the rates in 2023 and 2024. Consumer spending showed signs of softening in late 2025 and January of this year, but activity picked up in February and March. Firm tax refunds might have provided a boost to household spending in the latest months. Some of the tax cuts from the One Big Beautiful Bill were applied retroactively to 2025, but withholding schedules were not adjusted last year. Thus, many households are receiving larger-than-normal tax refunds.

International trade acted as a drag on economic growth in Q1, with net exports subtracting 1.3 percentage points from the GDP increase. Exports did well in the first quarter with growth of 12.9%, but imports were even stronger with a jump of 21.4%. The real trade deficit of $1.1 trillion was noticeably smaller than the shortfall of $1.4 trillion in 2025-Q1 when importers were rushing to get goods into the US before the imposition of tariffs. Still, the trade shortfall was sizeable and its effect on growth noticeable.

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

260430P.jpg

260430Q.jpg

- Robust business investment led the advance; moderate support from consumers.
- Government spending jumped with the reopening of most federal agencies.
- The trade sector remained volatile, making a sizeable negative contribution in Q1.

Q1 GDP: Weathering the Challenges; Trend-Like Growth

Sandy Batten

260430A.jpg

260430B.jpg

This monthly report contains a wealth of information concerning the state of the consumer. The anticipation ahead of today’s report centered on how much the surge in energy prices since the escalation of the US-Iran conflict in early March would push up overall PCE inflation. Prices of energy goods and services jumped 11.6% m/m not annualized in March. This was the largest monthly increase since September 2005. As a result, the headline PCE price index increased 0.7% m/m (3.5% y/y versus 2.8% y/y in February), the largest monthly gain since July 2022 but in line with expectations of the Action Economics Forecast Survey.

The core index (that is, excluding food and energy prices) rose by a more modest 0.3% m/m in March, down from a 0.4% monthly increase in February and in line with expectations. However, the yearly rate rose further to 3.2% y/y in March from 3.0% in February, well above and moving away from the Fed’s 2% target. The FOMC left its fed funds rate target unchanged at yesterday’s meeting, but some committee members dissented, opposing the implied easing bias contained in the statement. Chair Powell, in his press conference, noted that a number of members have become more concerned over the inflation outlook and the possible need for a Fed response.

Nominal personal income posted a solid 0.6% m/m (3.7% y/y) increase in March following an upwardly revised unchanged reading in February (previously -0.1% m/m). The March increase was twice the 0.3% monthly gain expected by the Action Economics Forecast Survey. However, after adjusting for inflation, real personal income slipped 0.1% m/m in March on top of a 0.4% m/m decline in February.

Employee compensation continued to be a major driver of personal income in March. It rose 0.4% m/m (4.1% y/y) in March after a 0.2% monthly increase in February. In March, proprietors’ income jumped 2.8%. This outsized increase reflected payments to farmers from the federal government’s Farmer Bridge Assistance Program. Rental income rose a solid 0.7% m/m, the same gain as in February. Income from financial assets increased 0.4% m/m following a 0.9% m/m decline in February. Personal current transfer payments edged up 0.1% m/m versus a 0.3% m/m decline in February.

Nominal consumption expenditures jumped 0.9% m/m (5.7% y/y) in March following an upwardly revised 0.6% monthly gain in February (previously +0.5% m/m). Spending on goods rose 2.0% m/m (4.5% y/y) while spending on services increased 0.4% m/m (6.3% y/y). As for overall inflation, the surge in energy prices also accounted for a large portion of the March gain in nominal spending. After adjusting for overall inflation, real PCE rose a more modest 0.2% m/m following an upwardly revised 0.3% m/m increase in February (previously +0.1% m/m). Still, the solid gains in February and March provide a strong starting point for Q2. The March level is 1.5% at an annual rate above the Q1 average. For all of Q1, real PCE rose 1.6% q/q saar.

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

260430C.jpg

260430D.jpg

- The PCE price index jumped 0.7%, reflecting an 11.6% m/m surge in energy prices.
- The core index was up 0.3%, in line with expectations but still well above the Fed’s target.
- Personal income increased 0.6% m/m, led by a 0.4% m/m rise in compensation.
- Personal consumption jumped 0.9% m/m with a slight upward revision to February.
- However, much of the March gain in nominal consumption also reflected the jump in energy prices.
- Real consumption rose by a more modest 0.2% m/m.

Surging Energy Prices Push Up PCE Prices and Consumption in March

Kathleen Stephansen, CBE

260430A2.jpg

260430B2.jpg

Initial claims for unemployment insurance dropped by 26,000 to 189,000 in the week ending April 25, from 215,000 in the week ending April 18, revised from 214,000. The four-week average declined by 3,500 to 207,500 in the week ending April 25, from 211,000 the April 18 week, revised from 210,750. The Action Economics/Haver Analytics Survey looked for 214,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—dropped by 23,000 to 1.785 million in the week ending April 18, from 1.808 million in the week ending April 11, revised from 1.821 million. The four-week moving average declined to 1.797 million in the latest week from 1.809 million in the April 11 week. The insured unemployment rate remained at 1.2% in the week of April 11. It has remained at that level since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending April 11, the highest unemployment rates were in New Jersey (2.51%), Washington (2.25%), Massachusetts (2.21%), Rhode Island (2.10%), and California (2.06%). The lowest rates were in Florida (0.31%), Louisiana (0.32%), Arkansas, North Carolina and Mississippi (all 0.35%), Alabama (0.36%), South Dakota (0.41%) and Tennessee (0.43%). Rates in other notable states include New York (1.96%), Illinois (1.77%), Pennsylvania (1.40%), and Texas (1.04%). 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.

260430C2.jpg

260430D2.jpg

- New claims dropped by 26,000 to 189,000.
- Continuing claims declined by 23,000 to 1.785 million.
- The insured unemployment rate remained at 1.2%.

U.S. Initial Unemployment Claims dropped in the Week of April 25

260430E.jpg

**Unemployment rates are stable near all-time lows for EMU**
Unemployment rates in the European Monetary Union (EMU) continued to hover at the lowest level. The EMU all-time low unemployment rate is 6.2%, and that’s the number reported for March. There have been five of these 6.2% unemployment rates monthly in the history of the monetary union.

Unemployment rates in March saw declines in five of the 12 early reporting countries: the Netherlands, Italy, Finland, Belgium, and Austria. Over the last three months, there were net declines in the unemployment rates in four countries, while year-over-year once again four countries—though a different four—showed declines in the unemployment rate.

Unemployment rates, evaluated relative to their historic standings, have a median rank standing in their 33.6 percentile. That is the median unemployment rank among these 12 countries; it shows that the unemployment rate is in the lower one-third of its historic rank. Among the 12 early reporting countries, only three failed to have unemployment rate rankings below their 30th percentile; those three are Austria with a 71.3 percentile ranking, Finland with an 80th percentile ranking, and Luxembourg with a 98.8 percentile ranking. So, there are three countries among these 12 that have relatively high unemployment rates compared to their histories, whereas the rest of the reporters have unemployment rates below their respective 30th percentiles.

260430.jpg

**Good, but not great, labor markets**
Clearly, the labor situation is in good hands; however, at the same time, inflation runs over the top of the ECB target, and with war in the Middle East and flurrying oil prices, inflation is going to climb higher. The ECB, like the Federal Reserve, finds itself in the awkward position of not wanting to raise rates because the economy is generating growth; on the other hand, growth seems somewhat fragile. The unemployment rate is low, and inflation has been overshooting, so the central bank is in a difficult position.

**Are central banks awakening from their slumber?**
Despite the good news on the unemployment front, central banks have been wary not to raise interest rates to fend off inflation. Inflation can really be described as having been moved around by financial crises and shocks going back to the great financial crisis. That shock, coupled with the losses that it created, left a legacy of inflation discipline for a very long run, basically, right into the COVID-created recession. COVID weakened economies globally as they were shut down by government policies and then inflation spurted as result of stimulative monetary action and fiscal excess. After that experience, central banks kept stimulative policies on the books and tried to coax growth out of a wounded economy and maintain low unemployment rates, while tolerating inflation that was excessive relative to their targets, but that did not accelerate and did decline slowly—at least for a while. As a result, there's now a legacy of overshooting inflation and more question marks about central banks and their backbone than central bankers want to admit as inflation rises, and as they continue to watch and postpone acting.

**ECB met and declared watchful waiting—not policy action**
At the recent meeting, the ECB policy statement admitted that “Longer-term inflation expectations remain well anchored, although inflation expectations over shorter horizons have moved up significantly.” They are following the model used in the U.S. to contend that long-term inflation expectations are still firmly anchored while they are only slipping away for the short term—a year ahead or so. However, to its credit, the ECB does refer to expectations having moved up significantly in the near term. This is something policy must be wary of, and it also must be wary that long-term expectations may have been damaged as well.

In her press conference, Christine Lagarde noted that the forward guidance from the ECB has several different elements: “There are sort of three anchors of what our reaction function is. So first of all, to remind you: target is 2% medium term, number one. Number two: symmetry. We discussed that today and we reaffirmed it. Number three: our reaction will depend on the type of deviation from target that we observe. Is it large and sustainable?”

"The increase in energy prices will keep inflation well above 2% in the near term. ⁠As the period of high energy prices extends, the likely impact on broader inflation through indirect and second-round effects intensifies. We will therefore closely monitor the size and persistence of the energy price surge, and how it feeds through to price and wage setting, inflation expectations and overall economic dynamics." (Source [here](https://www.reuters.com/business/finance/lagarde-comments-ecb-press-conference-2026-04-30/)).

**The road they kick the can down is getting narrower**
So, we are in store for more watchful waiting. Central bankers can feel that the flexibility is closing in on them. There's been a long period in which post financial crisis and post-COVID events helped to keep inflation under control, but now we're getting into a situation where it may be harder to keep control of inflation, especially since central bank credibility has been eroded by a long period of target misses. Two wars are in progress, and fiscal excess is the order of the day. So why not wait longer?

**No eager-beaver rate hikers**
No central bank seems eager to undertake this new challenge; however, they seem to be circling around the policy change and preparing to do something they haven't done in a long time, which would be to raise interest rates. Last time, in the wake of COVID, the central banks raised interest rates they waited too long to hike them, calling the situation of inflation temporary or transitory. Once again, the central banks see the oil price shock as something that is temporary; however, it's also severe, and while it's temporary, it could turn out to be ‘temporary’ but fairly long-lasting, making it harder to ignore or for a central bank that plans to ‘look through.’

**Some act, some talk, some just look...**
As I noted in the [report on money supplies](https://www.haver.com/articles/globally-money-supplies-accelerate-no-problemo) yesterday, the current practice of trying to look through this supply shock is creating an overshoot of money supply as we have money supply accelerations brewing in the U.S., the U.K., and the European Monetary Union. However, one of the rules from the 1970s was to not accommodate an oil price shock. Unfortunately, the practice of ‘looking through’ a supply shock—which means holding interest rates steady—is at the same time encouraging acceleration in the money supply, which looks accommodative to me. I don't see any evidence that central bankers have recognized the contradiction implied by these policies; it's something we should keep an eye on.