Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803a.jpg" align="right" border="0" height="265" width="353">Though
overall activity declined again last month, the recession in the
factory sector continued to moderate, according to The National
Association of Purchasing Management. Its July composite index rose to
48.9 from an unrevised June reading of 44.8 and reached it's highest
level since August of last year. The August figure was up from the low
of 32.9 hit last December. (Any reading below the break-even point of
50 suggests declining activity.) The July figure about matched
Consensus expectations. The ISM data is available in Haver's USECON
database. Improvement in the components of the overall
June ISM index again was broad-based. The production component surged
to 57.9, up from the low of 26.3 in December, and was at its highest
since June of 2007. During the last ten years there has been an 84%
correlation between the level of the production component of the
composite index and the three-month growth in factory sector industrial
production. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803b.jpg" align="right" border="0" height="265" width="353">
It is appropriate to correlate the ISM index level
with factory sector output growth because the ISM
index is a diffusion index. It measures growth by using all of the
positive changes in activity added to one half of the zero change in
activity measures.· The new orders figure also jumped sharply
to the highest level in nearly two years. At 55.3 it was up from the
December low of 23.1. Suggesting some stabilization in the recessions
abroad was a modest rise in the export order index to 50.5 versus the
December low of 35.5. During the last ten years there has been a 53%
correlation between the index and the q/q change in real exports of
goods in the GDP accounts. Factory sector improvement also was
indicated by a rise in the employment index. The jump to 45.6 was to
its highest level since last August and that was up from the February
low of 26.1. During the last ten years there has been a 90% correlation
between the index level and the three-month change in manufacturing
payrolls.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090803c.jpg" align="right" border="0" height="265" width="353">
The rate of inventory destocking picked finally may have
stabilized as indicated by a modest rise in the inventory index to
33.5. It still was near the lowest level since 1982. That improvement
brought with it another decline in the speed of supplier deliveries. At
52.0, the vendor performance index rose for the fourth consecutive
month to its highest level in one year. The separate index of prices
paid again rose with improved factory sector activity levels. At 55.0,
the reading above the break-even level of 50 was its highest since last
August and it's up from the December low of 18.0. During the last
twenty years there has been a 79% correlation between the price index
and the three-month change in the PPI for intermediate goods. 
Below The Line: Estimates of Negative Equity Among Nonprime Mortgage
Borrowers from the Federal Reserve Bank of New York can be
found <a href="http://www.newyorkfed.org/research/epr/09v15n1/0907haug.pdf">
here</a>.&nbsp;
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">June '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 Index</td>
<td>48.9</td>
<td>44.8</td>
<td>49.5</td>
<td>45.5</td>
<td>51.1</td>
<td>53.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>55.3</td>
<td>49.2</td>
<td>44.9</td>
<td>42.1</td>
<td>54.3</td>
<td>55.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>45.6</td>
<td>40.7</td>
<td>51.0</td>
<td>43.2</td>
<td>50.5</td>
<td>51.7</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>55.0</td>
<td>50.0</td>
<td>88.5</td>
<td>66.5</td>
<td>64.6</td>
<td>65.0</td>
</tr>
</tbody>
</table>
</body></html>

Though overall activity declined again last month, the recession in the factory sector continued to moderate, according to The National Association of Purchasing Management. Its July composite index rose to 48.9 from an unrevised June [...]

ISM Factory Sector Index Reaches Its Highest Level In Nearly One Year

ISM Factory Sector Index ReachesIts Highest Level In Nearly One Year

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731e.jpg" width="353">
Employment compensation remained sluggish in Q2, although it picked up slightly. The total employment cost index rose 0.4%, following Q1&#39;s 0.3% and also a bit better than expectations for 0.3%. However, the improvement came in state and local government workers, who saw a 1.0% rise compared with 0.8% in Q1; private industry workers&#39; compensation had a second consecutive record-small 0.2% increase. On a year-to-year basis, the total slower more, with a rise of just 1.8% from 2.1% in Q1.
Wage and salary growth also ticked up from 0.3% in Q1 to 0.4% in Q2. As with total compensation, the &quot;gain&quot; occurred among state and local governments, which went from 0.7% to 1.0%. Private sector workers got a slim 0.2% raise, the same as the quarter before.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731f.jpg" width="353">
These gains for state and local governments are interesting. Both major categories had a marked acceleration in wages. Public administration went from 0.8% in Q1 to 1.2% in Q2, and education and health services from 0.5% to 0.9%. The public administration number is the strongest since Q4 2006, while education and health is marginally more than the recent trends. In light of recent budget pressures in that sector, these labor cost increases would seem to be unsustainable.
Total benefit costs for all civilian workers slowed to a 0.3% increase in Q2 from 0.5% in Q1. This produced a 1.8% year-to-year increase; it is the lowest since mid-1997, but not worse than that period. The associated non-published information on health benefit costs showed a 4.4% rise in the latest 12 months, about in line with the trends of the last two or three years.
The employment cost index figures are available in Haver&#39;s USECON database.

<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/@EB/@EB08/@EB08.HTM">ECI - Private Industry Workers</a> (%)</th>
<th scope="col">2Q &#39;09</th>
<th scope="col">1Q &#39;09</th>
<th scope="col">4Q &#39;08</th>
<th scope="col">2Q 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">Compensation</td>
<td>0.2</td>
<td>0.2</td>
<td>0.5</td>
<td>1.5</td>
<td>2.8</td>
<td>3.1</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.2</td>
<td>0.2</td>
<td>0.5</td>
<td>1.5</td>
<td>3.0</td>
<td>3.4</td>
<td>&nbsp;2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.2</td>
<td>0.2</td>
<td>0.4</td>
<td>1.3</td>
<td>2.6</td>
<td>2.4</td>
<td>2.9</td>
</tr>
</tbody>
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Employment compensation remained sluggish in Q2, although it picked up slightly. The total employment cost index rose 0.4%, following Q1's 0.3% and also a bit better than expectations for 0.3%. However, the improvement came in state [...]

U.S. Employment Cost Index Remains Weak, But State & Local Government Workers See Some Pickup

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731d.jpg" align="left" border="0">
Inflation remains under control in the EMU region in July.
Despite ECB concerns about inflation and German and other concerns
about the degree of stimulus money supply growth remains very tepid in
the EMU region and inflation continues to drop. In July the FLASH HICP
(a figure for which there are no details available) fell by 0.2%.
Overall inflation on this measure is a negative 0.6% over 12-months and
is running at a pace of zero over three months. 
 

HICP inflation has fallen in two of the last three months in
Germany. German inflation is down by 0.7% over 12-months. Inflation
even fell in Italy in July and prices in Italy are falling over
12-months as well. 
 

On balance the news from Europe is quite good on the inflation
front. Japan also reported out a decline in CPI prices. For Japan it
was June inflation falling by 1.7% Yr/Yr. 
 

Growth: both sides of the pond 
The US GDP report reverberated with signs that the slowdown is abating
as US exports cut the rate of descent and most US GDP components cut
their rate of descent as well. US GDP dropped at just a 1% annual rate,
making positive growth in Q3 a real possibility. The fact that nearly
all GDP components in the US cut their pace of decline is a good sign.
The fact that inflation remains under control throughout the global
economy is another good sign. The data from the EU Commission yesterday
reminded us that although &#8216;things&#8217; are improving the diffusion readings
on growth by sector show that that contraction is overwhelmingly the
name of the game across Europe. The US alone looks poised to break the
growth barrier any minute. 
 

Growth, inflation and central banks 
Today is a day when we are getting some of the news we have been
waiting on for a long time. It is still not clear how much of an
inflation threat we have when the US economy turns around. For now the
growth turnaround appears to be nearly at hand. Inflation appears to
still be well under wraps. It seems that the world&#8217;s central banks are
in a good a position to look at what they have done and to make the
needed adjustments without creating one sort of chaos or another. But
you never can tell until they have done something. The one fly in the
ointment is the still large external imbalances and the behavior of
exchange rates. Everyone seems to want a weak currency and
mathematically it just is not possible. This will be the market to keep
close watch on as things begin to improve. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th colspan="8" scope="col" class="firstcol">Trends
in EMU HICP; Flash Index</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>May-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU-13</td>
<td>-0.2%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.0%</td>
<td>1.0%</td>
<td>0.9%</td>
<td>1.3%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>#N/A</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.8%</td>
<td>1.1%</td>
<td>-1.5%</td>
<td>5.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.2%</td>
<td>1.2%</td>
<td>1.9%</td>
<td>2.5%</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">HICP</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>-0.4%</td>
<td>0.5%</td>
<td>-0.2%</td>
<td>-0.4%</td>
<td>0.0%</td>
<td>-0.7%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>-0.6%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>-1.1%</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>4.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>1.0%</td>
<td>-0.5%</td>
<td>-1.0%</td>
<td>5.0%</td>
</tr>
<tr class="even">
<td class="firstcol">Core excl FE&amp;A</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>#N/A</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>1.5%</td>
<td>1.3%</td>
<td>1.2%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>0.9%</td>
<td>1.6%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>3.4%</td>
</tr>
<tr>
<td colspan="4">Blue shaded area data trail by one
month</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body></html>

Inflation remains under control in the EMU region in July. Despite ECB concerns about inflation and German and other concerns about the degree of stimulus money supply growth remains very tepid in the EMU region and inflation [...]

EMU Inflation Rate Moves Lower

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731a.jpg" align="right" border="0" height="265" width="353">The
Commerce
Department indicated that real GDP declined last quarter at a 1.0%
annual rate, indicating a slowing in the U.S. recession. The diminution
in the rate of GDP decline versus the prior two quarters was due to a
reduced rate of inventory decumulation and a smaller shortfall in
domestic sales. The 2Q reading compares to Consensus expectations for a
1.5% decline. Revisions to past data, nonetheless, indicate a greater
decline in GDP for all of the current recession. It now amounts to a
3.7% drop since the official peak in 4Q '07. Also, comprehensive
revision of the National Income Accounts, the first since 2003,
incorporate some restructuring of PCE categories and a new impact of
natural disasters. In addition there are new input-output tables and
re-indexing to 2005=100.

Though its magnitude
diminished somewhat last quarter to 0.8 percentage points, the
reduction of unwanted inventories has been a major force behind this
recession. Three factors are behind the large size: 1) The size of the
shortfall in final sales, 2) No inclination to hold inventories due to
rising prices and 3) Tighter inventory management systems. The negative
contribution from inventories this recession rivals the
early-1980s.&nbsp;
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731b.jpg" align="right" border="0" height="265" width="353">
Improvement in the foreign
trade sector helped the domestic economy last quarter, but for reasons
that emphasize the weakness in global activity. Improvement in real net
exports added 1.4 percentage points to 2Q GDP growth after a 2.6 point
addition during 1Q. That addition occurred because a 7.0% (-15.7% y/y)
decline in exports was accompanied by a 15.1% (-18.6% y/y) decline in
imports.&nbsp;Credit storm sinking global trade
from the Federal Reserve Bank of Atlanta is available <a href="http://www.frbatlanta.org/invoke.cfm?objectid=440A110B-5056-9F12-1273B38469A2401E&amp;method=display_body">here</a>.
Domestic demand remained under pressure last quarter, but
the negative forces eased somewhat from earlier in the recession. After
having declined over 3% in each of the final quarters of 2008, real
personal consumption expenditures last quarter slipped at a 1.2% annual
rate (-1.8% y/y), following a 0.6% 1Q decline. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731c.jpg" align="right" border="0" height="265" width="353">
The auto sector
exemplifies this moderation in decline. Spending on motor vehicles fell
at an 11.9% rate in 2Q after a 6.7% 1Q gain, compared to quarterly
declines between 20% and 40% last year. Weak corporate profits,
however, continue to prompt weakness in business fixed investment which
fell last quarter at an 8.9% rate (-19.5% y/y). These figures, however,
compare favorably to the severely depressed activity in the housing
sector. Residential investment fell last quarter at a 29.3% annual rate
(-27.1% y/y) which was every bit like the declines since late-2006.

Finally, improved spending by the government sector
helped to offset weakness in private sector spending. A 5.6% 2Q
increase (2.2% y/y) was the strongest since 2003. It was fueled by a
10.9% (6.4% y/y) gain in Federal spending which reflected a 13.3 (3.2%
y/y) rise in defense expenditures. Even spending by states and
localities rose for the first time in three quarters (-0.3%
y/y).Pricing
power has suffered as a result of economic weakness. The
chained GDP price deflator rose at just a 0.2% annual rate last quarter
and the uptick pulled the y/y gain down to 1.6% which was its weakest
since 2002. Expectations had been for a 1.0% quarterly rise. Domestic
prices, however, were even weaker. The 0.7% uptick followed a sharp 1Q
decline and pulled the y/y change to a negative 0.3%. The PCE price
index recovered all of a 1Q decline but the y/y decline of 0.2% is the
weakest price performance since 1950. The residential investment chain
price index made up half of the 1Q decline and remained down a
near-record 4.0% y/y. The weakness in business spending caused the
nonresidential investment price index to fall for the second straight
quarter (+0.9% y/y). The U.S. National Income &amp; Product
Account data is available in Haver's USECON and the
USNA databases.
<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/@E7/@E701/@E701.HTM">Chained
2005$, % AR</a></th>
<th scope="col">2Q '09 (Advance)</th>
<th scope="col">1Q '09 (Final)</th>
<th scope="col">4Q '08</th>
<th scope="col">2Q 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">GDP</td>
<td>-1.0</td>
<td>-6.4</td>
<td>-5.4</td>
<td>-3.9</td>
<td>0.4</td>
<td>2.1</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory
Effect</td>
<td>-0.8</td>
<td>-2.4</td>
<td>-0.6</td>
<td>-0.9</td>
<td>-0.4</td>
<td>-0.4</td>
<td>0.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-0.2</td>
<td>-4.1</td>
<td>-4.7</td>
<td>-3.0</td>
<td>0.8</td>
<td>2.5</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Foreign Trade Effect</td>
<td>1.4</td>
<td>2.6</td>
<td>-0.1</td>
<td>0.9</td>
<td>-1.2</td>
<td>0.8</td>
<td>0.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>-1.5</td>
<td>-6.4</td>
<td>-4.9</td>
<td>-3.9</td>
<td>-0.4</td>
<td>1.7</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>0.2</td>
<td>1.9</td>
<td>0.1</td>
<td>1.5</td>
<td>2.1</td>
<td>2.9</td>
<td>3.3</td>
</tr>
</tbody>
</table>

</body></html>

The Commerce Department indicated that real GDP declined last quarter at a 1.0% annual rate, indicating a slowing in the U.S. recession. The diminution in the rate of GDP decline versus the prior two quarters was due to a reduced rate [...]

Rate of U.S. GDP Decline Slows in Q2 2009

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731a.jpg" align="right" border="0" height="265" width="353">The
Commerce
Department indicated that real GDP declined last quarter at a 1.0%
annual rate, indicating a slowing in the U.S. recession. The diminution
in the rate of GDP decline versus the prior two quarters was due to a
reduced rate of inventory decumulation and a smaller shortfall in
domestic sales. The 2Q reading compares to Consensus expectations for a
1.5% decline. Revisions to past data, nonetheless, indicate a greater
decline in GDP for all of the current recession. It now amounts to a
3.7% drop since the official peak in 4Q '07. Also, comprehensive
revision of the National Income Accounts, the first since 2003,
incorporate some restructuring of PCE categories and a new impact of
natural disasters. In addition there are new input-output tables and
re-indexing to 2005=100.

Though its magnitude
diminished somewhat last quarter to 0.8 percentage points, the
reduction of unwanted inventories has been a major force behind this
recession. Three factors are behind the large size: 1) The size of the
shortfall in final sales, 2) No inclination to hold inventories due to
rising prices and 3) Tighter inventory management systems. The negative
contribution from inventories this recession rivals the
early-1980s.&nbsp;
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731b.jpg" align="right" border="0" height="265" width="353">
Improvement in the foreign
trade sector helped the domestic economy last quarter, but for reasons
that emphasize the weakness in global activity. Improvement in real net
exports added 1.4 percentage points to 2Q GDP growth after a 2.6 point
addition during 1Q. That addition occurred because a 7.0% (-15.7% y/y)
decline in exports was accompanied by a 15.1% (-18.6% y/y) decline in
imports.&nbsp;Credit storm sinking global trade
from the Federal Reserve Bank of Atlanta is available <a href="http://www.frbatlanta.org/invoke.cfm?objectid=440A110B-5056-9F12-1273B38469A2401E&amp;method=display_body">here</a>.
Domestic demand remained under pressure last quarter, but
the negative forces eased somewhat from earlier in the recession. After
having declined over 3% in each of the final quarters of 2008, real
personal consumption expenditures last quarter slipped at a 1.2% annual
rate (-1.8% y/y), following a 0.6% 1Q decline. <img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731c.jpg" align="right" border="0" height="265" width="353">
The auto sector
exemplifies this moderation in decline. Spending on motor vehicles fell
at an 11.9% rate in 2Q after a 6.7% 1Q gain, compared to quarterly
declines between 20% and 40% last year. Weak corporate profits,
however, continue to prompt weakness in business fixed investment which
fell last quarter at an 8.9% rate (-19.5% y/y). These figures, however,
compare favorably to the severely depressed activity in the housing
sector. Residential investment fell last quarter at a 29.3% annual rate
(-27.1% y/y) which was every bit like the declines since late-2006.

Finally, improved spending by the government sector
helped to offset weakness in private sector spending. A 5.6% 2Q
increase (2.2% y/y) was the strongest since 2003. It was fueled by a
10.9% (6.4% y/y) gain in Federal spending which reflected a 13.3 (3.2%
y/y) rise in defense expenditures. Even spending by states and
localities rose for the first time in three quarters (-0.3%
y/y).Pricing
power has suffered as a result of economic weakness. The
chained GDP price deflator rose at just a 0.2% annual rate last quarter
and the uptick pulled the y/y gain down to 1.6% which was its weakest
since 2002. Expectations had been for a 1.0% quarterly rise. Domestic
prices, however, were even weaker. The 0.7% uptick followed a sharp 1Q
decline and pulled the y/y change to a negative 0.3%. The PCE price
index recovered all of a 1Q decline but the y/y decline of 0.2% is the
weakest price performance since 1950. The residential investment chain
price index made up half of the 1Q decline and remained down a
near-record 4.0% y/y. The weakness in business spending caused the
nonresidential investment price index to fall for the second straight
quarter (+0.9% y/y).
 The U.S. National Income &amp; Product
Account data is available in Haver's USECON and the
USNA databases.
<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/@E7/@E701/@E701.HTM">Chained
2005$, % AR</a></th>
<th scope="col">2Q '09 (Advance)</th>
<th scope="col">1Q '09 (Final)</th>
<th scope="col">4Q '08</th>
<th scope="col">2Q 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">GDP</td>
<td>-1.0</td>
<td>-6.4</td>
<td>-5.4</td>
<td>-3.9</td>
<td>0.4</td>
<td>2.1</td>
<td>2.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory
Effect</td>
<td>-0.8</td>
<td>-2.4</td>
<td>-0.6</td>
<td>-0.9</td>
<td>-0.4</td>
<td>-0.4</td>
<td>0.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-0.2</td>
<td>-4.1</td>
<td>-4.7</td>
<td>-3.0</td>
<td>0.8</td>
<td>2.5</td>
<td>2.6</td>
</tr>
<tr>
<td class="firstcol">Foreign Trade Effect</td>
<td>1.4</td>
<td>2.6</td>
<td>-0.1</td>
<td>0.9</td>
<td>-1.2</td>
<td>0.8</td>
<td>0.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>-1.5</td>
<td>-6.4</td>
<td>-4.9</td>
<td>-3.9</td>
<td>-0.4</td>
<td>1.7</td>
<td>2.5</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>0.2</td>
<td>1.9</td>
<td>0.1</td>
<td>1.5</td>
<td>2.1</td>
<td>2.9</td>
<td>3.3</td>
</tr>
</tbody>
</table>

EMU Inflation Rate Moves
Lower&nbsp; 
by <a href="/comment/Brusca.html">Robert
Brusca</a> July 31, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731d.jpg" align="left" border="0">
Inflation remains under control in the EMU region in July.
Despite ECB concerns about inflation and German and other concerns
about the degree of stimulus money supply growth remains very tepid in
the EMU region and inflation continues to drop. In July the FLASH HICP
(a figure for which there are no details available) fell by 0.2%.
Overall inflation on this measure is a negative 0.6% over 12-months and
is running at a pace of zero over three months. 
 

HICP inflation has fallen in two of the last three months in
Germany. German inflation is down by 0.7% over 12-months. Inflation
even fell in Italy in July and prices in Italy are falling over
12-months as well. 
 

On balance the news from Europe is quite good on the inflation
front. Japan also reported out a decline in CPI prices. For Japan it
was June inflation falling by 1.7% Yr/Yr. 
 

Growth: both sides of the pond 
The US GDP report reverberated with signs that the slowdown is abating
as US exports cut the rate of descent and most US GDP components cut
their rate of descent as well. US GDP dropped at just a 1% annual rate,
making positive growth in Q3 a real possibility. The fact that nearly
all GDP components in the US cut their pace of decline is a good sign.
The fact that inflation remains under control throughout the global
economy is another good sign. The data from the EU Commission yesterday
reminded us that although &#8216;things&#8217; are improving the diffusion readings
on growth by sector show that that contraction is overwhelmingly the
name of the game across Europe. The US alone looks poised to break the
growth barrier any minute. 
 

Growth, inflation and central banks 
Today is a day when we are getting some of the news we have been
waiting on for a long time. It is still not clear how much of an
inflation threat we have when the US economy turns around. For now the
growth turnaround appears to be nearly at hand. Inflation appears to
still be well under wraps. It seems that the world&#8217;s central banks are
in a good a position to look at what they have done and to make the
needed adjustments without creating one sort of chaos or another. But
you never can tell until they have done something. The one fly in the
ointment is the still large external imbalances and the behavior of
exchange rates. Everyone seems to want a weak currency and
mathematically it just is not possible. This will be the market to keep
close watch on as things begin to improve. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th colspan="8" scope="col" class="firstcol">Trends
in EMU HICP; Flash Index</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>May-09</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="odd">
<td class="firstcol">EMU-13</td>
<td>-0.2%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.0%</td>
<td>1.0%</td>
<td>0.9%</td>
<td>1.3%</td>
<td>2.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods</td>
<td>#N/A</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.8%</td>
<td>1.1%</td>
<td>-1.5%</td>
<td>5.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.1%</td>
<td>2.2%</td>
<td>1.2%</td>
<td>1.9%</td>
<td>2.5%</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">HICP</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>-0.4%</td>
<td>0.5%</td>
<td>-0.2%</td>
<td>-0.4%</td>
<td>0.0%</td>
<td>-0.7%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>-0.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>-0.6%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>-1.1%</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>4.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.4%</td>
<td>-0.1%</td>
<td>1.0%</td>
<td>-0.5%</td>
<td>-1.0%</td>
<td>5.0%</td>
</tr>
<tr class="even">
<td class="firstcol">Core excl FE&amp;A</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>#N/A</td>
<td>0.2%</td>
<td>-0.1%</td>
<td>1.5%</td>
<td>1.3%</td>
<td>1.2%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>0.9%</td>
<td>1.6%</td>
<td>3.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>-0.3%</td>
<td>0.8%</td>
<td>3.4%</td>
</tr>
<tr>
<td colspan="4">Blue shaded area data trail by one
month</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
U.S. Employment Cost Index Remains
Weak, But State &amp; Local Government Workers See Some Pickup 
by <a href="/comment/Stone.html">Carol
Stone</a> July 31, 2009


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731e.jpg" align="left" border="0" height="265" width="353">
Employment compensation remained sluggish in Q2, although it
picked up slightly. The total employment cost index rose 0.4%,
following Q1's 0.3% and also a bit better than expectations for 0.3%.
However, the improvement came in state and local government workers,
who saw a 1.0% rise compared with 0.8% in Q1; private industry workers'
compensation had a second consecutive record-small 0.2% increase. On a
year-to-year basis, the total slower more, with a rise of just 1.8%
from 2.1% in Q1.
Wage and salary growth also ticked up from 0.3% in Q1 to 0.4%
in Q2. As with total compensation, the "gain" occurred among state and
local governments, which went from 0.7% to 1.0%. Private sector workers
got a slim 0.2% raise, the same as the quarter before.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090731f.jpg" align="right" border="0" height="265" width="353">
These gains for state and local governments are interesting.
Both major categories had a marked acceleration in wages. Public
administration went from 0.8% in Q1 to 1.2% in Q2, and education and
health services from 0.5% to 0.9%. The public administration number is
the strongest since Q4 2006, while education and health is marginally
more than the recent trends. In light of recent budget pressures in
that sector, these labor cost increases would seem to be unsustainable.
Total benefit costs for all civilian workers slowed to a 0.3%
increase in Q2 from 0.5% in Q1. This produced a 1.8% year-to-year
increase; it is the lowest since mid-1997, but not worse than that
period. The associated non-published information on health benefit
costs showed a 4.4% rise in the latest 12 months, about in line with
the trends of the last two or three years.
The employment cost index figures are available in Haver's
USECON database.

<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/@EB/@EB08/@EB08.HTM">ECI
- Private Industry Workers</a> (%)</th>
<th scope="col">2Q '09</th>
<th scope="col">1Q '09</th>
<th scope="col">4Q '08</th>
<th scope="col">2Q 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">Compensation</td>
<td>0.2</td>
<td>0.2</td>
<td>0.5</td>
<td>1.5</td>
<td>2.8</td>
<td>3.1</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp;
Salaries</td>
<td>0.2</td>
<td>0.2</td>
<td>0.5</td>
<td>1.5</td>
<td>3.0</td>
<td>3.4</td>
<td>&nbsp;2.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.2</td>
<td>0.2</td>
<td>0.4</td>
<td>1.3</td>
<td>2.6</td>
<td>2.4</td>
<td>2.9</td>
</tr>
</tbody>
</table>
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Rate of U.S. GDP Decline Slows inQ2 2009

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090730c.jpg" align="left" border="0" height="265" width="353">BETTER:
The EU commission indices for EU and EMU continue to show substantial
progress. The EU index rose to 75.0 from 71.1 while the EU index rose
to 76.0 from 73.2. The better showing in the EMU rise implies a better
rise in the month by non EMU members of EU. On a mo/mo basis the UK
index did rise sharply by 7.3% compared to Spain&#8217;s 5.3%, the best among
large EMU nations. 
&#8230;but still low: Overall the EU and EMU indices are standing the bottom
26% to 21% of their respective ranges. That is still a very low
reading. But the UK has bounced some 31% from its lowest level on this
overall index and Italy has risen by 25%. The least rebound by a major
EU/EMU economy is the 11.9% rises from its low reading posted by
Germany. Germany also has the lowest ranked sentiment index among large
EU/EMU economies (even though it is third highest by raw score).
 INDUSTRY: EU industry readings are only
in the
19th percentile of their range like services. But unfortunately the
worst reading on its components are from the selling prices expectation
that is in the bottom 7% of its historic range and from orders that are
in the bottom 3% of their range (both overall orders and export
orders). The production trend is in the 23rd percentile of its range
and production expectations are in the 35th percentile or their range -
despite the weaker reading in orders. Employment is a sort of neutral
17.8 percentile reading which is the same as for EMU industry
confidence overall. So we can&#8217;t say for industry that the problem is
jobs, it&#8217;s just demand.&nbsp;

SERVICE: Services Confidence in EMU stands
at it 12.1% percentile lower than for EU overall (19.0%). The weakest
reading for services is from current employment which is as low a
reading as it ever has seen. Current demand is the next lowest in the
bottom 10 percentile of its range. The business climate in services
ranks in the 12th percentile overall. Expected demand and expected
employment are more upbeat but still in only the 15th percentile of
their respective ranges. Despite some monthly improvement employment in
this sector is weak and expectations while improving are still very
weak. The weakest service sector by the relative measure of the
position of the index in its range is France followed closely by Spain;
the strongest is the UK.

RETAILING: Retailing ranks in the 28th
percentile of its range in EMU, making it relatively less strong than
in EU (35th percentile). The present situation is rated as in the 26th
percentile; the expected business situation is at a higher raw reading
but a lower position in its range at the 23rd range percentile.
Employment expectations are a weak 8% reading. The Italy has the
highest retail range reading in the 46th range percentile compared to
the UK in the 42nd percentile while Spain is at a 28 percentile
reading, worst reading for a large EMU country.&nbsp;

CONSUMER CONFIDENCE: Consumer confidence
ranks about the same as the retailing reading, in the 29th percentile
of its EMU range (below the 32.4 percentile for EU). Spain and Italy
have the highest relative consumer rankings at or above a 50 percentile
range reading; the UK reading is at the 42nd percentile. Germany stands
the lowest among large EMU nations at the 16th percentile. EU consumers
rate the past 12-months as in the bottom 5% of all readings
historically. While the next 12-months reading posted a much, much
higher 48th percentile reading.&nbsp;

SUMMING UP: The consumer confidence results
epitomize the EU/EMU results. Current conditions have improved from
their worst. Yet the quantitative measures that look forward are not
yet very strong. Still expectations for the future are advancing
strongly in Europe. There seems to be a much more &#8216;hard to pin down&#8217;
blanket optimism about the future that is in existence.&nbsp; 
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol" colspan="13">EU
Sectors and Country level Overall Sentiment</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EU</td>
<td>Jul-09</td>
<td>Jun-09</td>
<td>May-09</td>
<td>Apr-09</td>
<td>Percentile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
<td>By Queue rank%</td>
<td>R-SQ 
w/Overall</td>
</tr>
<tr>
<td class="firstcol">Overall</td>
<td>75</td>
<td>71.1</td>
<td>67.9</td>
<td>64</td>
<td>26.3</td>
<td>242</td>
<td>116</td>
<td>60</td>
<td>56</td>
<td>100</td>
<td>3.6%</td>
<td>1.00</td>
</tr>
<tr>
<td class="firstcol">Industrial</td>
<td>-30</td>
<td>-33</td>
<td>-34</td>
<td>-36</td>
<td>19.6</td>
<td>244</td>
<td>7</td>
<td>-39</td>
<td>46</td>
<td>-7</td>
<td>2.8%</td>
<td>0.90</td>
</tr>
<tr>
<td class="firstcol">Consumer Confid</td>
<td>-21</td>
<td>-23</td>
<td>-26</td>
<td>-28</td>
<td>32.4</td>
<td>224</td>
<td>2</td>
<td>-32</td>
<td>34</td>
<td>-11</td>
<td>10.8%</td>
<td>0.86</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>-14</td>
<td>-17</td>
<td>-17</td>
<td>-21</td>
<td>35.5</td>
<td>232</td>
<td>6</td>
<td>-25</td>
<td>31</td>
<td>-5</td>
<td>7.6%</td>
<td>0.66</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>-37</td>
<td>-37</td>
<td>-39</td>
<td>-38</td>
<td>10.9</td>
<td>232</td>
<td>4</td>
<td>-42</td>
<td>46</td>
<td>-16</td>
<td>7.6%</td>
<td>0.47</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>-19</td>
<td>-23</td>
<td>-26</td>
<td>-30</td>
<td>19.0</td>
<td>242</td>
<td>32</td>
<td>-31</td>
<td>63</td>
<td>11</td>
<td>3.6%</td>
<td>0.75</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>% m/m</td>
<td>&nbsp;</td>
<td>Jul-09</td>
<td colspan="2">Based on Level</td>
<td colspan="4">Level</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">EMU</td>
<td>3.8%</td>
<td>4.3%</td>
<td>4.3%</td>
<td>76.0</td>
<td>21.7</td>
<td>236</td>
<td>117</td>
<td>65</td>
<td>53</td>
<td>100</td>
<td>6.0%</td>
<td>0.95</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>4.1%</td>
<td>4.3%</td>
<td>1.5%</td>
<td>80.8</td>
<td>17.6</td>
<td>235</td>
<td>121</td>
<td>72</td>
<td>49</td>
<td>100</td>
<td>6.4%</td>
<td>0.70</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.4%</td>
<td>4.4%</td>
<td>3.9%</td>
<td>81.2</td>
<td>19.8</td>
<td>236</td>
<td>119</td>
<td>72</td>
<td>47</td>
<td>100</td>
<td>6.0%</td>
<td>0.84</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>4.4%</td>
<td>1.4%</td>
<td>7.3%</td>
<td>83.7</td>
<td>30.1</td>
<td>228</td>
<td>122</td>
<td>67</td>
<td>55</td>
<td>100</td>
<td>9.2%</td>
<td>0.83</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>5.2%</td>
<td>2.0%</td>
<td>2.1%</td>
<td>79.0</td>
<td>24.7</td>
<td>230</td>
<td>117</td>
<td>67</td>
<td>50</td>
<td>100</td>
<td>8.4%</td>
<td>0.73</td>
</tr>
<tr>
<td class="firstcol">Memo:UK</td>
<td>7.3%</td>
<td>4.1%</td>
<td>7.8%</td>
<td>73.8</td>
<td>24.5</td>
<td>242</td>
<td>128</td>
<td>56</td>
<td>72</td>
<td>100</td>
<td>3.6%</td>
<td>0.59</td>
</tr>
<tr>
<td class="firstcol">Since April 1988</td>
<td></td>
<td></td>
<td>251</td>
<td>-Count</td>
<td>Services:</td>
<td>251</td>
<td>-Count</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td colspan="9">Sentiment is an index, sector
readings are net balance diffusion measures</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>


</body></html>

BETTER: The EU commission indices for EU and EMU continue to show substantial progress. The EU index rose to 75.0 from 71.1 while the EU index rose to 76.0 from 73.2. The better showing in the EMU rise implies a better rise in the [...]

EMU Recovery Continues

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090730a.jpg" width="353">
The rate of improvement in the job market again appears to have slowed. The latest figures from the Labor Department indicate that initial claims rose for the second consecutive week after sharp declines early in the month. The latest increase to 584,000 from an upwardly revised level during the prior period returned claims to near where they started July. Nevertheless, so far this month the 559,000 average level of claims is down from the 616,000 averaged during June and from the March high of 674,000. The four-week average of claims, which smoothes out some of the volatility in the weekly numbers, fell to 559,000 which was its lowest level since late-January. Claims of 580,000 had been expected during the latest week.
The Labor Department indicated that the largest increases in initial claims for the week ending July 18 were in California (+4,290, 41.1% y/y), Michigan (+3,654, 21.0% y/y), Florida (+3,291, 41.2% y/y), Connecticut (+749, 79.1% y/y), and Indiana (+526, -0.7% y/y)), while the largest decreases were in New York (-22,052, 46.2% y/y), Wisconsin (-6,791, 5.5% y/y), Missouri (-6,529, 63.1% y/y), Pennsylvania (-6,420, 60.2% y/y), and Ohio (-5,062, 28.5% y/y).
The rate of labor market improvement may have slowed, but a trend improvement in conditions is clearly evident from the decline in continuing claims for unemployment insurance. They fell a modest 54,000 last week after a similar decline during the prior week. However, the average this month is down sharply from June and the weekly figure is the lowest since mid-April. The continuing claims figures lag initial claims by one week and provide an indication of workers&#39; ability to find employment. Despite the latest decline, however, the level of 6,197,000 claims still up sharply from the year ago level. The four-week average of continuing claims fell back to 6,416,250 which was the lowest since mid-May. The series dates back to 1966.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/090730b.jpg" width="353">
The insured rate of unemployment remained at 4.7% which was the lowest level since mid-April. During the last ten years, there has been a 93% correlation between the level of the insured unemployment rate and the overall rate of unemployment published by the Bureau of Labor Statistics.
The highest insured unemployment rates in the week ending July 11 were in Puerto Rico (7.3 percent), Michigan (7.2), Oregon (6.7), Pennsylvania (6.4), Nevada (6.2), Wisconsin (6.1), Connecticut (5.6), New Jersey (5.6), Arkansas (5.5), California (5.5), North Carolina (5.5), and South Carolina (5.5). The lowest rates were in Wyoming (3.0), Texas (3.1), Maine (3.3), Colorado (3.4), Maryland (3.6), Minnesota (3.9), Florida (4.4), Mississippi (4.4) and Georgia (4.6).
The unemployment insurance claims data is available in Haver&#39;s WEEKLY database and the state data is in the REGIONW database
The Fed&#39;s latest Beige Book covering regional economic conditions can be found <a href="http://www.federalreserve.gov/fomc/beigebook/2009/20090729/default.htm">here</a>.

<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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">07/25/09</th>
<th scope="col">07/18/09</th>
<th scope="col">07/11/09</th>
<th scope="col">Y/Y</th>
<th scope="col">2008</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Initial Claims</td>
<td>584</td>
<td>559</td>
<td>524</td>
<td>32.1%</td>
<td>420</td>
<td>321</td>
<td>313</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>6,197</td>
<td>6,251</td>
<td>87.3%</td>
<td>3,342</td>
<td>2,552</td>
<td>2,459</td>
</tr>
<tr class="odd">
<td class="firstcol">Insured Unemployment Rate (%)</td>
<td></td>
<td>4.7</td>
<td>4.7</td>
<td>2.4</td>
<td>2.5</td>
<td>1.9</td>
<td>1.9</td>
</tr>
</tbody>
</table>
</body>
</html>

The rate of improvement in the job market again appears to have slowed. The latest figures from the Labor Department indicate that initial claims rose for the second consecutive week after sharp declines early in the month. The latest [...]

U.S. Weekly Claims For Jobless Insurance Rise, But Falling Trend Suggests Improved Labor Market

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

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

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

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

Equity market exuberance outpacing macroeconomic data

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

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Andrew Cates

**The Global Monetary Policy Consensus**
The latest Blue Chip Financial Forecasts survey points to a notably more balanced global monetary policy outlook over the coming year. In contrast to the pronounced easing bias that dominated much of the past two years, expectations are now more symmetric, with a similar number of central banks projected to raise rates as to ease policy. Japan is seen delivering further tightening, while Canada is expected to initiate an interest rate hike in coming months. In Australia’s case, this tightening guidance was reinforced this week, with the Reserve Bank lifting its policy rate by 25 basis points. Elsewhere, and in contrast, the euro area, UK and US are expected to move in the opposite direction.

260205Z1.jpg

**US manufacturing activity**
The second chart underscores the recent improvement in US economic momentum, highlighted by an unexpected surge in the January ISM manufacturing PMI. After spending much of the past year hovering below the 50 threshold consistent with stagnation, the index jumped sharply back into expansionary territory, signalling a renewed pickup in industrial activity. This rebound has coincided with a broader run of stronger-than-anticipated US economic data, as reflected in the upswing in the Citigroup Economic Surprise Index. Together, these developments point to a US economy that continues to display notable resilience, complicating expectations of monetary easing in the near term.

260205Z2.jpg

**US Bank Lending Standards and Financial Stress** 
The next chart turns to US financial conditions, highlighting the latest readings from the Senior Loan Officer Opinion Survey. The net proportion of banks tightening lending standards on corporate loans and mortgages is now more modest by historical standards, and well below the extremes seen during past episodes of financial stress. Some easing in credit headwinds has occurred alongside relatively subdued readings on the OFR Financial Stress Index, which continues to hover below its long-run average. Together, these indicators suggest that the US financial system has continued to avoid the kind of acute stress typically associated with sharp slowdowns in credit availability—helping to underpin the recent resilience in economic activity.

260205Z3.jpg

**Semiconductor Sales**
The fourth chart highlights the renewed surge in global semiconductor sales, with momentum strengthening sharply over recent months across the Americas, China and the broader Asia-Pacific region. After the cyclical downturn in 2022–23, sales have rebounded to fresh highs, reflecting a powerful revival in demand for advanced chips and related technologies. This upswing has taken place amid intense investor preoccupation with artificial intelligence, with expectations that AI adoption will drive a sustained wave of capital spending on data centres, cloud infrastructure and high-performance computing. In contrast, semiconductor sales in Europe remain comparatively subdued, reflecting the region’s smaller footprint in high-end chip manufacturing, weaker industrial demand, and the ongoing impact of slower economic growth. While semiconductors are inherently cyclical, markets have increasingly interpreted the current rebound elsewhere as structural rather than purely cyclical—underpinned by the belief that AI represents a transformative and durable source of demand growth.

260205Z4.jpg

**Large-Scale AI Models**
The next chart illustrates the rapid proliferation of large-scale AI models globally, with newly updated data for 2025 pointing to a further sharp acceleration in development activity. The United States continues to lead by a wide margin, while China has also seen a steep rise in model deployment in recent years, underscoring the intensifying technological competition between the two economies. Growth in the UK and other regions has been more modest by comparison, highlighting the increasingly concentrated nature of AI innovation. Taken together with the surge in semiconductor sales, these trends help explain the market’s strong preoccupation with AI as a potential driver of future productivity and investment cycles—although the geographic concentration of activity also raises questions about the uneven distribution of any resulting economic gains.

260205Z5.jpg

**An AI Bubble?** 
The final chart draws on the latest Blue Chip Financial Forecasts special questions, highlighting market participants’ perceptions of the economic gains likely to be delivered by artificial intelligence. While a sizeable share of respondents still believe that financial markets may be overestimating AI’s potential benefits, an increasing proportion now judge current expectations to be broadly accurate, with only a small minority viewing the gains as underestimated. Notably, this represents a softening in scepticism compared with the survey results from last month, when concerns about excessive market optimism were more pronounced. The shift suggests a growing acceptance that AI-related investment and innovation could translate into meaningful economic impacts—though uncertainty remains high around the scale, timing and distribution of these gains.

260205Z6.jpg

Financial markets have experienced renewed gyrations in recent weeks, as shifting geopolitical risks, questions around Federal Reserve independence, renewed talk of US dollar “debasement,” and ongoing enthusiasm surrounding artificial intelligence have combined to drive volatility across asset classes. These cross-currents have also contributed to a degree of rotation away from high-flying technology stocks, as investors reassess valuations and the timing of anticipated AI-driven gains. Against this backdrop, the charts in this week’s COTW highlight several important themes. Policy rate expectations now appear more balanced globally, marking a clear shift away from the one-sided easing bias of the past two years (chart 1), even as resilient US data—underscored by the unexpected jump in the January ISM index and a run of positive economic surprises—continues to complicate the outlook for monetary easing (chart 2). At the same time, US financial conditions remain relatively benign, with limited evidence of widespread credit stress or aggressive tightening in lending standards (chart 3). Meanwhile, the sharp rebound in semiconductor sales and the accelerating rollout of large-scale AI models underscore why investors remain so focused on the AI narrative, even as Europe lags behind due to weaker industrial momentum and a smaller footprint in advanced chip production (charts 4 and 5). Finally, while some scepticism about AI’s ultimate economic impact persists, the latest survey results suggest a moderation in concerns that markets are materially overestimating its gains (chart 6). Taken together, these developments paint a picture of a US economy that remains more resilient than many had anticipated, set against a financial landscape increasingly shaped by powerful—if sometimes competing—narratives around geopolitics, policy, and technological transformation.

Charts of the Week: Balanced Policy, Resilient Data and AI Narratives

260206E.jpg

With the December report, Germany’s production and some of the early European industrial production data reveal a good deal of chaos in terms of the embedded trends. On the month, German industrial production fell by 1.9%, with consumer goods output up by 0.5%, capital goods output falling by 5.3%, and intermediate goods output falling by 1.2%. Among the early reporters in the monetary union—France, Spain, and Portugal—only Spain showed an increase in manufacturing IP in December; however, Spanish industrial production is notoriously volatile.

**Broader IP trends in Germany and elsewhere in Europe**
As for other early industrial production reporters, both Sweden and Norway showed strong-to-solid gains in December and each of them showed two-months of gains in a row. Beyond that, sequential growth rates from 12-months to six-months to three-months show accelerating growth in German consumer goods output against decelerating growth for intermediate goods. Real manufacturing output and real sales show mixed results- no clear trends; however, real manufacturing orders in Germany are off the map strong. 

**German manufacturing/industrial Surveys**
German industrial surveys from the IFO for manufacturing shows persistent weakening as well as for IFO manufacturing expectations, and in the EU Commission industrial index in the last three months. More broadly, Germany shows some modest but ongoing step up all of these based on average levels from 12-months to six-months to three-months for IFO expectations and the EU Commission industrial readings with mixed results for other survey readings.

**IP trends in Europe**
For the early reporting EMU members France, Spain, and Portugal, who report industrial production trends, each show mixed monthly trends against ongoing decelerations for manufacturing output over the broader sequential periods (12-month, to 6-month, to 3-month). However, for other Europe, Sweden and Norway, manufacturing trends are steadily accelerating on this broader timeline.

**A feeling of ‘Deja- What?’**
These combinations of opposed trends mixed with a lack of trends leave us with this sense of confusion about what's going on in manufacturing. For Germany, the extreme strength in orders is reassuring since orders should be forward-looking rather than backward-looking or even contemporaneous. But orders can also be a fickle series and so we'll have to watch it to see if the trends for German orders hold up.

**Current quarter-What’s been happening now**
In addition, current quarter growth for Germany actually looks quite good with industrial production up 3.7% at an annual rate in the current quarter, led by output increases in manufacturing against a decline in the intermediate goods output. Real orders in the quarter are surging at a 44% growth rate, while real sales in manufacturing only had a 0.1% uptick at an annual rate. The industrial indicators for Germany in the quarter show weakness or flatness with the only exception being IFO manufacturing expectations that advanced by a small amount. The three EMU members who report industrial production data show positive growth in the just-completed quarter except for Portugal where industrial production is falling at a 2.9% rate in the fourth quarter. Sweden and Norway, European countries but not monetary union members, show a strong 22% annual rate gain in Sweden against the 3% annual rate decline in Norway.

260206.jpg

**Rankings**
**How growth rates stack up…**
Moving away from short-term trends, the rankings of growth rates of these various metrics using 12-month growth rates on data back to 2006, show below-median growth rates for German industrial production and all three of its major sectors. All of them have rankings below the 50% mark where the median resides. Germany’s manufacturing output growth rate is below its median as is the growth of real sales; and once again real manufacturing orders break out and show a stunning 90th percentile standing, extremely strong compared to other growth rates on this period.

**Indicator rankings are poor**
However, the survey based industrial indicators for Germany, ranked based on their index levels, are all extremely weak and much weaker than German sector or other German metrics. The strongest indicator reading is the 29th percentile standing for IFO manufacturing expectations while the current ZEW index, IFO manufacturing index, and the EU Commission industrial readings, all reside below their 15th percentile. The survey rankings suggest that industrial sentiment is in much worse shape than activity and growth.

**IP elsewhere in Europe**
However, the growth ranking of manufacturing industrial production for the reporting EMU members and other European members are all quite solid, with percentile standings ranging from the 66th up to the 93rd percentile.

**Summing up**
From these data, Germany emerges as the weak economy compared with historic norms based on industrial production growth and indicator readings. However, there's a glimpse of positivity from the growth of real orders, and at the same time, some concern about ongoing sentiment for manufacturing in Germany as distinct from actual performance.

Germany

German IP Reveals Chaotic Trends

Winnie Tapasanun

260205X15.jpg

260205Y15.jpg

**Total job openings** fell 5.6% m/m (-12.9% y/y) to 6.542 million in December after a downwardly revised 7.0% decline to 6.928 million in November (previously -4.1% m/m; 7.146 million), according to the Job Openings and Labor Turnover Survey. December marked the third consecutive m/m fall and the lowest level since September 2020. The job openings rate declined to 3.9% in December, the lowest since April 2020, from 4.2% in November, remaining below a record-high 7.4% in March 2022. This rate is calculated as the ratio of job openings to total nonfarm employment plus openings. Significantly, the drop in job openings also lowered the **ratio of job openings to unemployed individuals** to 0.872 in December—the lowest since March 2021—from 0.890 in November, down from 1.085 in December 2024 and a pre-pandemic 1.211 in February 2020. A reading of 0.872 implies there were about 0.87 open jobs per unemployed person—indicating fewer openings than unemployed workers. December was the fifth time in six months that this ratio remained below 1.0.

**Private sector job openings** fell 6.8% (-12.5% y/y) to 5.804 million in December after a 6.6% fall to 6.227 million in November, registering the third successive m/m decline and the lowest level since September 2020. The private sector job openings rate fell to 4.1% in December, the lowest since April 2020, from 4.4% in November. The December m/m decline in private sector openings reflected drops of 27.7% (-36.9% y/y) in financial activities, 20.2% (-25.5% y/y) in professional & business services, 14.4% (-5.1% y/y) in trade, transportation & utilities, and 5.2% (-12.4% y/y) in private educational & health services. To the upside, private sector openings in the following categories rose m/m in December: other services (21.1%; 11.0% y/y), mining & lodging (17.6%; 0.0% y/y), information (13.5%; -4.7% y/y), manufacturing (8.5%; 0.5% y/y), leisure & hospitality (7.5%; -17.2% y/y), and construction (2.8%; 42.4% y/y). Meanwhile, government job openings rose 5.3% (-15.6% y/y) in December, the first m/m rise in three months, after a 10.6% drop in November.

**Total hiring** rebounded 3.4% (-1.5% y/y) to 5.293 million in December, the first m/m increase since September, following a 4.6% decrease to 5.121 million in November. The hiring rate edged up to 3.3% in December from 3.2% in November, though it remained below pre-pandemic levels. **Private sector hiring** rose 3.1% (-0.4% y/y) to 4.978 million in December, the third m/m rise in four months, after a 4.0% decline to 4.826 million in November. The private sector hiring rate rose to 3.7% in December from 3.5% in November, the same as in October and September. The December m/m increase in private sector hiring was led by a 32.1% jump (42.3% y/y) in information, followed by gains of 24.0% (-4.6% y/y) in financial activities, 23.5% (0.0% y/y) in mining & lodging, 6.5% (-4.8% y/y) in private educational & health services, 4.2% (-4.9% y/y) in trade, transportation & utilities, 3.6% (6.1% y/y) in construction, 3.4% (7.9% y/y) in leisure & hospitality, and 1.8% (-4.3% y/y) in manufacturing. To the downside, private sector hiring in professional & business services (-5.2%; +0.5% y/y) and other services (-4.3%; -16.5% y/y) declined m/m in December. Meanwhile, government hiring rebounded 6.4% (-16.3% y/y) in December, the first m/m rise since September, following a 13.5% drop in November.

**Total separations** rose 2.1% (3.3% y/y) to 5.251 million in December after a 1.5% rise to 5.144 million in November, marking the third m/m increase in four months and the highest level since September. The total separations rate edged up to 3.3% after holding at 3.2% in November and October. Private sector separations rose 1.6% (4.2% y/y) to 4.932 million in December, the highest level since June, while government sector separations jumped 10.4% (-9.1% y/y) to 319,000 following two consecutive m/m declines. **Total quits** (voluntary separations initiated by the employee) increased 0.3% (3.5% y/y) to 3.204 million in December, the third m/m rise in four months and the highest level since June, after a 7.4% rebound in November. The quits rate (a measure of workers’ willingness or ability to leave jobs) held at 2.0% in December and November, slightly below 2.3% in February 2020. Private sector quits eased 0.2% (+4.5% y/y) following an 8.4% November rebound. **Layoffs and discharges** (involuntary separations initiated by the employer) increased 3.6% (5.6% y/y) to 1.762 million in December, up for the third time in four months, after an 8.1% drop in November. The layoffs & discharges rate remained at 1.1% in December and November, marginally below 1.3% in February 2020. Private sector layoffs grew 4.3% (7.8% y/y) following a 7.3% November decrease.

The Job Openings and Labor Turnover Survey (JOLTS) data are available in Haver’s **USECON** database.

260205C15.jpg

260205D15.jpg

- Job openings down 5.6% (-12.9% y/y) to 6.542 mil., third straight m/m decline.
- Hiring up 3.4% (-1.5% y/y) to 5.293 mil., first m/m increase since September.
- Separations rise to a three-month high; quits reach a six-month high; layoffs rebound.

U.S. JOLTS: Openings Drop to Lowest Level Since Sept. ’20; Hiring Rebounds in December

Sandy Batten

260205A2.jpg

260205B2.jpg

Initial claims for unemployment insurance jumped 22,000 to 231,000 in the week ended January 31 following an unrevised 209,000 in the prior week. The four-week average rose to 212,250 from 206,250. The Action Economics Forecast Survey looked for 213,000 claims to have been filed. Winter Storm Fern and the accompanying very cold temperatures could have provided a temporary boost. Historically speaking, claims remain at low levels.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—increased by 25,000 to 1.844 million in the week ending January 24, from a downwardly revised 1.819 million in the prior week (previously 1.827 million). The insured unemployment rate remained at 1.2% in the week of January 24, unchanged from the previous eight weeks.

The insured unemployment rate varied greatly across individual states and territories. In the week ending January 17, the highest unemployment rates were in Rhode Island (2.83%), New Jersey (2.77%), Massachusetts (2.67%), Washington (2.54%), and Minnesota (2.45%). The lowest rates were in Florida (0.30%), North Carolina (0.42%), Louisiana (0.43%), Alabama (0.46%), and Arkansas (0.47). Rates in other notable states include Illinois (2.15%), California, (2.08%), New York (2.02%), Pennsylvania (1.91%), and Texas (1.09%). 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.

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- New claims jumped 22,000 to 231,000, the highest level since December 6.
- Continuing claims rose to 1.844 million from 1.819 million.

U.S. Initial Unemployment Claims Surged in Latest Week

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German real orders in December adjusted for inflation rose strongly again, gaining 7.8% month-to-month after rising 5.7% month-to-month in November. Foreign orders were up by 5.6% in December compared to 5.2% in November. Domestic orders surged by 10.7% in December after rising 6.4% in November and 10% in October.

**Real sales**
Real sales were mixed in December with overall sales falling 1.4% month-to-month mostly on weakness in capital goods sales.

**Broad categorical acceleration**
Many flows are accelerating this month. Sequential growth rates show acceleration. Total real orders accelerate from a year ago, to the current year, to six-months, and to three-months. Sales growth rates for consumer goods, consumer nondurables, and intermediate goods all show accelerations in gear. The exceptions are foreign orders that are not as strong over six months compared to their 12-month growth. And on the sales side, consumer durables sales and capital goods sales are weak.

**Quarter-to-quarter**
Quarterly annualized growth is complete for Q4 with this report. Foreign orders are the ‘weak flow’ expanding at a 13.6% annual rate – certainly not a weak growth rate. But domestic real orders are up at an astounding 101.9% annual rate. The net impact on the total real orders growth is to lift it to a pace of 44.1%. 

**Order ranking is very strong**
The table provides two rankings: one based on the level of variables and the other based on its year-on-year growth. The rankings this month for real orders overall, foreign, and domestic orders all reside in their top 80th to 90th percentiles- extremely strong based on level or growth. Sales do not follow suit. This gives us some reason to suspect that there is some lumpiness involved in the manufacturing data as distinct from strength. That will be something to watch. Overall mining and manufacturing sales growth is essentially at its historic median at a rank of 49.8. However, capital goods, intermediate goods and manufacturing sales all have rankings at or above their medians - as high as a 61-percentile standing for capital goods.

**Industrial confidence**
Industrial confidence for Germany, France, Italy and Spain (the EU’s big-four economies) show rankings based on these survey levels that are much lower at the 11th percentile for Germany, the 42nd and 36th percentiles, for France and Italy, respectively. Spain scores better with a 61.8 percentile standing on its industrial confidence measure. 

On balance, there is now an accelerating profile that is broad in sales trends and especially strong order trends. Perhaps Europe, under the pressure to stimulate its miliary capabilities, has a core of demand to help drive output ahead more consistently. This is something to watch in the coming months.