Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031i.jpg" align="left" border="0" height="265" width="353">
The German consumer has kept a stiff upper lip according to
the November reading on the consumer from GfK. Still the consumer has
been stiffening more than just his and her lip. The old wallet seems to
have become a bit less pliable as Germans have tightened up on
spending. Retail sales plunged in September, dropping by 2.5% and
obliterating the 2.4% pop in August. The drop will still leave NOMINAL
German retail sales advancing in Q3 but real ex auto German sales are
shrinking in Q3 at a 0.5% annual rate.
The sequential growth rates on German nominal retail spending
are very flat. The real retail sales ex auto sequential growth rates
are similarly steady but at shallow negative rates of growth.
The good news for Germany is that the September drop in retail
sales can be called a plunge but it only offsets the spike in August.
There is nothing in the data or trends that suggest things are about to
get much worse. But that does not mean that they won&#8217;t either. 


<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead><tr><th colspan="8" scope="col"> German Real and Nominal Retail Sales </th>
<th scope="col">QTR</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAgo</td>
<td>Saar</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-2.5%</td>
<td>2.4%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>0.8%</td>
<td>0.4%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Food, Bev &amp; Tobacco</td>
<td>-1.6%</td>
<td>3.1%</td>
<td>-0.2%</td>
<td>5.0%</td>
<td>0.4%</td>
<td>0.9%</td>
<td>0.0%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>8.7%</td>
<td>-1.2%</td>
<td>4.1%</td>
<td>56.7%</td>
<td>30.0%</td>
<td>0.6%</td>
<td>18.5%</td>
<td>10.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Real</td>
<td>&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>
<td class="firstcol">Retail Ex auto</td>
<td>-2.3%</td>
<td>1.9%</td>
<td>-0.1%</td>
<td>-2.0%</td>
<td>-1.4%</td>
<td>-2.1%</td>
<td>-0.6%</td>
<td>-0.5%</td>
</tr>
</tbody>
</table>
</body></html>

The German consumer has kept a stiff upper lip according to the November reading on the consumer from GfK. Still the consumer has been stiffening more than just his and her lip. The old wallet seems to have become a bit less pliable [...]

German Retail Sales Run Soft

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031f.jpg" width="353">
The University of Michigan&#39;s October reading of consumer sentiment collapsed by 18.1% from the September level, to 57.6. That was very much the same as reported at mid-month and the latest level was the lowest for the series since June which in turn was the lowest since early-1980. The drop was a record m/m decline for the index which dates back to the late 1970s. The full-month figure matched Consensus expectations.
During the last ten years there has been a 55% correlation between the level of sentiment and the three-month change in real consumer spending.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031g.jpg" width="353">
The opinion of government policy, which apparently influences economic expectations, fell sharply from September (-39.0% y/y) but it was slightly better than the mid-month read. Only five percent of respondents thought that a good job was being done by government while 55% thought a poor job was being done. That was the highest percentage on record.
As reported at mid-month, the current conditions index led the collapse with 22.1% decline. The view of current personal finances gave back all of a September improvement with a m/m decline of one-third. The index of buying conditions for large household goods fell 16.8% m/m to the lowest level since 1980, down 37.3% y/y.
The expectations component of consumer sentiment aided the m/m decline in the total with a 15.6% drop. Expectations for business conditions during the next years collapsed by 24.6%, as reported at mid-month. Expectations for conditions during the next five years fell 14.5% but they remained well up from their historic lows.The expected change in personal finances fell 11.7%. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031h.jpg" width="353">
The mean expected rate of inflation during the next year slipped to 4.3% with lower oil prices, down from the mid-month expectation. It was as high as 7.0% in May but the expectation was still above prior years. The expected inflation rate during the next five years fell to 3.1%, the lowest level since 2003.
The University of Michigan survey 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&#39;s USECON database, with details in the proprietary UMSCA database.
What Is Liquidity Risk? from the Federal Reserve Bank of San Francisco and it can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-33.pdf">here</a>.
Monetary Policy Transparency and Private Sector Forecasts: Evidence from Survey Data from the Federal Reserve Bank of Kansa City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/3q08Sellon.pdf">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/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">October</th>
<th scope="col">Mid-October</th>
<th scope="col">September</th>
<th scope="col">October y/y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>57.6</td>
<td>57.5</td>
<td>70.3</td>
<td>-28.8%</td>
<td>85.6</td>
<td>87.3</td>
<td>88.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>58.4</td>
<td>58.9</td>
<td>75.0</td>
<td>-40.2</td>
<td>101.2</td>
<td>105.1</td>
<td>105.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>57.0</td>
<td>56.7</td>
<td>67.2</td>
<td>-18.7</td>
<td>75.6</td>
<td>75.9</td>
<td>77.4</td>
</tr>
</tbody>
</table>
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The University of Michigan's October reading of consumer sentiment collapsed by 18.1% from the September level, to 57.6. That was very much the same as reported at mid-month and the latest level was the lowest for the series since [...]

Michigan Consumer Sentiment Collapsed With The Stock Market & The Opinion of Gov't

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031d.jpg" width="353">
The employment cost index for private industry workers increased by 0.6% last quarter. It was stable with 2Q and that was the weakest rate of gain since 1Q 2006. It also fell short of Consensus expectations for a 0.7% rise. The rise held roughly steady with the 3.0% y/y growth in compensation during the last three years.
During the last twenty years there has been a 54% correlation between the growth in employee compensation and the rise in the PCE price index. That level of correlation goes neither up or down, when either series is led or lagged the other. This suggests a self reinforcing effect between the two series.
Wage and salary growth again dipped slightly, last quarter to 0.6% versus 0.7% to 0.8% increases during the prior four quarters. Wages account for roughly 70% of the compensation index. Wages in the services industries grew 0.6% and the y/y gain of 2.8% was the slowest since 2006, down from 4.6% growth back in 2000. Wages in the goods producing industries rose 0.4% (2.7% y/y) and that y/y growth compares to a recent peak of 4.5% in 2004.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031e.jpg" width="353">
The rise in benefit costs picked up slightly to 0.6% but the 2.4% year-to-year rise was near the slowest since 1999. In the goods producing sector benefits ticked up 0.1% (2.2% y/y) and in services they rose 0.6% (2.5% y/y), the same as during the prior two quarters.
Health benefit costs rose 3.9% y/y and that was the slowest rate of growth since 1999.

<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">3Q &#39;08</th>
<th scope="col">2Q &#39;08</th>
<th scope="col">1Q &#39;08</th>
<th scope="col">3Q Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Compensation</td>
<td>0.6</td>
<td>0.6</td>
<td>0.8</td>
<td>2.8</td>
<td>3.1</td>
<td>2.9</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.6</td>
<td>0.7</td>
<td>0.8</td>
<td>2.9</td>
<td>3.4</td>
<td>2.9</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.6</td>
<td>0.5</td>
<td>0.6</td>
<td>2.4</td>
<td>2.4</td>
<td>2.9</td>
<td>4.6</td>
</tr>
</tbody>
</table>


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The employment cost index for private industry workers increased by 0.6% last quarter. It was stable with 2Q and that was the weakest rate of gain since 1Q 2006. It also fell short of Consensus expectations for a 0.7% rise. The rise [...]

U.S. Employment Cost Index Increase Stable During 3Q

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031a.jpg" width="353">
During September nominal personal income rose 0.2%, just half the revised 0.4% August increase. Moreover, a slowing growth trend was evident in the y/y gain of 3.9% which was down sharply from last year&#39;s 6.1% rise and the 7.1% increase during 2006. The September increase in personal income exceeded Consensus expectations for a 0.1% rise.
Disposable personal income rose 0.2% last month after 1.0%-to-1.8% declines during the prior three months. They occurred due to the absence of tax rebate checks. Weaker job gains have slowed trend growth to 4.2% y/y after last year&#39;s rise of 5.5% and 6.4% during 2006.
Weaker gains in wage &amp; salary income very much reflect the soft jobs environment. Wages rose 0.1% last month, up 3.4% y/y. Three month growth of 3.1% (AR) was considerably below the 9.8% rate of growth early last year. Factory sector wages fell 0.3% (+0.2% y/y) for the second consecutive monthly decline. On a three-month growth basis, wages fell at a 1.3% annual rate after 2.0% growth last year. Wages &amp; salaries in the private service-providing industries ticked up 0.1% (3.6% y/y) and, here again, the trend growth of 3.0% is well below a 2006 gain of 6.4%. Wages in the government sector rose 0.4% (5.1% y/y) and three-month growth of 5.1% was stable.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031c.jpg" width="353">
Proprietors&#39; income fell 0.3% (+1.8% y/y) after a 1.0% August decline. On a three-month basis, the 3.4% rate of negative growth very much reflects the weaker retail environment, after the 4.1% gain last year. Interest income rose 1.1% (-0.2% y/y) for the third straight month due to the recent rise in interest rates off their March lows. Dividend income fell 0.6% (+4.1% y/y) for the third consecutive month and prior months&#39; gains were revised away. Growth of 4.1% y/y compares to a 12.4% rise last year and a 21.7% rise during 2006.
Personal consumption expenditures fell 0.3% after the unrevised sideways movement in August. Adjusted for price inflation, real spending fell 0.4% (-0.4% y/y) last month for the third decline in the last four months. Three-month growth in real spending dropped to negative 3.9% (AR) after the 2.8% gain last year. Real spending on motor vehicles fell at a 23.5% annual rate during the last three months while furniture spending fell at a 10.9% rate following an 8.0% gain last year. Spending on clothing fell at a 14.6% rate during the last three months after a 4.7% rise last year.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031b.jpg" width="353">
The PCE chain price index rose just 0.1% as a 0.7% decline (+31.5% y/y) in gasoline prices was offset by a 0.7% rise in food prices. On a three-month basis, food prices were up at a 9.1% rate after a 3.8% rise last year. The core PCE price index rose 0.2% for the second consecutive month but the rise surpassed Consensus expectations for a 0.1% uptick. Three-month growth of 2.6% was up from a 2.2% during all of last year. Apparel prices have been rising at a 6.6% rate after a 0.8% decline last year and transportation costs have been rising at a 5.2% rate after 2.7% growth last year.
The personal savings rate recovered to 1.3% as spending fell.
The figures noted above are available in the Haver USECON and in the USNA databases.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a> (%)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.2</td>
<td>0.4</td>
<td>3.9</td>
<td>6.1</td>
<td>7.1</td>
<td>5.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Disposable Personal Income</td>
<td>0.2</td>
<td>-1.0</td>
<td>4.2</td>
<td>5.5</td>
<td>6.4</td>
<td>4.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Consumption</td>
<td>-0.3</td>
<td>0.0</td>
<td>3.8</td>
<td>5.5</td>
<td>5.9</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">Saving Rate</td>
<td>1.3</td>
<td>0.8</td>
<td>0.6 (Sept. &#39;07)</td>
<td>0.5</td>
<td>0.7</td>
<td>0.3</td>
</tr>
<tr class="odd">
<td class="firstcol">PCE Chain Price Index</td>
<td>0.1</td>
<td>0.0</td>
<td>4.2</td>
<td>2.6</td>
<td>2.8</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2</td>
<td>0.2</td>
<td>2.4</td>
<td>2.2</td>
<td>2.3</td>
<td>2.1</td>
</tr>
</tbody>
</table>
</body>
</html>

During September nominal personal income rose 0.2%, just half the revised 0.4% August increase. Moreover, a slowing growth trend was evident in the y/y gain of 3.9% which was down sharply from last year's 6.1% rise and the 7.1% [...]

U.S. September Income Rose, Spending Fell: Trend Growth of Both Down

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031a.jpg" align="left" border="0" height="265" width="353">
During September nominal personal income rose
0.2%, just half the revised 0.4% August increase. Moreover, a slowing
growth trend was evident in the y/y gain of 3.9% which was down sharply
from last year's 6.1% rise and the 7.1% increase during 2006. The
September increase in personal income exceeded Consensus expectations
for a 0.1% rise.
Disposable personal income rose 0.2% last
month after 1.0%-to-1.8% declines during the prior three months. They
occurred due to the absence of tax rebate checks. Weaker job gains have
slowed trend growth to 4.2% y/y after last year's rise of 5.5% and 6.4%
during 2006.
Weaker gains in wage &amp; salary income very much reflect
the soft jobs environment. Wages rose 0.1% last month, up 3.4% y/y.
Three month growth of 3.1% (AR) was considerably below the 9.8% rate of
growth early last year. Factory sector wages fell 0.3% (+0.2% y/y) for
the second consecutive monthly decline. On a three-month growth basis,
wages fell at a 1.3% annual rate after 2.0% growth last year. Wages
&amp; salaries in the private service-providing industries ticked
up 0.1% (3.6% y/y) and, here again, the trend growth of 3.0% is well
below a 2006 gain of 6.4%. Wages in the government sector rose 0.4%
(5.1% y/y) and three-month growth of 5.1% was stable.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031c.jpg" align="right" border="0" height="265" width="353">
Proprietors' income fell 0.3% (+1.8% y/y) after a 1.0% August
decline. On a three-month basis, the 3.4% rate of negative growth very
much reflects the weaker retail environment, after the 4.1% gain last
year. Interest income rose 1.1% (-0.2% y/y) for the third straight
month due to the recent rise in interest rates off their March lows.
Dividend income fell 0.6% (+4.1% y/y) for the third consecutive month
and prior months' gains were revised away. Growth of 4.1% y/y compares
to a 12.4% rise last year and a 21.7% rise during 2006.
Personal consumption expenditures fell 0.3% after the
unrevised sideways movement in August. Adjusted for price inflation, real
spending fell 0.4% (-0.4% y/y) last month for the third
decline in the last four months. Three-month growth in real spending
dropped to negative 3.9% (AR) after the 2.8% gain last year. Real
spending on motor vehicles fell at a 23.5% annual rate during the last
three months while furniture spending fell at a 10.9% rate following an
8.0% gain last year. Spending on clothing fell at a 14.6% rate during
the last three months after a 4.7% rise last year.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031b.jpg" align="left" border="0" height="265" width="353">
The PCE chain price index rose just 0.1%
as a 0.7% decline (+31.5% y/y) in gasoline prices was offset by a 0.7%
rise in food prices. On a three-month basis, food prices were up at a
9.1% rate after a 3.8% rise last year. The core PCE price
index rose 0.2% for the second consecutive month but the rise
surpassed Consensus expectations for a 0.1% uptick. Three-month growth
of 2.6% was up from a 2.2% during all of last year. Apparel
prices have been rising at a 6.6% rate after a 0.8% decline last year
and transportation costs have been rising at a 5.2% rate after 2.7%
growth last year.
The personal savings rate recovered to 1.3% as spending fell.
The figures noted above are available in the Haver USECON
and in the USNA databases.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E711/@E71102/@E71102.HTM">Disposition
of Personal Income</a> (%)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.2</td>
<td>0.4</td>
<td>3.9</td>
<td>6.1</td>
<td>7.1</td>
<td>5.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Disposable
Personal Income</td>
<td>0.2</td>
<td>-1.0</td>
<td>4.2</td>
<td>5.5</td>
<td>6.4</td>
<td>4.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Personal Consumption</td>
<td>-0.3</td>
<td>0.0</td>
<td>3.8</td>
<td>5.5</td>
<td>5.9</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">Saving Rate</td>
<td>1.3</td>
<td>0.8</td>
<td>0.6 (Sept. '07)</td>
<td>0.5</td>
<td>0.7</td>
<td>0.3</td>
</tr>
<tr class="odd">
<td class="firstcol">PCE Chain Price Index</td>
<td>0.1</td>
<td>0.0</td>
<td>4.2</td>
<td>2.6</td>
<td>2.8</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Less food
&amp; energy</td>
<td>0.2</td>
<td>0.2</td>
<td>2.4</td>
<td>2.2</td>
<td>2.3</td>
<td>2.1</td>
</tr>
</tbody>
</table>
Michigan Consumer Sentiment
Collapsed With The Stock Market &amp; The Opinion of Gov't 
by <a href="/comment/Moeller.html">Tom
Moeller</a> October 31 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031f.jpg" align="left" border="0" height="265" width="353">
The University of Michigan's October reading of consumer
sentiment collapsed by 18.1% from the September level, to 57.6. That
was very much the same as reported at mid-month and the latest level
was the lowest for the series since June which in turn was the lowest
since early-1980. The drop was a record m/m decline for the index which
dates back to the late 1970s. The full-month figure matched Consensus
expectations.
During the last ten years there has been a 55% correlation
between the level of sentiment and the three-month change in real
consumer spending.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031g.jpg" align="right" border="0" height="265" width="353">
The opinion of government policy, which apparently influences
economic expectations, fell sharply from September (-39.0% y/y) but it
was slightly better than the mid-month read. Only five
percent of respondents thought that a good job was being done by
government while 55% thought a poor job was being done. That
was the highest percentage on record.
As reported at mid-month, the current conditions index led the
collapse with 22.1% decline. The view of current personal finances gave
back all of a September improvement with a m/m decline of one-third.
The index of buying conditions for large household goods fell 16.8% m/m
to the lowest level since 1980, down 37.3% y/y.
The expectations component of consumer sentiment aided the m/m
decline in the total with a 15.6% drop. Expectations for business
conditions during the next years collapsed by 24.6%, as reported at
mid-month. Expectations for conditions during the next five years fell
14.5% but they remained well up from their historic lows.The expected
change in personal finances fell 11.7%. 
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031h.jpg" align="left" border="0" height="265" width="353">
The mean expected rate of inflation during the next year
slipped to 4.3% with lower oil prices, down from the mid-month
expectation. It was as high as 7.0% in May but the expectation was
still above prior years. The expected inflation rate during the next
five years fell to 3.1%, the lowest level since 2003.
The University of Michigan survey 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.
What Is Liquidity Risk? from the
Federal Reserve Bank of San Francisco and it can be found <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-33.pdf">here</a>.
Monetary Policy Transparency and Private Sector
Forecasts: Evidence from Survey Data from the Federal
Reserve Bank of Kansa City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/3q08Sellon.pdf">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/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">October</th>
<th scope="col">Mid-October</th>
<th scope="col">September</th>
<th scope="col">October y/y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>57.6</td>
<td>57.5</td>
<td>70.3</td>
<td>-28.8%</td>
<td>85.6</td>
<td>87.3</td>
<td>88.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>58.4</td>
<td>58.9</td>
<td>75.0</td>
<td>-40.2</td>
<td>101.2</td>
<td>105.1</td>
<td>105.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>57.0</td>
<td>56.7</td>
<td>67.2</td>
<td>-18.7</td>
<td>75.6</td>
<td>75.9</td>
<td>77.4</td>
</tr>
</tbody>
</table>
U.S. Employment Cost Index
Increase Stable During 3Q 
by <a href="/comment/Moeller.html">Tom
Moeller</a> October 31, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031d.jpg" align="left" border="0" height="265" width="353">
The employment cost index for private industry workers
increased by 0.6% last quarter. It was stable with 2Q and that was the
weakest rate of gain since 1Q 2006. It also fell short of Consensus
expectations for a 0.7% rise. The rise held roughly steady with the
3.0% y/y growth in compensation during the last three years.
During the last twenty years there has been a 54% correlation
between the growth in employee compensation and the rise in the PCE
price index. That level of correlation goes neither up or down, when
either series is led or lagged the other. This suggests a self
reinforcing effect between the two series.
Wage and salary growth again dipped slightly, last quarter to
0.6% versus 0.7% to 0.8% increases during the prior four quarters.
Wages account for roughly 70% of the compensation index. Wages in the
services industries grew 0.6% and the y/y gain of 2.8% was the slowest
since 2006, down from 4.6% growth back in 2000. Wages in the goods
producing industries rose 0.4% (2.7% y/y) and that y/y growth compares
to a recent peak of 4.5% in 2004.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031e.jpg" align="right" border="0" height="265" width="353">
The rise in benefit costs picked up slightly to 0.6% but the
2.4% year-to-year rise was near the slowest since 1999. In the goods
producing sector benefits ticked up 0.1% (2.2% y/y) and in services
they rose 0.6% (2.5% y/y), the same as during the prior two quarters.
Health benefit costs rose 3.9% y/y and that was the slowest
rate of growth since 1999.


<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">3Q '08</th>
<th scope="col">2Q '08</th>
<th scope="col">1Q '08</th>
<th scope="col">3Q Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Compensation</td>
<td>0.6</td>
<td>0.6</td>
<td>0.8</td>
<td>2.8</td>
<td>3.1</td>
<td>2.9</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp;
Salaries</td>
<td>0.6</td>
<td>0.7</td>
<td>0.8</td>
<td>2.9</td>
<td>3.4</td>
<td>2.9</td>
<td>2.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>0.6</td>
<td>0.5</td>
<td>0.6</td>
<td>2.4</td>
<td>2.4</td>
<td>2.9</td>
<td>4.6</td>
</tr>
</tbody>
</table>
German Retail Sales Run Soft 
by <a href="/comment/Brusca.html">Robert
Brusca</a> October 31 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081031i.jpg" align="left" border="0" height="265" width="353">
The German consumer has kept a stiff upper lip according to
the November reading on the consumer from GfK. Still the consumer has
been stiffening more than just his and her lip. The old wallet seems to
have become a bit less pliable as Germans have tightened up on
spending. Retail sales plunged in September, dropping by 2.5% and
obliterating the 2.4% pop in August. The drop will still leave NOMINAL
German retail sales advancing in Q3 but real ex auto German sales are
shrinking in Q3 at a 0.5% annual rate.
The sequential growth rates on German nominal retail spending
are very flat. The real retail sales ex auto sequential growth rates
are similarly steady but at shallow negative rates of growth.
The good news for Germany is that the September drop in retail
sales can be called a plunge but it only offsets the spike in August.
There is nothing in the data or trends that suggest things are about to
get much worse. But that does not mean that they won&#8217;t either. 

<table border="0" cellspacing="0" width="100%"> <colgroup><col></colgroup>
<thead><tr>
<th colspan="8" scope="col"> German
Real and Nominal Retail Sales </th>
<th scope="col">QTR</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAgo</td>
<td>Saar</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-2.5%</td>
<td>2.4%</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.8%</td>
<td>0.8%</td>
<td>0.4%</td>
<td>2.2%</td>
</tr>
<tr>
<td class="firstcol">Food, Bev &amp; Tobacco</td>
<td>-1.6%</td>
<td>3.1%</td>
<td>-0.2%</td>
<td>5.0%</td>
<td>0.4%</td>
<td>0.9%</td>
<td>0.0%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>8.7%</td>
<td>-1.2%</td>
<td>4.1%</td>
<td>56.7%</td>
<td>30.0%</td>
<td>0.6%</td>
<td>18.5%</td>
<td>10.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Real</td>
<td>&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>
<td class="firstcol">Retail Ex auto</td>
<td>-2.3%</td>
<td>1.9%</td>
<td>-0.1%</td>
<td>-2.0%</td>
<td>-1.4%</td>
<td>-2.1%</td>
<td>-0.6%</td>
<td>-0.5%</td>
</tr>
</tbody>
</table>
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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030f.jpg" align="left" border="0" height="265" width="353">
The news this month for the EU/EMU region is bad. The EU
reading is in the bottom 10% of its range of value. The EMU reading is
a bit better, in the bottom 17% of its range. Both are quite weak. The
drop in the index is the largest since the data have been collected in
1991. All sectors made larger
falls in Oct compared to Sept. The
main EMU countries also saw large drops in their respective overall
sentiment indices.
By sector, services is relatively the hardest hit standing at
the lowest point of its range since that survey began. But that only
goes back to October of 1996 instead of 1991 as for the other surveys.
Still this result parallels the sort of readings we have been getting
in the US with a very weak service sector checking in.
Is this more than coincidence? You bet! This crisis is
hitting intrinsically domestic sectors harder like real estate and
finance. Typically banks populate every community; the same with real
estate businesses. These sectors are not like mining or autos or
textiles that may have a particular regional representation. The
troubled sectors in this cycle are spread everywhere and the troubled
asset class &#8216;housing&#8217; is everywhere, as well. It&#8217;s as true in Europe as
in the US.INDUSTRY 
 

Europe&#8217;s industry reading at -18 (EMU) is only in the 32nd
percentile of its range (bottom third of its range) and so is weak but
not desperately weak. Germany and France carry percentile positions for
their respective readings in the high thirty percentiles while Spain&#8217;s
is at the 33rd percentile and the UK is at the 27Th
percentile; Italy is looking desperate at the 17Th
percentile. These are weak readings but the most troubling for Italy.
The components of the industry index show that the production
trend is the weakest relative reading standing in the bottom 3% of its
historic range. Production
expectations are better but still weak in their 12th
percentile. For some reason Europeans think that a worse time lies
behind it not ahead of it. That explains a lot about the government
attitudes. Europe has been in and seem to remain in DENIAL. Order volumes are still relatively
firm in their 44th range percentile; export
orders are in about the same relative range position and that is also
where the expected selling price resides. Contrarily workers are more
exposed with employment expectations in the bottom 16 percentile of
their range. If worker readings are RIGHT then the rest of the readings
are too high.CONFIDENCE
By main countries confidence readings are all over the map
except that they are limited being to all over intrinsically weak
territory. The EU&#8217;s UK reading is in the bottom 2.9% of its all-time
range. Among large EMU nations Spain is weakest posting the lowest
confidence reading ever. It is followed by France with a bottom 5
percentile reading. Germany&#8217;s percentile reading at the 43% mark and is
similar to its industrial sector reading but at 37.5 Italy&#8217;s percentile
reading is way above its industry percentile. So, Italian consumer
confidence is more upbeat than it is for Italian industry.
As for the reason for this angst, ee find over all EMU
responses on &#8216;time to buy&#8217; are at the very worst for making major
purchases now or in the next 12 months. The economic situation in the
past 12-months is rated as the worst ever but looking ahead for the
next 12-months the out look is &#8216;only&#8217; a bottom 13% ordeal. Respondents
may want to rethink that one. The financial situation for this past and
this next 12-months each rate in their respective 12th
percentile. In short the readings really are weak. Unemployment
expectations are &#8216;only up to the 58th percentile
of their range &#8211; elevated, but not by much.RETAIL
The retail readings across EU countries are weakest in the UK,
residing in their bottom 3 range percentile followed by Spain (bottom
13%), Germany (bottom 26%), France (bottom 43%), and Italy (63rd
percentile &#8211; still above its range midpoint). Retailers are not as
downbeat as consumers and that could spell some troubles for them and
for their inventories. Retail orders are put in the bottom 14% of their
range. The expected business situation is only a bottom 38% rating
similar to the present business situation. And maybe the retailers are
just putting up a brave front since their orders are so weak. They may
be planning for something even weaker than what they say they expect&#8230; SERVICES
Service sector reading span the gamut form bad to worst. The
UK and Italy have the worst service sector readings ever. Spain&#8217;s
reading is in the bottom 6% of its range. German is a bottom 25%
reading; for France the reading is a bottom one-third of range reading.
All of theses are weak. For
EMU the overall reading is the worst ever. The business climate is a
bottom 7% affair, but expected demand is worse in the bottom 2% of its
range. Current demand is rated as in only the 16th percentile. Current
and expected employment readings are in the 20th
percentile of their respective ranges, and the reading is lower for
expected unemployment. Things will get worse. Maybe industry workers
are better protected by unions that service sector workers.CONSTRUCTION
The construction sector is the least impacted off all. For
overall sentiment, construction stands in the 49th
percentile of its range. Of course that implies a raw reading of -20.
One issue for construction it that its participants have considered it
sub-par all along. So now the outlook is being impacted construction
respondents are not looking for things to get that much worse. Spain is
an exception having had a boom its current reading; it is a bottom 19th
percentile reading. For the UK the residential property bubble busting
has helped to drag its reading to the 31st
percentile. France and Germany still carry mid range readings at or
above their expected range midpoints. Italy&#8217;s sector has a relatively
strong construction reading in the 60th
percentile.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="12" scope="col"> EU
Sectors and Country level Overall Sentiment</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EU</td>
<td>Oct 
08</td>
<td>Sep 
08</td>
<td>Aug 
08</td>
<td>Jul 
08</td>
<td>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
<td>R-SQ 
w/Overall</td>
</tr>
<tr class="even">
<td class="firstcol">Overall</td>
<td>77.5</td>
<td>84.9</td>
<td>86.7</td>
<td>88.8</td>
<td>9.8</td>
<td>209</td>
<td>116</td>
<td>73</td>
<td>43</td>
<td>99</td>
<td>1.00</td>
</tr>
<tr>
<td class="firstcol">Industrial</td>
<td>-19</td>
<td>-13</td>
<td>-10</td>
<td>-7</td>
<td>23.5</td>
<td>204</td>
<td>7</td>
<td>-27</td>
<td>34</td>
<td>-7</td>
<td>0.86</td>
</tr>
<tr>
<td class="firstcol">Consumer Confidence</td>
<td>-23</td>
<td>-19</td>
<td>-19</td>
<td>-20</td>
<td>13.8</td>
<td>205</td>
<td>2</td>
<td>-27</td>
<td>29</td>
<td>-11</td>
<td>0.83</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>-16</td>
<td>-13</td>
<td>-14</td>
<td>-11</td>
<td>18.5</td>
<td>214</td>
<td>6</td>
<td>-21</td>
<td>27</td>
<td>-6</td>
<td>0.51</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>-25</td>
<td>-20</td>
<td>-18</td>
<td>-17</td>
<td>37.8</td>
<td>150</td>
<td>3</td>
<td>-42</td>
<td>45</td>
<td>-17</td>
<td>0.41</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>-10</td>
<td>-4</td>
<td>-2</td>
<td>0</td>
<td>0.0</td>
<td>145</td>
<td>32</td>
<td>-10</td>
<td>42</td>
<td>16</td>
<td>0.81</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% m/m</td>
<td>
Oct 
08</td>
<td colspan="2">Based on Level</td>
<td colspan="4">Level</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">EMU</td>
<td>-8.1%</td>
<td>-1.1%</td>
<td>-1.1%</td>
<td>80.4</td>
<td>16.8</td>
<td>206</td>
<td>117</td>
<td>73</td>
<td>44</td>
<td>99</td>
<td>0.94</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>-5.1%</td>
<td>-1.4%</td>
<td>-2.7%</td>
<td>88.6</td>
<td>23.5</td>
<td>186</td>
<td>121</td>
<td>79</td>
<td>42</td>
<td>99</td>
<td>0.61</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>-7.0%</td>
<td>-0.6%</td>
<td>-0.1%</td>
<td>86.5</td>
<td>31.6</td>
<td>196</td>
<td>119</td>
<td>72</td>
<td>47</td>
<td>100</td>
<td>0.79</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td>-6.9%</td>
<td>0.6%</td>
<td>2.7%</td>
<td>82.1</td>
<td>21.6</td>
<td>206</td>
<td>121</td>
<td>71</td>
<td>50</td>
<td>99</td>
<td>0.78</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td>-5.0%</td>
<td>-2.0%</td>
<td>-4.3%</td>
<td>66.1</td>
<td>0.0</td>
<td>220</td>
<td>118</td>
<td>66</td>
<td>52</td>
<td>99</td>
<td>0.62</td>
</tr>
<tr>
<td class="firstcol">Memo: UK</td>
<td>-7.5%</td>
<td>-5.2%</td>
<td>-6.1%</td>
<td>70.4</td>
<td>3.4</td>
<td>219</td>
<td>118</td>
<td>69</td>
<td>50</td>
<td>100</td>
<td>0.42</td>
</tr>
<tr>
<td colspan="12" class="firstcol">Since 1990
except Services (Oct
1996) 247-Count; Services: 145-Count</td>
</tr>
<tr>
<td colspan="12" class="firstcol">Sentiment
is an index, sector
readings are net balance diffusion measures.</td>
</tr>
</tbody>
</table>
</body></html>

The news this month for the EU/EMU region is bad. The EU reading is in the bottom 10% of its range of value. The EMU reading is a bit better, in the bottom 17% of its range. Both are quite weak. The drop in the index is the largest [...]

EU Indices Are Scraping Low Levels: It Will Get Worse…

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030d.jpg" width="353">
Initial claims for jobless insurance were stable last week at 479,000, near the high for this cycle. The figure was about as expected. The four-week moving average of initial claims fell slightly to 475,500 (44.2% y/y), still just off the cycle high.
The largest increases in initial claims for the week ending Oct. 18 were in Tennessee (+1,956), Oregon (+1,802), Indiana (+1,297), Virginia (+898), and Florida (+543), while the largest decreases were in New York (-6,080), Michigan (-5,894), Illinois (-3,795), Ohio (-2,923), and Kentucky (-2,494).
Continuing claims for unemployment insurance during the week of October 18 fell 12,000 after a revised 7,000 increase during the prior week, initially reported as a slight decline. The four-week average of continuing claims rose further to this cycle&#39;s high of 3,709,500, the highest level since early 2003. Continuing claims provide some indication of workers&#39; ability to find employment and they lag the initial claims figures by one week.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030e.jpg" width="353">
The insured rate of unemployment was stable for the third week at 2.8%. That was this cycle&#39;s high and the highest since mid-2003. The high in that recessionary period was 3.0% reached in late June 2003.
What Exactly Is a Recession&#151;and Are We in One? from the Federal Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/research/trends/2008/1108/01ecoact.cfm">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">10/25/08</th>
<th scope="col">10/18/08</th>
<th scope="col">10/11/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>478</td>
<td>&nbsp;479</td>
<td>463</td>
<td>44.3%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,715</td>
<td>3,727</td>
<td>43.0</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for jobless insurance were stable last week at 479,000, near the high for this cycle. The figure was about as expected. The four-week moving average of initial claims fell slightly to 475,500 (44.2% y/y), still just off [...]

U.S. Initial Claims for Unemployment Insurance Stable But High

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030a.jpg" width="353">
U.S. real GDP fell a modest 0.3% (AR) last quarter after 2.8% growth during 2Q. Consensus expectations had been for a decline at a 0.5% rate. The decline last quarter mirrored a 0.2% decline during the fourth quarter of last year. The y/y rate of growth of 0.8% was the weakest since the end of the 2001 recession.
Real final sales to domestic purchasers were notably weak in 3Q as they posted a 1.8% (AR) decline. That was the largest quarterly decline since the end of the 1990-91 recession. The year-to-year dip of 0.1%, while modest, was the first since 1991.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030b.jpg" width="353">
Real personal consumption declined at a 3.1% (0.0% y/y) annual rate, reversing a 1.2% rise during 2Q. The 2Q gain presumably was fueled by tax rebate checks but the lift seems to have been slight. Spending on autos &amp; light trucks fell at a 25.6% (-14.7% y/y) annual rate after declining at a 19.7% rate during 2Q. Spending on furniture &amp; other household equipment fell at a 7.6% rate (+2.7% y/y) and the decline reversed roughly half of the 2Q increase. Spending on apparel fell at an 11.0% rate (-0.4% y/y) and that reversed all of the 2Q jump. Spending on consumer services also weakened to a 0.6% growth rate. That about matched the 2Q rise but the y/y change of 1.3% was the weakest since 1981. Growth in real PCE subtracted 2.3 percentage points from 3Q real GDP growth after a 0.9 point add during 2Q.
Residential construction fell again, last quarter at a 19.1% (-21.3% y/y) annual rate after a 13.3% rate of decline during 2Q. The 3Q drop subtracted 0.7 percentage points from GDP growth.
Growth in business fixed investment fell for the first time since fourth quarter, 2006. The 1.0% decline (+1.8% y/y) followed 2.5% growth during 2Q, a 4.9% rise during 2007 and roughly 7.5% growth in 2006 and 2005. Equipment investment repeated its 2Q performance and declined at a 5.5% rate (-2.6% y/y). Conversely, structures investment was firm again and rose at a 7.9% annual rate (10.8% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081030c.jpg" width="353">
An improved foreign trade deficit again was the main source of lift to GDP growth, though the 1.1 percentage point addition was almost a third of that in 2Q. Exports grew at a slower 5.9% rate (6.9% y/y), half that in 2Q. Growth in imports weakened with the slowdown in overall economic growth. They fell at a 1.9% rate (-3.1% y/y).
Inventory accumulation added 0.6 percentage points to GDP growth after three consecutive quarters of subtraction.
Spending by governments was strong again and the 5.8% (3.1% y/y) rise was the quickest since early 2003.
The GDP chain price index surged at a 4.2% annual rate. The accelerated rate of increase owed to a 5.4% jump in the PCE price index which was fueled by higher energy prices. Capital spending prices rose at an accelerated 4.2% rate (2.2% y/y) while the residential investment price deflator declined for the fourth straight quarter (-1.8% y/y).
Fed, Central Banks in Brazil, Mexico, Korea and Singapore, Announce Swap Lines and the Fed&#39;s announcement can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20081029b.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/USECON/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">3Q &#39;08 (Advance)</th>
<th scope="col">2Q &#39;08</th>
<th scope="col">3Q Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>-0.3</td>
<td>2.8</td>
<td>0.8</td>
<td>2.0</td>
<td>2.8</td>
<td>2.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>0.6</td>
<td>-1.5</td>
<td>-0.4</td>
<td>-0.4</td>
<td>0.0</td>
<td>-0.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>-0.8</td>
<td>4.4</td>
<td>1.3</td>
<td>2.4</td>
<td>2.8</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">Foreign Trade Effect</td>
<td>1.1</td>
<td>2.9</td>
<td>1.7</td>
<td>0.6</td>
<td>0.2</td>
<td>0.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>-1.8</td>
<td>1.3</td>
<td>-0.1</td>
<td>1.8</td>
<td>2.6</td>
<td>3.1</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>4.2</td>
<td>1.1</td>
<td>2.7</td>
<td>2.7</td>
<td>3.2</td>
<td>3.3</td>
</tr>
</tbody>
</table>


</html>

U.S. real GDP fell a modest 0.3% (AR) last quarter after 2.8% growth during 2Q. Consensus expectations had been for a decline at a 0.5% rate. The decline last quarter mirrored a 0.2% decline during the fourth quarter of last year. The [...]

U.S. 3Q'08 GDP Fell Modestly

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

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Real GDP eased 0.3% SAAR (+2.1% y/y) during the first quarter of 2025 after increasing 2.4% in Q4’24 and 3.1% in Q3’24. A 0.4% increase had been expected in the Action Economics Forecast Survey. It was the first decline since Q1 2022.

Foreign trade subtracted 4.83 percentage points from growth last quarter as imports surged 41.3% (13.4% y/y) ahead of tariffs, which began to come into effect in the first quarter. The rise followed a 1.9% decline in Q4’24. Exports rose 1.8% (3.0% y/y) after easing 0.2% in Q4. Inventories added 2.25 percentage points to growth after subtracting 0.84 percentage point from Q4 growth.

Real final sales to domestic purchasers grew 2.3% (2.9% y/y) in Q1 after rising 3.0% in Q4. Personal consumption expenditures rose 1.8% (3.1% y/y) following a 4.0% gain. Durable goods spending fell 3.4% (+5.3% y/y) after surging 12.4% in Q4. Motor vehicle purchases declined 11.1% (+5.5% y/y) after strengthening 19.7% in Q4. Spending on home furnishings & appliances gained 1.5% (6.1% y/y) following a 5.4% rise. Recreational goods & vehicle outlays rose 2.5% (7.0% y/y) last quarter after a 13.9% Q4 increase.

Nondurable goods outlays rose 2.7% (3.0% y/y) following 3.1% growth in Q4. Apparel spending increased 6.7% (2.5% y/y) following a 5.0% rise. Food & beverage buying gained 2.5% (2.3% y/y) after a 1.8% increase. Gasoline & fuel oil purchases increased 4.6% (3.4% y/y) after falling 2.0% in Q4.

Spending on services increased 2.4% last quarter (2.7% y/y) after a 3.0% gain. Outlays on housing & utilities increased 3.4% (1.8% y/y) after rising 1.1% in Q4. Health care expenditures rose 4.0% (4.8% y/y) following a 4.7% strengthening. Transportation outlays increased 5.3% (4.6% y/y) after a 3.7% rise while recreation spending rose 4.7% (2.8% y/y) following a 4.5% rise. Restaurant & hotel expenditures declined 2.1% (+0.5% y/y) following a 2.8% rise. Financial services expenditures rose 1.9% (2.0% y/y) after a 3.1% Q4 increase.

Business fixed investment increased 9.8% (3.6% y/y) following a 3.0% decline in Q4. Expenditures on structures rose 0.4% (-0.4% y/y) after a 2.9% increase. Expenditures on producers’ durable equipment jumped 22.5% (8.0% y/y) after falling 8.7%.  Outlays on information processing equipment soared 69.3% (18.9% y/y) following a 7.3% decline. Industrial equipment investment fell 1.4% (-0.3% y/y) after easing 0.9%. Intellectual property product spending rose 4.1% (1.8% y/y) following a 0.5% decline. 

Residential structures investment increased 1.3% (-0.1% y/y) in Q1 after a 5.5% Q4 rise.

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Government spending fell 1.5% (+2.4% y/y) after a 3.1% Q4 rise. Federal government expenditures declined 5.1% (+2.9% y/y) after rising 4.0% in Q4. National defense expenditures declined 8.0% (+4.0% y/y) after increasing 4.8% in Q4. State & local government spending rose 0.8% (2.1% y/y) following a 2.5% rise.

The GDP price index rose 3.7% (2.6% y/y) after increasing 2.3% in Q4. It was the largest increase since Q4’22. A 2.4% increase had been expected. The PCE chain price index increased 3.6% (2.5% y/y) following a 2.4% rise. The PCE price index excluding food and energy rose 3.5% (2.8% y/y) after increasing 2.6% in Q4. The business fixed investment price index rose 0.4% (1.8% y/y) after 1.5% rise. The residential price index strengthened 3.9% (3.2% y/y) after a 1.9% rise while the government price index increased 4.7% (2.8% y/y) following a 2.1% rise.

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

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- Decline in GDP is first in three years.
- Foreign trade subtracts substantially ahead of tariffs.
- Domestic final demand growth weakens.
- Price index strengthens with higher core PCE prices.

U.S. GDP Unexpectedly Declines in Q1’25; Prices Strengthen

Michael J. Moran

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High-side readings on the price indexes for personal consumption expenditures in January and February caused some concern about emerging price pressure, especially with some policies of the Trump administration possibly adding to the upward force. However, March brought notable relief, with the headline price index falling slightly (-0.04%). A marked decline in energy prices was helpful (-2.7%), but core prices also were subdued, increasing less than 0.1%.  Year-over-year changes were still above the Fed’s target of 2%, but only barely so for the headline measure (2.3%). The core index backed away from the reading of 3.0% in February, but the latest reading of 2.7% was in line with observations in the past year, and still uncomfortably above target.

Consumers roused from a winter slumber in March, with nominal outlays increasing 0.7%. With inflation restrained, real outlays also posted a gain of 0.7%. Spending on durable gods stood out, with real outlays advancing 3.2%. Real outlays for both nondurable goods and services rose 0.4%, a solid pace. Signs of life were certainly welcome after an average decline of 0.1% in January and February. The March rebound left growth of 1.8% (annual rate) in the first quarter.

The brisk increase in spending in March was supported by a solid gain in personal income (0.5% in both nominal and real terms). Growth in wage income was firm at 0.5%, while proprietors’ income was robust with a gain of 1.8% (not annualized!). The farm sector led the advance in proprietors’ income, but the nonfarm sector also was strong (0.6%).

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**.

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- Price pressure eases.
- Spending rebounds after two soft months.

Personal Income, Consumption, and Prices in March

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The Pending Home Sales Index, a forward-looking home sales measure based on contract signings, from the National Association of Realtors rose 6.1% to 76.5 (-0.6% y/y) during March after rising a little-revised 2.1% in February. These changes followed a 4.6% January decline.

The rise in March sales occurred as the rate on a 30-year mortgage eased to an average 6.65% from 6.84% in February. This rate was well above a low of 2.68% averaged in December 2020.

Pending home sales were up in most regions of the country. Sales in the Midwest rose 4.9% (1.4% y/y) last month after rising 1.8% in February. Sales in the South increased 9.8% (-0.4% y/y) following a 5.8% February rise. Sales in the West improved 4.8% (-2.0% y/y) after falling 3.0% in February. Sales in the Northeast were off 0.5% (-3.0% y/y) in March after falling 0.9% in February.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- Sales rise to highest level in four months.
- Strength is evident throughout most of country.

U.S. Pending Home Sales Surge in March

Sandy Batten

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The employment cost index (ECI) for civilian workers, arguably the most accurate measure of labor compensation in the United States, rose 0.9% q/q (3.6% y/y) in Q1, the same quarterly increase as in last year’s Q4, according to the Bureau of Labor Statistics. The quarterly gains have fluctuated between 0.8% and 1.0% for the past six quarters. The Action Economics Forecast Survey had expected a 0.9% q/q increase and a 3.5% y/y gain.

Wages and salaries for civilian workers rose 0.8% q/q (3.5% y/y) in Q1, down from 1.0% q/q in Q4. This tied the Q3 2024 quarterly rise as the smallest increase since Q2 2021. It was also the smallest y/y increase since Q2 2021. Benefits increased by an outsized 1.2% q/q (3.9% y/y) in Q1 versus 0.8% q/q in Q4. This is the largest quarterly gain since Q2 2022. In general, employment cost gains remain above the pace observed prior to the pandemic but are slowing gradually.

Private industry workers’ compensation rose 0.8% q/q (3.4% y/y) in Q1, down from 0.9% q/q (3.6% y/y) in Q4. Wages and salaries for private industry workers increased 0.8% q/q (3.4% y/y) in Q1 versus 0.8% q/q (3.7% y/y) in Q4. The quarterly gain in Q1 tied that in Q3 2024 as the smallest increase since Q4 2020. Benefits for private industry workers jumped 1.2% q/q (3.6% y/y). the largest quarterly gain since Q2 2022. The acceleration in benefits in Q1 was primarily in service-producing industries.

Compensation in private goods-producing industries increased 1.0% q/q (3.2% y/y) in Q1, the largest quarterly gain in five quarters, versus a 0.7% q/q increase in Q4. Compensation in construction jumped 1.3% q/q, its largest quarterly increase since Q2 2022, up from a 0.6% q/q gain in Q4. Manufacturing compensation growth slowed to 0.7% q/q, its slowest quarterly advance since Q4 2020, from 0.8% q/q in Q4. Compensation in private service-producing industries increased 0.8% q/q (3.5% y/y), down slightly from a 0.9% q/q gain in Q4. Compensation in education and health services jumped 1.3% q/q, its largest quarterly gain since Q3 2023. In contrast, compensation in other services edged up 0.1% q/q in Q1, its smallest quarterly advance since before the pandemic.

The employment cost index measures the change in the cost of labor, free from the influence of employment shifts across occupations and industries. It is provided by the Bureau of Labor Statistics and is available in Haver’s **USECON** database. Consensus estimates from the Action Economics Forecast Survey are in Haver’s **AS1REPNA** database.

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- Compensation grew 0.9 q/q in Q1, the same pace as in Q4.
- Wage growth slowed to 0.8% q/q while benefits surged 1.2% q/q, their largest quarterly increase since Q2 2022.

Employment Cost Growth Steady in Q1 2025

Kathleen Stephansen, CBE

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The ADP National Employment Report indicated that nonfarm private sector payrolls rose 62,000 (1.4% y/y) during April after increasing 147,000 (1.4% y/y) during March, revised from 155,000. A 124,000 April rise in ADP employment had been expected in the Action Economics Forecast Survey.

Growth in median annual pay for "job stayers" eased to 4.5% y/y during April, from 4.6% y/y in March and from 4.7% y/y in the prior two months. Manufacturing sector pay grew 4.6% y/y during April, down from 4.8% y/y in March. Construction sector pay was unchanged at 4.7% y/y. Natural resource & mining sector pay grew 4.4% y/y. Financial sector pay rose 5.1% y/y, while education & health services pay rose 4.7% y/y. Leisure & hospitality pay also increased 4.7% y/y. Professional & business service sector pay increased 4.3% y/y as did trade, transportation & utilities pay. Information pay rose 4.1% y/y. Median annual pay for “job changers” rose 6.9% y/y after 6.7% y/y in March.

Small business hiring (less than 50 employees) rose 11,000 (0.6% y/y) after rising 18,000 (0.6% y/y) in March, revised down from 52,000. Employment at medium-sized firms (50-499,000 employees) rose 40,000 (1.1% y/y) after rising 43,000 (1.1% y/y). Large business hiring (500+ employees) rose 12,000 (3.4% y/y) in April, after rising 61,000 (3.6% y/y) in March, revised from 59,000.

Goods-producing employment rose 26,000 (1.3% y/y) in April, after rising 16,000 (1.3% y/y) during March, revised from 24,000. Manufacturing jobs rose 4,000 (-0.2% y/y) after rising 17,000 (-0.3% y/y) in March. The number of construction sector jobs rose 16,000 (3.4% y/y) in April, following a 2,000 (3.6% y/y) March increase, revised from 6,000. Natural resources & mining jobs rose 6,000 (2.8% y/y) in April after falling 3,000 (+1.9% y/y) in March.

The number of service-producing jobs rose 34,000 (1.4% y/y) during April, following a rise of 131,000 (1.4% y/y) in March. Professional & business services employment fell 2,000 (0.6% y/y) after rising 46,000 (0.7% y/y) in the prior month, revised from 57,000. Employment in the financial industry rose 20,000 (2.1% y/y) in April, after rising 38,000 (2.0% y/y) in March. Leisure and hospitality employment increased 27,000 (3.0% y/y), following a 23,000 (2.9% y/y) March increase, revised from 17,000. The number of education & health care jobs fell 23,000 (1.6% y/y) in April, following a 15,000 (1.8% y/y) rise in March, revised from 12,000. Information sector employment fell 8,000 (-0.1% y/y) after a rise of 3,000 (0.2% y/y) in March. The number of jobs in trade, transportation & utilities rose 21,000 (0.4% y/y) in April, after falling 4,000 (+0.4% y/y) in March, revised from a 6,000 fall. Employment in “other” services rose fell 1,000 (+3.2% y/y) following a 10,000 (3.4% y/y) rise in March, revised from 11,000.

By region, employment in the Northeast increased 10,000 (1.9% y/y) in April, following an increase of 95,000 (2.0% y/y) in March, revised from 89,000. Employment in the Midwest rose 42,000 (1.5% y/y) after a gain of 84,000 (1.4% y/y) in March, revised from 81,000. In the South, employment rose 3,000 (1.3% y/y) during April, after rising 10,000 (1.4% y/y) in March, revised from 27,000. In the West, employment rose 9,000 (0.6% y/y) after declining 43,000 (+0.6% y/y), revised from a 41,000 decline in March.

The ADP National Employment Report and Pay Insights data can be found in Haver's **USECON** database. Historical figures date back to January 2010 for private employment. Pay data date back to October 2020. The expectation figure is available in Haver's **AS1REPNA** database.

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- Employment increase is modest in both services & factory sectors.
- Wage growth for “job stayers” moderates.
- Small and medium-sized business employment slows.

Economy in Brief: October 2008

Jump to:

German Retail Sales Run Soft

Michigan Consumer Sentiment Collapsed With The Stock Market & The Opinion of Gov't

U.S. Employment Cost Index Increase Stable During 3Q

U.S. September Income Rose, Spending Fell: Trend Growth of Both Down

U.S. September Income Rose, Spending Fell: Trend Growth of Both Down

EU Indices Are Scraping Low Levels: It Will Get Worse…

U.S. Initial Claims for Unemployment Insurance Stable But High

U.S. 3Q'08 GDP Fell Modestly