Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020131a.jpg" width="353">
The employment cost index rose as expected last quarter. The quarterly report was virtually identical in substance to the 3Q report: higher unemployment rates have constrained growth in wages and benefits although increases in benefit costs remain elevated.
Compensation gains in service sector occupations have steadily accelerated since 1999 while gains in blue collar compensation have slowed over the last year. 
Growth in ECI compensation and average hourly earnings have converged.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">ECI- Private Industry Workers</th>
<th scope="col">4Q`01</th>
<th scope="col">3Q `01</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Compensation</td>
<td>1.0%</td>
<td>0.9%</td>
<td>4.2%</td>
<td>4.1%</td>
<td>4.4%</td>
<td>3.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.9%</td>
<td>0.7%</td>
<td>3.8%</td>
<td>3.7%</td>
<td>3.9%</td>
<td>3.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>1.3%</td>
<td>1.4%</td>
<td>5.1%</td>
<td>5.1%</td>
<td>5.7%</td>
<td>3.5%</td>
</tr>
</tbody>
</table>
Personal Income Rose, Spending Down Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 31, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020131b.jpg" width="353">
Personal income rose for the first time since August and by slightly more than expected. 
A 0.6% gain in wage &amp; salary disbursements led the rise in income, though it too was the first material gain since the summer.
Personal spending fell for the third month in four again reflecting lower sales of light vehicles. Nondurable PCE also fell for the third month in four and services spending rose moderately 
Disposable income rose a modest 0.3%. The annual gain of 3.1% has more than halved since last year. Gains in real DPI also have halved to 2.0% 
The PCE price deflator fell for the third month in four. The price deflator less food and energy was unchanged (1.6% y/y).

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Disposition of Personal Income</th>
<th scope="col">Dec &#39;01</th>
<th scope="col">Nov &#39;01</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.4%</td>
<td>-0.0%</td>
<td>2.7%</td>
<td>4.9%</td>
<td>7.0%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>-0.2%</td>
<td>-0.3%</td>
<td>3.6%</td>
<td>4.9%</td>
<td>7.7%</td>
<td>6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>1.0%</td>
<td>0.5%</td>
<td>1.2%</td>
<td>1.6%</td>
<td>1.0%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">PCE Price Deflator</td>
<td>-0.2%</td>
<td>-0.1%</td>
<td>1.1%</td>
<td>1.9%</td>
<td>2.7%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
Initial Jobless Insurance Claims Rose 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 31, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020131c.jpg" width="353">
Initial claims for unemployment insurance rose a bit more than expected in the latest week. The prior week&#39;s level was revised down.
Despite the rise in weekly claims, the four-week moving average fell to 386,000, its lowest level since mid-August.
Continuing claims for unemployment insurance rose slightly in the latest week, but the prior week&#39;s level was revised to show a 4.7% drop versus the 1.5% decline reported initially.
The insured rate of unemployment was unchanged at 2.6%. The prior week&#39;s level was revised down.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Unemployment Insurance (000s)</th>
<th scope="col">01/26/02</th>
<th scope="col">01/19/02</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>390.0</td>
<td>360.0</td>
<td>11.4%</td>
<td>408.0</td>
<td>302.8</td>
<td>297.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,382</td>
<td>44.1%</td>
<td>3,031</td>
<td>2,127</td>
<td>2,187</td>
</tr>
</tbody>
</table>
Chicago PM Index Rose Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 31, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020131d.jpg" width="353">
The Chicago Purchasing Manager&#146;s Index of Business activity jumped as expected. The historical seasonally adjusted data was recently revised. 
Indexes of new orders and production rose sharply, but employment fell to a record low. 
The prices paid index fell and the index of vendor delivery speed rose only slightly, both indicating little inflationary pressure. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Chicago Purchasing Managers Index, SA</th>
<th scope="col">Jan &#39;02</th>
<th scope="col">Dec &#39;01</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Barometer</td>
<td>45.1</td>
<td>41.5</td>
<td>41.7</td>
<td>41.4</td>
<td>51.8</td>
<td>56.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid</td>
<td>40.7</td>
<td>47.0</td>
<td>62.6</td>
<td>50.6</td>
<td>65.6</td>
<td>57.5</td>
</tr>
</tbody>
</table>
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The employment cost index rose as expected last quarter. The quarterly report was virtually identical in substance to the 3Q report: higher unemployment rates have constrained growth in wages and benefits although increases in benefit [...]

Employment Cost Index Gains Capped by Higher Unemployment

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020130.jpg">
GDP unexpectedly rose last quarter due to a decline in the price deflator, the first decrease in nearly 50 years. 
Price decline and/or weakness was widespread. Only prices in the residential investment (3.0%) and personal consumption (0.8%) categories rose. Elsewhere prices fell. Nonresidential fixed investment: -1.8%. Exports: -3.2%. Government: -0.7%.
Strength in inflation-adjusted PCE (5.3%) led the surge in real final domestic demand. Real government spending also surged led by higher defense spending. Elsewhere, demand fell with both residential and business fixed investment down sharply. 
The rate of inventory decumulation by far set a record, nearly doubling versus 3Q. As a percentage of GDP the rate of decumulation was a third higher than the prior peak set in 4Q82. 
The net export deficit unexpectedly deteriorated due to a sharp drop in exports.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Chained &#39;96 $, % AR</th>
<th scope="col">4Q &#39;01 (Advance)</th>
<th scope="col">3Q &#39;01</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>0.2%</td>
<td>-1.3%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>4.1%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-2.3%</td>
<td>-0.8%</td>
<td>-1.6%</td>
<td>-1.1%</td>
<td>-0.2%</td>
<td>-0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>2.5%</td>
<td>-0.5%</td>
<td>1.7%</td>
<td>2.2%</td>
<td>4.3%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Trade Effect</td>
<td>-0.7%</td>
<td>-0.2%</td>
<td>0.0%</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>-0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>3.2%</td>
<td>-0.3%</td>
<td>1.7%</td>
<td>2.3%</td>
<td>4.9%</td>
<td>5.2%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Deflator</td>
<td>-0.3%</td>
<td>2.3%</td>
<td>1.8%</td>
<td>2.2%</td>
<td>2.3%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>
Fed Leaves Interest Rates Unchanged 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 30, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020130b.jpg" width="353">
The Federal Reserve left the Federal Funds Target Rate unchanged at 1.75%, as expected. 
The press release, which accompanied the Fed&#146;s action, contained the following statement. &quot;Signs that weakness in demand is abating and economic activity is beginning to firm have become more prevalent.&quot;
The complete text of the Fed&#39;s latest press release can be viewed <a href="http://www.federalreserve.gov/boarddocs/press/general/2002/20020130/default.htm">here</a>.

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GDP unexpectedly rose last quarter due to a decline in the price deflator, the first decrease in nearly 50 years. Price decline and/or weakness was widespread. Only prices in the residential investment (3.0%) and personal consumption [...]

Unexpected Rise in Real GDP

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020129a.jpg" width="353">
Durable goods orders rose a bit more than expected last month, but it was off a November level that was revised sharply lower due to lowered figures in the transportation sector. 
Excluding transportation, durable orders rose 1.4% after rising 0.7% (revised slightly lower) in November. 
The sharp improvement in the ISM orders component bodes well for further improvement in durable goods orders. The five-year correlation between this index and the month-to-month change in durable orders ex. transportation is a significant 19%, but it rises to 28% when orders are lagged one month. 
Orders for nondefense capital goods rose for the third consecutive month led by the third monthly gain in the computers and electronics category (mostly semiconductors). 
Shipments rose slightly, but excluding transportation have yet to show meaningful improvement, down in all but two months of 2001.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">NAICS Classification</th>
<th scope="col">Dec</th>
<th scope="col">Nov</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Durable Goods Orders</td>
<td>2.0%</td>
<td>-6.0%</td>
<td>-14.0%</td>
<td>-12.8%</td>
<td>6.6%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nondefense Capital Goods</td>
<td>1.3%</td>
<td>4.0%</td>
<td>-26.7%</td>
<td>-17.0%</td>
<td>14.4%</td>
<td>3.5%</td>
</tr>
</tbody>
</table>
Weekly Chain Store Sales Up Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 29, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020129b.jpg" width="353">
Chain store sales rose 0.2% in the last full week of January. Sales have risen in five of the last six weeks. 
For the first four weeks of January sales were up 2.2% versus December. 
During the last five years there has been a 26% correlation between the month-to-month percent change in chain store sales and the change in retail sales at general merchandise stores.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
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<tr>
<th scope="col" class="firstcol">BTM-UBSW (SA, 1977=100)</th>
<th scope="col">1/26/02</th>
<th scope="col">1/19/02</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>401.0</td>
<td>400.0</td>
<td>3.4%</td>
<td>2.1%</td>
<td>3.4%</td>
<td>6.7%</td>
</tr>
</tbody>
</table>
Consumer Confidence Surged 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 29, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020129c.jpg" width="353">
The Conference Board&#146;s Index of Consumer Confidence rose slightly more than expected in January. December&#39;s level was revised up. 
The rise in the Conference Board measure was in-line with the mid-month University of Michigan reading that consumer sentiment had improved. 
The rise in confidence reflected a sharply higher reading for consumer expectations. Confidence regarding the present situation was unchanged. A rise in expectations also powered the Michigan index. 
The Conference Board&#39;s survey is conducted by a mailed questionnaire to 5,000 households and about 3,500 typically respond.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Conference Board</th>
<th scope="col">Jan &#39;02</th>
<th scope="col">Dec &#39;01</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Consumer Confidence</td>
<td>97.3</td>
<td>94.6</td>
<td>-15.9%</td>
<td>106.6</td>
<td>139.0</td>
<td>135.3</td>
</tr>
</tbody>
</table>
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Durable goods orders rose a bit more than expected last month, but it was off a November level that was revised sharply lower due to lowered figures in the transportation sector. Excluding transportation, durable orders rose 1.4% [...]

Durable Goods Orders Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020128.jpg" width="353">
Sales of new single family homes were slightly stronger than expected last month. Consensus estimates were for sales at a 920,000 annual rate.
November&#39;s sales were revised down from 934,000 reported last month. For the year, new home sales set a record, far surpassing the previous record set in 1977.
Sales fell in each of country&#39;s regions except the West. 
The median price of a new home rose sharply to $170,200, 5.1% y/y. November&#39;s figures were revised up 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Homes Sales (000s, AR)</th>
<th scope="col">Dec &#39;01</th>
<th scope="col">&nbsp;Nov &#39;01</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">New Single-Family</td>
<td>946</td>
<td>895</td>
<td>-5.5%</td>
<td>901</td>
<td>881</td>
<td>879</td>
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Sales of new single family homes were slightly stronger than expected last month. Consensus estimates were for sales at a 920,000 annual rate. November's sales were revised down from 934,000 reported last month. For the year, new home [...]

New Home Sales Set a Record in 2001

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020125.jpg" width="353">
Sales of existing single family homes edged lower last month from a November level that was revised slightly higher. The slight December decline had been expected
Home sales, which reflect closings on past sales, were mixed across the country&#146;s four regions. 
The average rate on a conventional 30-year mortgage was 7.07% last month, its highest level since July.
The median price of an existing single-family home jumped to $151,400 (8.4% y/y). 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Existing Home Sales (000, AR)</th>
<th scope="col">Dec &#39;01</th>
<th scope="col">Nov &#39;01</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Existing Single-Family</td>
<td>&nbsp;5,190</td>
<td>&nbsp;5,230</td>
<td>5.1%</td>
<td>5,248</td>
<td>5,123</td>
<td>5,194</td>
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Sales of existing single family homes edged lower last month from a November level that was revised slightly higher. The slight December decline had been expected Home sales, which reflect closings on past sales, were mixed across the [...]

Existing Homes Sales Down Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020124.jpg" width="353">
Initial claims for unemployment insurance again fell unexpectedly in the latest week. The prior week&#39;s level was revised up slightly.
The decline in weekly claims pulled the four-week moving average to 404,250, its lowest level since late-August.
Despite the distortions common to the claims figures this time of year, the downtrend confirms genuine labor market improvement.
Continuing claims for unemployment insurance dropped another 1.5%, though the prior week&#39;s level was revised higher. Continuing claims have fallen 13.3% since the mid-November peak.
The insured rate of unemployment was unchanged at 2.7%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Unemployment Insurance (000s)</th>
<th scope="col">01/19/02</th>
<th scope="col">01/12/02</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>376.0</td>
<td>391.0</td>
<td>20.9%</td>
<td>408.0</td>
<td>302.8</td>
<td>297.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,458</td>
<td>49.1%</td>
<td>3,031</td>
<td>2,127</td>
<td>2,187</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance again fell unexpectedly in the latest week. The prior week's level was revised up slightly. The decline in weekly claims pulled the four-week moving average to 404,250, its lowest level since [...]

Initial Jobless Insurance Claims Continue Downtrend

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020123b.jpg" width="353">
The US budget balance improved to surplus in December due to a seasonal surge in revenues. The fiscal year-to-date budget deficit nevertheless remained at it&#39;s deepest since 1998. 
Receipts rose sharply in most major categories with individual income tax receipts actually up versus last year. Corporate income tax receipts were down 28.1% versus last year. 
Expenditures were down versus November due to across-the-board declines amongst categories. 
The Congressional Budget Office today announced that it expects a $21B budget deficit for FY 2002 and a $14B deficit in 2003.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">US Government Finance</th>
<th scope="col">Dec &#39;01</th>
<th scope="col">Nov &#39;01</th>
<th scope="col">Fiscal YTD</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Budget Balance</td>
<td>$26.6B</td>
<td>$-54.3B</td>
<td>$-37.1B</td>
<td>$127.2B</td>
<td>$236.9B</td>
<td>$124.4B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Revenues</td>
<td>55.0%</td>
<td>-22.9%</td>
<td>0.9%</td>
<td>-1.7%</td>
<td>0.8%</td>
<td>6.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Outlays</td>
<td>-8.1%</td>
<td>5.4%</td>
<td>8.4%</td>
<td>4.2%</td>
<td>5.0%</td>
<td>3.1%</td>
</tr>
</tbody>
</table>
Weekly Chain Store Sales Up Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> January 23, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020123a.jpg" width="353">
Chain store sales rose 0.7% in the latest week, building on a 0.6% gain during the prior week. For the first three weeks of January sales were up 2.0% versus December. 
The results were encouraging and an improved tone to sales is confirmed by the Redbook Store sales figures. 
During the last five years there has been a 56% correlation between the annual percent change in chain store sales and retail sales at general merchandise stores.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">BTM-UBSW (SA, 1977=100)</th>
<th scope="col">01/19/02</th>
<th scope="col">01/12/02</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>400.0</td>
<td>397.4</td>
<td>3.8%</td>
<td>2.1%</td>
<td>3.4%</td>
<td>6.7%</td>
</tr>
</tbody>
</table>
</body>
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The US budget balance improved to surplus in December due to a seasonal surge in revenues. The fiscal year-to-date budget deficit nevertheless remained at it's deepest since 1998. Receipts rose sharply in most major categories with [...]

U.S. Budget Deficit Growing

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020122.jpg" width="353">
The Composite Index of Leading Economic Indicators rose quite a bit more than the expected 0.7% last month. November&#39;s rise was revised up. 
Eight of the ten component series contributed to the increase with large contributions coming from lower claims for jobless insurance, a longer workweek, the money supply and a steeper yield curve. 
Over a six-month span, the percentage of the leading index component series that are up rose to 40%. 
The Leading Index is based on eight previously reported economic data series and two that are estimated.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Business Cycle Indicators</th>
<th scope="col">Dec &#39;01</th>
<th scope="col">Nov &#39;01</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Leading</td>
<td>1.2%</td>
<td>0.8%</td>
<td>2.4%</td>
<td>-0.6%</td>
<td>1.0%</td>
<td>3.3%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.1%</td>
<td>-0.3%</td>
<td>-1.5%</td>
<td>0.1%</td>
<td>3.6%</td>
<td>3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>-0.1%</td>
<td>-0.3%</td>
<td>-4.4%</td>
<td>-1.0%</td>
<td>2.7%</td>
<td>1.6%</td>
</tr>
</tbody>
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</body>
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The Composite Index of Leading Economic Indicators rose quite a bit more than the expected 0.7% last month. November's rise was revised up. Eight of the ten component series contributed to the increase with large contributions coming [...]

Leading Indicators Rise, One of the Strongest in 20 Years

Ratio of job openings to the number unemployed in the US now below pre-pandemic level

U.S. layoffs not showing as much cooling in labor markets as unemployment rate

While goods prices have moderated, service price inflation remains elevated and sticky

Since Jan 2023, BCEI US outlook has improved, worsened for Japan and the euro area

Persistent negative US economic surprises leading to big rate-cut expectations

Germany is Euro area weakling

Flash PMIs show good start to Q3 in US; loss of momentum in the euro area

Chinese economy on downtrend could threaten global economy

Working age population labor force participation near all-time high as retirements increase

Blue Chip forecasters look for widespread policy rate cuts just ahead

Flash June PMIs point to a widespread slowdown apart from the US

Announcement of snap French election is causing concern across Europe

The UK economy’s post-pandemic under-performance relative to its pre-pandemic trend

US Beveridge Curve back to near pre-pandemic levels

Negative economic surprises in the US but positive in Europe, especially the UK

Latest PMIs show US losing momentum while RoW is gaining momentum

Sticky services prices behind sticky overall PCE inflation

Flash April PMIs point to slower growth in the US but a pickup in Europe and Japan

Outlook strengthens for US while it weakens for other major economies

Crude petroleum prices are having a big impact on inflation expectations

Inflation surprising to upside in the US; by contrast to the downside in the euro area

 Gross Domestic Income is catching up with GDP

FOMC expects GDP growth above trend over the next three years

US core CPI inflation has begun to reaccelerate

Fiscal-policy aided factory building in the U.S. provided an unusually large boost to growth last year

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Tian Yong Woon

In this week's newsletter, we explore Asia’s manufacturing activity, with a particular emphasis on the semiconductor sector. While that sector continues to expand overall, some economies are experiencing a slowdown in growth (Chart 1). We also assess the growing role of electronics in Asian exports, highlighting Taiwan's significant increase in electronics export share and South Korea's ongoing recovery in this area (Chart 2). Focusing further on the electronics sector, we note an interim stall in global semiconductor sales growth, although it remains robust with double-digit increases (Chart 3). We then delve into specific Asian economies, starting with Taiwan. Here, we identify dual drivers of industrial production: consumer electronics and electronic parts, including semiconductors (Chart 4). Next, we examine Malaysia, which has developed a strong semiconductor ecosystem with expertise in back-end processes and is more recently making headway in front-end areas like chip design (Chart 5). Finally, we consider India’s emerging semiconductor sector, which, despite being in its early stages, is poised for growth thanks to recent initiatives aimed at bolstering domestic prowess (Chart 6).

**Asia’s manufacturing complex**
The manufacturing sector across much of Asia continues to expand, although recent months have seen a deceleration in the rate of growth for some economies. As illustrated in Chart 1, Taiwan's manufacturing PMI peaked at 53.2 in June 2024 but subsequently moderated to 51.5 in August, reflecting a significant slowdown in growth for output and new orders. A similar trend is evident in Southeast Asia (ASEAN), where the PMI has recently edged closer to the neutral level of 50. Within ASEAN, Indonesia has been a notable drag, with its PMI slipping into contractionary territory in July, while Vietnam's PMI has remained above the regional average. In contrast, South Korea's manufacturing sector has shown robust momentum, with output growth reaching a 40-month high in August, thereby supporting the overall manufacturing PMI for the country.

240909T1.jpg

A closer look at Asia’s manufacturing sector reveals significant trends in electronics exports, as illustrated in Chart 2. Many Asian economies remain heavily dependent on electronics for export revenue, with some increasing their reliance over recent years. This highlights the crucial role of electronics in the overall economic growth of these countries. For example, Taiwan's share of electronics in its export revenue surged to over 35% in recent years, up from just above 28% in late 2021. In contrast, South Korea’s electronics export share peaked slightly above 36% in late 2018 but fell to below 28% in 2023 before partially recovering. Malaysia, on the other hand, saw its electronics export share exceed 41% in late 2023, though it has since moderated. Beyond these export shares, the specifics of each economy's electronics export mix vary significantly—a topic we will delve into in subsequent segments.

240909T2.jpg

Next, we delve into the semiconductor industry, which has been making headlines this year due to its pivotal role in the global AI-driven surge. Although worldwide semiconductor sales remain robust, with double-digit growth rates, recent months have seen this growth level off, hovering just below 20%, as illustrated in Chart 3. Asia continues to lead in semiconductor sales, accounting for over 60% of the global market. However, growth in this region appears to have plateaued, while the Americas have rapidly increased their market share. Notably, the Americas surpassed China in semiconductor sales for the first time since China’s sales data was separately reported in 2015. Looking ahead, we can expect ongoing shifts in the semiconductor landscape. Factors contributing to these changes include the US's aggressive strategy to onshore chip production through the CHIPS Act, export controls impacting China's capabilities, and ASEAN countries' efforts to ascend the semiconductor value chain—a topic we will explore further below.

240909T3.jpg

**Economy-specific developments**
The electronics sector remains a major driver of Taiwan's economy. This extends beyond semiconductors to include computers and other consumer electronics, which have experienced even faster industrial production growth, as illustrated in Chart 4. In addition to the direct revenue from electronics exports, Taiwan also gains from other benefits, including job creation and enhanced expertise. However, the current tech upcycle is attracting increased competition. Other Asian economies are positioning themselves to gain a larger share of the supply chain. In the semiconductor foundry sector, competition remains fierce among Taiwan Semiconductor Manufacturing Company (TSMC), South Korea’s Samsung Electronics, and the US-based Intel. The rivalry is particularly intense at the cutting edge, as these companies strive to advance their next-generation sub-2 nanometer chips into mass production in the coming years.

240909T4.jpg

Next, we turn our attention to Malaysia, which has been making significant strides in the semiconductor industry. Like several other Asian economies, Malaysia has increasingly benefited from manufacturers seeking to diversify their supply chains to mitigate the risks of concentrating chip production in a single geographic location. Much of Malaysia's semiconductor growth is centred in the northern state of Penang. Although Penang is home to just under two million of Malaysia's total population of approximately 34 million, it hosts semiconductor assembly, testing, and packaging facilities for several major global companies. This burgeoning semiconductor ecosystem has also led Penang to record the highest investment inflows of any state in Malaysia in 2023, totalling 71.9 billion ringgit ($16.6 billion). These inflows are predominantly foreign direct investment (FDI), contributing significantly to Malaysia's overall FDI, as illustrated in Chart 5. Looking ahead, Malaysia aims to advance further up the semiconductor value chain by gaining a foothold in chip design. Recent developments have been promising: in early August, Malaysia officially launched its first semiconductor integrated circuit (IC) design hub in the state of Selangor, marking a key step towards achieving this goal.

240909T5.jpg

Lastly, we turn to India, a country that may not immediately come to mind as a major electronics hub, but which has been making significant strides to capture a larger share of the electronics pie in recent years. For instance, this year marks the first time iPhone Pro models will be produced in India, perhaps signalling that Prime Minister Modi’s incentives to attract high-end manufacturing are starting to bear fruit. Nonetheless, electronic products remain just a small proportion of India’s overall export mix. When it comes to semiconductors, it may still be early for India to achieve critical mass in the sector, although efforts are already underway. For example, just recently, India and Singapore signed agreements to enhance cooperation in semiconductors and digital technologies. The agreement could prove highly beneficial for India, as Singapore is a major player in the global chipmaking and semiconductor machinery markets, possessing substantial expertise in this field.

240909T6.jpg

Asia

Economic Letter From Asia: Chipping In

240906A2.jpg

240906B2.jpg

Nonfarm payrolls increased 142,000 (1.5% y/y) during August after rising 89,000 in July, revised from 114,000. During June, payrolls rose 118,000, revised from 179,000 while May payrolls rose an unrevised 216,000. Expectations had been for a 162,000 August increase in the Action Economics Forecast Survey.

Average hourly earnings strengthened 0.4% in August following unrevised gains of 0.2% and 0.3% in the prior two months. The y/y earnings increase improved to 3.8% from 3.6% in July, but was below the 5.9% high in March 2022.

The unemployment rate, measured in the household survey, eased to an expected 4.2% in August from 4.3% in July. It remained near the highest level since October 2021 after having reached a low of 3.4% in April of last year. Household employment rose 168,000 after increasing 67,000 in July. The labor force increased 120,000 after a 420,000 July rise. The overall unemployment rate, including workers who were marginally attached & working part-time for economic reasons, rose to 7.9% from 7.8% in July. It was the highest rate since October 2021.

In the **payroll survey**, private-sector employment increased 118,000 (1.4% y/y) in August after rising 74,000 in July. Construction sector employment increased 34,000 (2.8% y/y) last month after rising 13,000 in July. Factory sector payrolls offset this rise with a 24,000 decline (-0.1% y/y) after a 6,000 in July increase. Mining & logging sector jobs held steady (-1.2% y/y) after a 1,000 July increase.

Private service-producing sector employment increased 108,000 in August (1.5% y/y) after a 54,000 July rise. Employment changes varied greatly amongst service sector categories. Education & health service jobs rose 47,000 (3.9% y/y) following a 55,000 July rise while leisure & hospitality employment rose 46,000 (1.7% y/y) after a 24,000 gain. Professional & business service jobs improved 8,000 (0.4% y/y) after falling 13,000 in July. Within that category, the number of temporary jobs declined 2,900 (-5.8% y/y) and have fallen consistently since a March 2022 high. Trade, transportation & utilities employment gained 2,000 (0.7% y/y) after rising 9,000 as the number of retail jobs fell 11,100 (+0.4% y/y). Financial activities jobs rose 11,000 (0.4% y/y) after falling 1,000 in July. Information sector employment fell 7,000 (+0.1% y/y) after weakening 15,000 in July.

Government sector payrolls increased 24,000 last month (1.9% y/y) after 15,000 July increase. Local government jobs rose 22,000 (1.8% y/y) after July’s rise of 5,000, while state government employment edged 1,000 higher (2.3% y/y) after a 10,000 gain. The number of federal government jobs also inched 1,000 higher (2.0% y/y) after holding steady in July.

The 0.4% August rise in private-sector average hourly earnings reflected a 0.3% gain (4.7% y/y) in the goods-producing sector which was the same as in July. Earnings in construction improved 0.3% (4.4% y/y) following a 0.4% gain while factory sector pay increased 0.4% (4.9% y/y) after rising 0.2%. In the private services-sector, earnings rose 0.4% last month (3.6% y/y) after a 0.2% gain. Professional & business service sector earnings grew 0.4% (4.3% y/y) for the third time in four months. Leisure & hospitality earnings improved 0.2% (4.0% y/y) while information sector earnings strengthened 0.9% (3.7% y/y) after rising 0.4% for three straight months. Financial sector earnings rose 0.6% (4.6% y/y) after a 0.3% gain. Private education & health services earnings improved 0.2% (3.1% y/y), the same as in July. Trade, transportation and utilities pay rose 0.5% (3.0% y/y) in August after edging 0.1% higher in July.

240906C2.jpg

240906D2.jpg

The length of the average workweek in the private sector edged up to 34.3 hours in August from 34.2 in July. The workweek in the goods-producing sector of 39.8 hours last month compared to 39.7 hours in July. The construction sector average workweek lengthened to 39.0 hours from 38.9. The factory sector workweek improved to 40.0 hours from 39.9 while the average workweek in the private service sector remained at 33.2 hours for the fifth straight month.

In the **household survey**, the decline in the jobless rate to 4.2% occurred as employment and the size of the labor force rose slightly. The labor force participation rate held at 62.7%. The rate for teenagers declined sharply for the third straight month from 38.1% in May to 35.7% last month, while for individuals aged 20-24, it also has fallen sharply to 70.5% from a high of 72.7% in January. For rate for workers aged 25-54, the rate eased to 83.9% but remained near the highest since 2001, and for workers 55 and over it rose to 38.6%, the highest level since March.

The employment/population ratio for all workers held steady at 60.0% in August and was slightly below where it was twelve months earlier. It remained below its high of 61.1% in February, 2020 just prior to the pandemic.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

240906X2.jpg

240906F2.jpg

- Job gain remains part of decelerating trend with earlier months’ growth revised lower.
- Earnings strengthen m/m but trend increase remains weak.
- Jobless rate edges lower; upward trend continues.

U.S. Employment Disappoints in August; Jobless Rate Eases

Robert Brusca

240906E.jpg

Industrial production in July fell sharply by 2.4% after rising 1.7% in June and falling 3.1% in May. As a result of this production turbulence, Germany continues to experience declining and decelerating output growth. Over 12-months output falls at a -5.3% rate, over six months the pace steps up slightly to a -5.5% annual rate, but over three months industrial production in Germany is falling at a -14% annual rate.

This sequential slippage is mirrored in the declines of consumer goods, capital goods and intermediate goods production where the production of each of these sectors declines over 12 months, six months, and three months. Consumer goods and intermediate goods decline slightly more slowly over six months compared to 12 months, but all the categories show much sharper declines over three months than over 12 months. There's a clear tenancy for German production to show bigger declines over shorter periods and that's a disturbing development. In addition, all the sectors show declines month-to-month in July.

Manufacturing output in total shows a decline of 3.2% in July. As for overall output, manufacturing increased in June and fell sharply in May. Sequentially manufacturing output is persistently decelerating, as its 5.8% 12-month drop becomes an annual rate of decline of 17% over three months.

**Hope in New Orders**
However, real manufacturing orders break this trend and may offer hope for a turnaround as real orders rise by 2.9% in July and by 4.6% in June after a 1.7% drop in May. Sequentially real orders are not just growing but they are accelerating from an increase of 3.8% over 12 months to an annual rate of 25.7% over three months. The path being sketched out by real manufacturing orders is explosively strong while the path being sketched out by actual manufacturing output is impulsively weak. So it looks like the resolution is going to be for manufacturing output to be dragged up from the depths in the coming months by strengthening orders- or at least that's how it appears from these trends. For the time being, sales remain weak, real sales and manufacturing fell in July, June, and May; they are declining at an accelerating pace from 12-months to six-months to three-months. Real sales and manufacturing declined, at a -5.8% rate over 12 months, at a -6.9% annual rate over six months and then at a -12.2% annual rate over three months. For the time being, manufacturing is a hotbed of cross currents.

**Indicators are mixed**
Other indicators from ZEW, from IFO and from the EU Commission are mixed. These are from surveys that often are a little bit more sensitive and up-to-date readings than data on actually booked orders or on actually executed output or experienced sales. However, there is no hint of the kind of strength that we see in orders in these indicators. The ZEW current index shows negative readings sequentially from 12-months to six-months to three-months, but it does improve sequentially in modest steps. The IFO index for manufacturing does show some step up from 12-months to six-months to three-months. IFO manufacturing expectations also step up from 12-months to six-months to three-months but even this is somewhat moderate from 87.8 as an index reading over 12-months to 90.9 over six months to 92.2 over three months; it's a progression of advance but a minor league advance. Meanwhile, the EU Commission indexes show weakening from a -16.5 in their net diffusion reading over 12 months, to -17.7 over six months, to -17.8 over three months.

**Other Europe**
Three European countries are early manufacturing reporters: Portugal, France, and Norway. Among these three countries, two of them have output declines in July. Norway is the exception with a solid 2% increase month-to-month in July, an increase of 2% in June and at 1.7% in May; it is showing accelerating growth from 12-months to six-months to three-months. Norway is a real success story. However, both Portugal and France show industrial production decelerating steadily from 12-months to six-months to three-months; in both cases, the three-month decline culminates in a negative growth rate in double-digits.

**Quarter-to-date trends**
The quarter-to-date statistics show declines across all German manufacturing categories apart from real manufacturing orders. Of course, that shows a sizeable gain of nearly 38% at an annual rate in the quarter. It stands alone in that regard. The other indicators from ZEW to the IFO to the EU Commission also decline in the quarter-to-date except for the current ZEW index which improves by 6.2 points in July compared to the previous quarter’s average level. Manufacturing output for the three European countries shows sizable declines in the quarter-to-date for Portugal and France with Norway showing an annual rate increase at a stupendously strong 26.3% annual rate.

On balance, manufacturing in Germany is weak and it's weak across all categories. The ray of hope comes from real manufacturing orders that are surging as strongly as current output is declining. Sales in manufacturing are also weak. The IFO indicators for Germany are showing some progression towards better circumstances as is the index from ZEW. The EU Commission is eroding slightly sequentially as well as in recent months. There is hope but it runs against the grain of trend.

240906.jpg

Germany

German IP Drops Sharply in July and Broadly

Andrew Cates

**The policy rate consensus** 
Dovish comments from central bankers in recent weeks have amplified expectations for a global policy easing cycle over the past few weeks. Fed Chair Powell’s address at the Jackson Hole symposium, in which he noted that upside risks to inflation have diminished, and the downside risks to employment have increased, have certainly suggested the direction of travel for US policy rates is clear. This chimes too with the latest survey of Blue Chip Financial Forecasts. US policy rates, for example, are expected to decline from current levels by nearly 150bps over the next 12 months. That contrasts with the UK and euro area, where policy rates are expected to decline by 130 and 138 basis points respectively.

240905Z1.jpg

**Inflation progress**
Well-behaved inflation data have been another key driver of these interest rate expectations. Headline inflation rates in most major economies have continued to decline over the past few weeks and, at least as far as the US, the euro area and the UK are concerned, were not that far above central banks’ target levels. Incoming inflation data have, on the whole, also been surprising forecasters’ expectations on the downside in recent weeks with some underlying stability in the price of oil a key factor assisting that trend (chart 2).

240905Z2.jpg

**The global business cycle**
While forward-looking PMI readings for many economies have remained relatively stable in recent months, several have experienced some significant swings. For instance, France has seen a notable improvement, though it is worth noting that the August figures were significantly bolstered by activity from the Olympic Games. Conversely, Germany has struggled, with its PMI falling further into contraction territory due to ongoing weaknesses in the manufacturing sector. Meanwhile, India continues to stand out relative to its peers with consistently strong PMI readings over recent months (see chart 3).

240905Z3.jpg

**China’s excess capacity**
China’s economy stands out too as its latest PMI survey suggest its economy has lost much momentum over the past 3 months, largely because of some further weakening in the manufacturing sector. Digging into some of the underlying details of the manufacturing survey also reveals persistent downward pressure on that sector’s output prices (chart 4). Given the importance of China’s manufacturing sector for world trade, which might herald broader disinflationary pressures in the traded goods sector in the period ahead as well.

240905Z4.jpg

**Japan’s carry trade**
While some of the initial volatility in Japan’s currency markets has stabilized since the decision by the BoJ to lifts its policy rate, fundamental drivers are turning increasingly unfavourable for the carry trade. Specifically, Japan’s yield differentials with other major economies are becoming less advantageous, as evidenced in chart 5 below. As chart 1 above additionally underscores, this shift is being further compounded by the BoJ’s ongoing – and expected - tightening measures, which stand in vivid contrast to the easing cycles now underway from other major central banks.

240905Z5.jpg

**US monetary policy and labour markets**
With central banks arguably now slowly switching their attention away from inflation, the prospective dataflow on economic growth – and perhaps more significantly, labour market activity - is taking on more importance. On that score (and writing ahead of the publication of August’s US employment report on Friday September 6th) it has certainly been notable that much of the incoming US labour market data have disappointed expectations in recent weeks and that financial markets have responded to this by pricing in more easing from the US Fed (see chart 6).

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With the summer vacation season now over in the Northern Hemisphere our charts this week shed light on recent and prospective developments in the world economy. Latest data have, on the whole, reinforced expectations that most central banks will loosen monetary policy in the immediate months ahead (chart 1). And that’s partly because incoming inflation data have been well-behaved (chart 2). In the meantime, forward-looking survey data have, with one or two exceptions, remained above the threshold that would typically generate recession alarms (chart 3). Soft landing narratives have, accordingly, remained in vogue. That being said, lingering imbalances—particularly in China (chart 4)—combined with growing concerns about an unwinding of Japan’s carry trade (chart 5), have left the risks to the global economic outlook skewed to the downside. Added to that, the potential profitability of technology companies and the broader health of the US economy are also now being more actively challenged (chart 6). Either way, central banks continue to face a complex mix of challenges in the period ahead, not least if political instability (e.g. in the US) were to hamper confidence in the final quarter of this year.

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Charts of the Week: Back to School

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The ADP National Employment Report indicated that nonfarm private sector payrolls rose 99,000 (1.3% y/y) during August following a 111,000 July increase, revised from 122,000. June’s rise of 155,000 was unrevised. It was the weakest increase since January 2021, down from the most recent high of 211,000 in March of this year. A 148,000 rise in ADP employment had been expected in the Action Economics Forecast Survey.

Growth in median annual pay for "job stayers" held at 4.8% y/y in August. It remained the weakest growth since July 2021 and well below a September 2022 high of 7.8% y/y. Pay increases in education & health services of 5.1% y/y compared to a high of 7.3% in October 2022 while construction sector earnings rose a diminished 5.2% y/y. Manufacturing pay growth averaged a steady 4.7% y/y and leisure & hospitality rose a diminished 4.9% y/y. Professional & business services pay grew a lessened 4.7% y/y. Pay increases for “job changers” averaged a steadied 7.3% y/y last month, remaining well below the 16.4% y/y peak in June 2022.

Small business hiring (less than 50 employees) declined 9,000 (+0.2% y/y) last month after easing 1,000 in July. Employment at medium-sized firms (50-499,000 employees) rose 68,000 (1.8% y/y) after a 60,000 July increase. These gains stood below the March high of 113,000. Large business hiring (500+ employees) rose 42,000 (2.7% y/y) during August following a 52,000 July gain. It remained the smallest increase since January.

Goods-producing employment rose 27,000 last month (1.0% y/y) after a 30,000 July rise. The number of construction sector jobs rose 27,000 (3.6% y/y) following a 31,000 July increase. Hiring in the manufacturing sector fell 8,000 (-0.1% y/y) last month, the fourth consecutive monthly shortfall. Natural resource & mining hiring improved 8,000 (-1.9% y/y) after a 2,000 rise in July.

The number of service-producing jobs rose 72,000 (1.4% y/y) in August following an 81,000 July gain. Leisure & hospitality employment rose 11,000 (2.0% y/y) after improving 10,000 in July and education jobs gained 29,000 (2.3% y/y) following a 66,000 July increase. The number of jobs in trade, transportation & utilities increased 14,000 last month (0.9% y/y) following a 46,000 July gain. Employment in “other” services rose 20,000 (3.3% y/y) after increasing 16,000 in July. Moving lower, professional & business services employment declined 16,000 (+0.1% y/y) after falling 47,000 while information employment fell 4,000 (-1.8% y/y), the fifth consecutive monthly decline.

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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- Latest job gain is less-than-half its March 2024 high; factory jobs decline for fourth straight month.
- Service-sector slowdown is broad-based. Construction job growth slows. 
- Wage growth for “job stayers” stabilizes y/y.

Economy in Brief: January 2002

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