Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020628a.jpg" width="353">
Personal income rose as expected last month following a slight downward revision to April. Personal consumption expenditures fell as expected. April&#39;s gain was unrevised. 
Wage and salary disbursements rose 0.4% (1.9% y/y) in May, the strongest monthly increase this year, following no change in April. 
Personal spending fell due to lower spending on both durable and nondurable goods. Unit sales of light vehicles fell 9.5% m/m to 15.6M. Spending on services rose 0.7% (5.2% y/y).
Disposable income rose 0.3% (5.8% y/y), the same as in April. 
The PCE price deflator fell (1.0% y/y) for the first month since December. Less food and energy the price deflator also fell but more slightly (1.6% y/y) following an unrevised 0.2% April increase.

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<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">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.3%</td>
<td>0.2%</td>
<td>3.0%</td>
<td>4.9%</td>
<td>7.0%</td>
<td>4.7%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>-0.1%</td>
<td>0.5%</td>
<td>4.0%</td>
<td>5.0%</td>
<td>7.7%</td>
<td>6.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>3.1%</td>
<td>2.8%</td>
<td>1.1%</td>
<td>1.6%</td>
<td>1.0%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">PCE Price Deflator</td>
<td>-0.1%</td>
<td>0.4%</td>
<td>1.0%</td>
<td>1.9%</td>
<td>2.7%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
Consumer Sentiment Better Than Expected 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 28, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020628b.jpg" width="353">
The June reading of Consumer Sentiment from the University of Michigan came in higher than suggested by a lower reading in mid-June. A full-month figure of 90.8 had been expected.
Nevertheless, sentiment remained near the low end of 90.7-96.9 range it has fluctuated in this year.
Indexes of both expectations and current conditions fell.
The University of Michigan survey is not seasonally adjusted.
During the past five years there has been a 37% correlation between the level of consumer sentiment and the 3-month change in real PCE.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">Univ. of Michigan</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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</thead>
<tbody>
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<td class="firstcol">Consumer Sentiment</td>
<td>92.4</td>
<td>96.9</td>
<td>-0.2%</td>
<td>89.2</td>
<td>107.6</td>
<td>105.8</td>
</tr>
</tbody>
</table>
Chicago Purchasing Agents' Index Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 28, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020628c.jpg" width="353">
The Chicago Purchasing Manager&#146;s Index of Business activity fell slightly more than expected in June. Nevertheless, the index remained at its second highest level of the year. 
The index of new orders fell, but production, inventories and employment rose. 
The index of vendor performance fell, indicating that supplier delivery speeds quickened after a sharp slowing in May. 
The prices paid index was roughly unchanged. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF05/@EF05.HTM">Chicago Purchasing Managers Index, SA</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">Business Barometer</td>
<td>58.2</td>
<td>60.8</td>
<td>42.6</td>
<td>41.4</td>
<td>51.8</td>
<td>56.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid</td>
<td>58.2</td>
<td>58.3</td>
<td>50.9</td>
<td>50.5</td>
<td>65.6</td>
<td>57.6</td>
</tr>
</tbody>
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Personal income rose as expected last month following a slight downward revision to April. Personal consumption expenditures fell as expected. April's gain was unrevised. Wage and salary disbursements rose 0.4% (1.9% y/y) in May, the [...]

Personal Income Up, Spending Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020627b.jpg" width="353">
GDP growth last quarter was revised up versus Consensus expectations for no change from the 5.6% growth reported previously. Regular annual revisions extending back several years will occur next month.
The upward revision reflected less of a drag from net export deterioration and firmer domestic final demand.
Trade sector deterioration sapped less from GDP growth. Export growth was revised down sharply to 2.8% but import growth was revised down more to 8.3%.
Real PCE was little changed at 3.3% (AR). Residential investment also was unchanged rising at a 14.6% rate. The decline in fixed capital investment was lessened to 6.2%. Spending on equipment and software rose for the first quarter since 3Q 2000. Government investment was unrevised at 6.7%.
Production increases to slow the rate of inventory decumulation were little revised and added 3.4 percentage points to GDP growth. 
Inflation remained low in 1Q but revised up slightly.
Corporate profit growth was revised up slightly to 2.9% (AR) following a 93.4% surge in 4Q01.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained &#39;96 $, % AR</a></th>
<th scope="col">1Q&#39;02 (Final)</th>
<th scope="col">1Q&#39;02 (Prelim)</th>
<th scope="col">4Q &#39;01</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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</thead>
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<td class="firstcol">GDP</td>
<td>6.1%</td>
<td>5.6%</td>
<td>1.7%</td>
<td>1.7%</td>
<td>1.2%</td>
<td>4.1%</td>
<td>4.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>3.4%</td>
<td>3.5%</td>
<td>-2.0%</td>
<td>0.1%</td>
<td>-1.1%</td>
<td>-0.2%</td>
<td>-0.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>2.6%</td>
<td>2.0%</td>
<td>3.8%</td>
<td>1.6%</td>
<td>2.3%</td>
<td>4.3%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Trade Effect</td>
<td>-0.8%</td>
<td>-1.1%</td>
<td>-0.1%</td>
<td>-0.3%</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>3.0%</td>
<td>3.9%</td>
<td>1.9%</td>
<td>2.3%</td>
<td>4.9%</td>
<td>5.2%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Deflator</td>
<td>1.2%</td>
<td>1.0%</td>
<td>-0.1%</td>
<td>1.4%</td>
<td>2.2%</td>
<td>2.3%</td>
<td>1.4%</td>
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</tbody>
</table>
Jobless Insurance Claims Fell, Rehiring May Have Improved 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 27, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020627a.jpg" width="353">
Initial claims for unemployment insurance fell about as expected in the latest week. The prior week&#39;s level was revised up slightly.
In a sign that rehiring may have risen, continuing claims for unemployment insurance fell sharply from the prior week&#39;s level which was revised down. Continuing claims have fallen 3.3% from the high reached in early May.
The four-week moving average of initial claims fell to 391,000, -2.8% y/y. 
The insured rate of unemployment was stable at 2.9% for the third consecutive week.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">6/22/02</th>
<th scope="col">6/15/02</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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</thead>
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<td class="firstcol">Initial Claims</td>
<td>388.0</td>
<td>398.0</td>
<td>1.0%</td>
<td>405.8</td>
<td>299.8</td>
<td>297.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,706</td>
<td>24.2%</td>
<td>3,021</td>
<td>2,114</td>
<td>2,186</td>
</tr>
</tbody>
</table>
Fed Leaves Interest Rates Unchanged 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 27, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020627c.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;The Committee expects the rate of increase of final demand to pick up over coming quarters, supported in part by robust underlying growth in productivity, but the degree of the strengthening remains uncertain.&quot;
The complete text of the Fed&#39;s latest press release can be viewed at <a href="http://www.federalreserve.gov/BoardDocs/Press/monetary/2002/20020626/default.htm">http://www.federalreserve.gov/BoardDocs/Press/monetary/2002/20020626/default.htm</a>

Help Wanted Advertising Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 27, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020627d.jpg" width="353">
The Conference Board&#39;s National Index of Help-Wanted Advertising fell unexpectedly in May. A decline in continuing claims for unemployment insurance may have suggested improved rehiring, but the drop in help wanted suggests any improvement will not be large. 
During the past ten years there has been a 91% correlation between the level of help-wanted advertising and the annual change in nonfarm payrolls. 
Job opportunities deteriorated across the nations&#39; regions, but notably in the West South Central (Texas &amp; Oklahoma) and in the East North Central (Illinois &amp; Ohio) regions.
The figures are seasonally adjusted.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CBDB/@C3/@C3.HTM">Conference Board</a></th>
<th scope="col">May &#39;02</th>
<th scope="col">April &#39;02</th>
<th scope="col">May &#39;01</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Nat&#39;l Help Wanted Index</td>
<td>45</td>
<td>47</td>
<td>60</td>
</tr>
</tbody>
</table>
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GDP growth last quarter was revised up versus Consensus expectations for no change from the 5.6% growth reported previously. Regular annual revisions extending back several years will occur next month. The upward revision reflected [...]

Strong 1Q GDP Revised Higher

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020626b.jpg" width="353">
Durable goods orders rose as expected last month. April figures were revised down.
Orders for nondefense capital goods rose strongly and were boosted by a 31.3% gain in aircraft orders (down 54.1% in April). Excluding aircraft, nondefense capital goods orders rose 0.2% following a 5.6% rise in April.
Orders for computers and electronic products rose 1.0%, the third consecutive monthly gain. Machinery orders fell slightly following a 4.5% April gain. Orders for electrical equipment also fell, down 2.2% after a 10.3% April surge.
Orders for defense goods fell 9.7% after dropping 46.6% in April. Excluding defense, durable orders rose 0.8% (-1.3% y/y) after a 3.7% April gain.
Durable shipments fell slightly, up 5.8% from the low last September.
Durable inventories fell 0.6% and the April decline was revised deeper.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">Durable Goods Orders</td>
<td>0.6%</td>
<td>0.4%</td>
<td>-1.6%</td>
<td>-11.4%</td>
<td>3.3%</td>
<td>5.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nondefense Capital Goods</td>
<td>3.3%</td>
<td>1.4%</td>
<td>-6.6%</td>
<td>-16.5%</td>
<td>7.9%</td>
<td>3.9%</td>
</tr>
</tbody>
</table>
May New Home Sales Surge to Record Level 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 26, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020626a.jpg" width="353">
Sales of new single family homes rose much more than expected last month. April sales were revised higher with sales up 12.3% in the last two months.
May sales of 920,000 were expected.
Sales were up in each of the country&#146;s regions with double-digit m/m gains in the Northeast and South.
The median price of a new home fell 8.8% to $170,200 (-2.9% y/y).
The new home sales data reflect current sales versus the existing home sales figure which reflect closings on past sales. 

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E90401/@E90401.HTM">Homes Sales (000s, AR)</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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</thead>
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<td class="firstcol">New Single-Family</td>
<td>1,028</td>
<td>951</td>
<td>16.3%</td>
<td>908</td>
<td>880</td>
<td>879</td>
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Durable goods orders rose as expected last month. April figures were revised down. Orders for nondefense capital goods rose strongly and were boosted by a 31.3% gain in aircraft orders (down 54.1% in April). Excluding aircraft, [...]

Durable Goods Orders Rose

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<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020625b.jpg">
The Conference Board&#146;s Index of Consumer Confidence fell in June, slightly more than expected. May&#39;s level was revised up slightly. 
The 3.5% m/m decline in the Conference Board measure was less than the decline in the mid-month Sentiment reading from the University of Michigan. Nevertheless, it was the largest monthly drop in Confidence since October. 
The 2Q02 level of Consumer Confidence was the highest since 3Q01. 
The Conference Board&#39;s survey is conducted by a mailed questionnaire to 5,000 households and about 3,500 typically respond.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1401/@EF1401.HTM">Conference Board</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">Consumer Confidence</td>
<td>106.4</td>
<td>110.3</td>
<td>-10.5%</td>
<td>106.6</td>
<td>139.0</td>
<td>135.3</td>
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Existing Home Sales Down Just Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 25, 2002


<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020625c.jpg">
May sales of existing single family homes fell 0.3% versus April that was revised down slightly. Sales during the first five months of 2002 were up 8.2% from the first five months of 2001.
Home sales were mixed across the country&#146;s four regions: up in the Midwest and West, down in the Northeast and South.
The median price of an existing home rose slightly to $154,600 (6.6% y/y). The April figure was revised higher.
The figures reflect closings of past sales. 
The average rate on a conventional 30-year mortgage fell to 6.81% last month from 7.07% in December.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E905/@E90501/@E90501.HTM">Existing Home Sales (000, AR)</a></th>
<th scope="col">May</th>
<th scope="col">April</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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<td class="firstcol">Existing Single-Family</td>
<td>&nbsp;5,750</td>
<td>&nbsp;5,770</td>
<td>6.5%</td>
<td>5,291</td>
<td>5,159</td>
<td>5,193</td>
</tr>
</tbody>
</table>
 Chain Store Sales Improved 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 25, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020625a.jpg" width="353">
Chain store sales rose 0.5% in the third week of June according to the BTM-UBSW survey. It was the fourth consecutive weekly rise.
So far in June sales are up 2.1% from the May average.
The leading indicator of chain store sales published by BTM rose slightly in the second week of June, recouping a part of the decline the prior week.
During the last ten years there has been a 40% correlation between the year-to-year percent change in monthly chain store sales and the change in general merchandise store sales.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">BTM-UBSW (SA, 1977=100)</a></th>
<th scope="col">6/22/02</th>
<th scope="col">6/15/02</th>
<th scope="col">Y/Y</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
<th scope="col">1999</th>
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</thead>
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<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>416.7</td>
<td>414.6</td>
<td>4.9%</td>
<td>2.1%</td>
<td>3.4%</td>
<td>6.7%</td>
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The Conference Boards Index of Consumer Confidence fell in June, slightly more than expected. May's level was revised up slightly. The 3.5% m/m decline in the Conference Board measure was less than the decline in the mid-month [...]

Consumer Confidence Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020624a.jpg" width="353">
Capital goods orders less the volatile aircraft sector have risen 8.7% from the monthly low reached last September. An improved economy and higher corporate profits account for the gain.
Despite the gain, the capital goods sector is hardly strong. At 5.5% (AR), the three-month growth rate is roughly half the rates of the mid-to-late 1990s.
Growth in computers &amp; electronics is up, but 7.2% growth is well below the supercharged 1990s.
Orders for electrical equipment have recovered more than have computer orders but machinery orders have only just hit bottom.
The sub-series listed below contain some defense components.

<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/@ED/@ED01/@ED0101/@ED01017/@ED01017.HTM">Nondefense Capital Goods Orders</a> (SA)</th>
<th scope="col">April</th>
<th scope="col">March</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">Total less Aircraft</td>
<td>$53.1B</td>
<td>$50.9B</td>
<td>-6.1%</td>
<td>-14.2%</td>
<td>5.9%</td>
<td>4.5%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Electrical Equipment &amp; Appliances</td>
<td>9.5B</td>
<td>8.7B</td>
<td>-4.4%</td>
<td>-7.7%</td>
<td>3.8%</td>
<td>4.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Computers &amp; Electronics</td>
<td>26.8B</td>
<td>26.0B</td>
<td>-2.9%</td>
<td>-24.3%</td>
<td>8.2%</td>
<td>8.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Machinery</td>
<td>22.2B</td>
<td>21.5B</td>
<td>-3.5%</td>
<td>-7.1%</td>
<td>8.0%</td>
<td>0.2%</td>
</tr>
</tbody>
</table>
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Capital goods orders less the volatile aircraft sector have risen 8.7% from the monthly low reached last September. An improved economy and higher corporate profits account for the gain. Despite the gain, the capital goods sector is [...]

Capital Spending on the Mend

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020621a.jpg" width="353">
The Conference Board&#39;s National Index of Help-Wanted Advertising rose slightly in April. The modest decline in continuing claims for unemployment insurance may suggest hiring improvement when the May help-wanted figures are released, but it likely will not be large. 
During the past twenty years there has been a 40% correlation between the monthly change in help-wanted advertising and the change in continuing claims. The correlation between the one-year percent changes is 89%. 
Job opportunities improved in the Middle Atlantic and East North Central regions of the country but remained weak elsewhere.
The figures are seasonally adjusted.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CBDB/@C3/@C3.HTM">Conference Board</a></th>
<th scope="col">April &#39;02</th>
<th scope="col">Mar &#39;02</th>
<th scope="col">April &#39;01</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Nat&#39;l Help Wanted Index</td>
<td>47</td>
<td>46</td>
<td>65</td>
</tr>
</tbody>
</table>
Inflation Prospects: Low But Rising 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 21, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020621b.jpg" width="353">
The recent rally in the market for ten-year notes has been prompted both by a flight to quality and a reduced probability of near term Fed tightening. The flattening of the spread between the 10 Year and the Fed funds rate indicates that the market views the inflationary consequences of no Fed action as diminished. 
Nevertheless, the Future Inflation Gauge (FIG) published by the Economic Cycle Research Institute (ECRI) has moved higher recently. It is designed to signal turns in the inflation rate with a median lead of nine months. 
The FIG utilizes indications from commodity and labor markets, capacity measures, import prices, the yield curve, debt and real estate markets.

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The Conference Board's National Index of Help-Wanted Advertising rose slightly in April. The modest decline in continuing claims for unemployment insurance may suggest hiring improvement when the May help-wanted figures are released, [...]

Help Wanted Advertising Up Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020620d.jpg" width="353">
The U.S. foreign trade deficit deepened more than expected in April. March&#39;s deficit was revised deeper as were deficits for prior years. 
The trade deficit in 1Q averaged $31.6B, deeper than originally estimated. The degree of deterioration versus 4Q01 was lessened since the 4Q deficit was revised more. 
Imports rose sharply as imports of industrial supplies were boosted by higher oil prices and quantities. Imports of nonauto capital goods rose 1.5%, the fourth strong consecutive monthly increase. Imports of nonauto consumer goods also were strong for the third month in four. Automotive imports also surged.
Exports rose sharply due to across-the-board gains except for capital goods (-12.9% y/y) that were unchanged and food.

<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/@EE/@EE03/@EE03.HTM">Foreign Trade</a></th>
<th scope="col">April</th>
<th scope="col">Mar</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">Trade Deficit</td>
<td>$35.9B</td>
<td>$32.5B</td>
<td>$32.4B(4/01)</td>
<td>$358.3B</td>
<td>$378.7B</td>
<td>$261.8B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Exports - Goods &amp; Services</td>
<td>2.2%</td>
<td>1.2%</td>
<td>-7.2%</td>
<td>-6.2%</td>
<td>11.2%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Imports - Goods &amp; Services</td>
<td>4.7%</td>
<td>0.5%</td>
<td>-2.2%</td>
<td>-6.0%</td>
<td>18.3%</td>
<td>10.9%</td>
</tr>
</tbody>
</table>
1Q Current Account Deficit A Record 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 20, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020620b.jpg" width="353">
The US current account deficit deepened sharply last quarter to a record level. The deterioration versus 4Q01 was greater than expected. Prior year&#39;s figures were revised. 
A record deficit in goods, services and income trade was driven by sharp deterioration in goods and services trade while a surplus in the income balance swung to deficit.
Exports of goods and services rose slightly for the first gain in six quarters but income receipts fell sharply for the fifth straight quarter. 

<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/@EE/@EE01/@EE01.HTM">US Int&#39;l Balance of Payments</a></th>
<th scope="col">1Q &#39;02</th>
<th scope="col">4Q &#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">Current Account Deficit</td>
<td>$112.5B</td>
<td>$95.1B</td>
<td>$116.3B</td>
<td>$417.4B</td>
<td>$444.7B</td>
<td>$324.4B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % of GDP</td>
<td>4.3%</td>
<td>3.7%</td>
<td>4.3%</td>
<td>3.9%</td>
<td>4.2%</td>
<td>3.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Deficit on Gds, Serv &amp; Income</td>
<td>$96.6B</td>
<td>$81.5B</td>
<td>$96.1B</td>
<td>$343.9B</td>
<td>$356.9B</td>
<td>$244.1B</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Exports</td>
<td>-0.1%</td>
<td>-5.8%</td>
<td>-16.5%</td>
<td>-9.6%</td>
<td>13.6%</td>
<td>4.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Imports</td>
<td>4.0%</td>
<td>-3.9%</td>
<td>-12.8%</td>
<td>-8.4%</td>
<td>18.9%</td>
<td>10.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Unilateral Transfers Deficit</td>
<td>$15.9B</td>
<td>$13.6B</td>
<td>$11.6B</td>
<td>$49.5B</td>
<td>$53.4B</td>
<td>$48.8B</td>
</tr>
</tbody>
</table>
Leading Indicators Resume Rise 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 20, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020620c.jpg" width="353">
The Composite Index of Leading Economic Indicators rose more than expected last month to a new high. The April decline was lessened slightly. 
The ratio of coincident to lagging indicators rose sharply, an indication that excesses in the economy are falling relative to the economy&#39;s actual performance.
60% of the leaders&#39; component series rose last month versus only 40% rising in April. A decline in claims for jobless insurance and a rise in the money supply had the largest positive influence.
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"><a href="http://www.haverselect.com/dlx/BCI/BCI.HTM">Business Cycle Indicators</a></th>
<th scope="col">May</th>
<th scope="col">April</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>0.4%</td>
<td>-0.3%</td>
<td>2.7%</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>0.0%</td>
<td>-0.3%</td>
<td>0.3%</td>
<td>3.4%</td>
<td>3.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>-0.2%</td>
<td>-0.5%</td>
<td>-5.5%</td>
<td>-1.3%</td>
<td>2.8%</td>
<td>1.8%</td>
</tr>
</tbody>
</table>
Jobless Insurance Claims Fell Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 20, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020620a.jpg" width="353">
Initial claims for unemployment insurance fell slightly in the latest week, about as expected. The prior week&#39;s level was revised up.
The latest claims data is for the June survey period for nonfarm payrolls. Initial claims are down 29,000 versus the May period, a decline influenced by the expiration of the extended benefits program
Continuing claims for unemployment insurance rose for the first week in five. The prior week&#39;s level was revised down sharply.
The four-week moving average of initial claims fell to 396,250, -3.2% y/y. 
The insured rate of unemployment was stable at 2.9%.

<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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">6/15/02</th>
<th scope="col">6/8/02</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>393.0</td>
<td>395.0</td>
<td>-1.3%</td>
<td>405.8</td>
<td>299.8</td>
<td>297.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,775</td>
<td>26.6%</td>
<td>3,021</td>
<td>2,114</td>
<td>2,186</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Surged 
by <a href="/comment/Moeller.html">Tom Moeller</a> June 20, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020620e.jpg" width="353">
The Philadelphia Fed&#146;s index of general business conditions for June surged more than expected to its highest level since June 1998.
New and unfilled orders surged while inventories fell at a lesser rate. Delivery lead times lengthened for only the third month this year. 
The business conditions index reflects a separate survey question, not the components. 
Pricing pressure firmed to the highest level since September 2000.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">June</th>
<th scope="col">May</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">General Activity Index</td>
<td>22.2</td>
<td>9.1</td>
<td>-5.0</td>
<td>-17.3</td>
<td>8.2</td>
<td>13.3</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>22.9</td>
<td>19.7</td>
<td>16.5</td>
<td>-1.0</td>
<td>27.1</td>
<td>10.0</td>
</tr>
</tbody>
</table>
May U.S. Budget Deficit Rose 
by <a href="/comment/Moeller.html">Tom Moeller </a> June 20, 2002


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020620f.jpg" width="353">
The US budget deteriorated somewhat more than expected last month. May&#39;s fiscal YTD deficit was the largest since 1994. 
Receipts fell sharply m/m following tax filings on April 15. Fiscal YTD individual income taxes were down 20.4% versus last year, reflecting higher unemployment. Fiscal YTD corporate taxes fell 17.1% versus last year. 
Growth in expenditures remained strong lifted by higher spending on defense (15.7% YTD), education (15.6% YTD) and income security (17.9% YTD). 

<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/@E1/@E106/@E10602/@E10602.HTM">US Government Finance</a></th>
<th scope="col">May</th>
<th scope="col">April</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>$-80.6B</td>
<td>$67.2B</td>
<td>$-147.1B</td>
<td>$127.2B</td>
<td>$236.9B</td>
<td>$124.4B</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Revenues</td>
<td>$102.5B</td>
<td>$137.4B</td>
<td>-11.6%</td>
<td>-1.7%</td>
<td>10.8%</td>
<td>6.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Outlays</td>
<td>$183.1B</td>
<td>$170.3B</td>
<td>10.0%</td>
<td>4.2%</td>
<td>5.0%</td>
<td>3.1%</td>
</tr>
</tbody>
</table>
</body>
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The U.S. foreign trade deficit deepened more than expected in April. March's deficit was revised deeper as were deficits for prior years. The trade deficit in 1Q averaged $31.6B, deeper than originally estimated. The degree of [...]

U.S. Trade Deficit a Record in April

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/020619a.jpg" width="353">
The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) fell in early June. The decline reversed much of the index&#39;s forward progress in May.
Despite the latest decline, the leading index&#39;s six-month growth rate improved to its highest level since early 2000.
Construction of the ECRI Leading Index is quite different from the Index of Leading Economic Indicators published by the Conference Board. Nevertheless there has been an 80% correlation between the annual percent change in the two over the last 20 years.
The components of the index are money supply plus stock &amp; bond mutual funds, the JOC-ECRI industrial materials price index, mortgage applications, bond quality spreads, stock prices, bond yields, and initial jobless insurance claims.
The median lead of the ECRI index at business cycle peaks has been 10.5 months and at cycle troughs 3.0 months. The sideways movement of the leading index in 2002 may or may not signal something about the economy&#39;s growth rate.

<table border="0" cellspacing="0" width="100%">

</table>
<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/weekly/@W8/@W801/@W801.HTM">ECRI</a></th>
<th scope="col">6/07/02</th>
<th scope="col">5/31/02</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">Weekly Leading Index</td>
<td>122.4</td>
<td>124.2</td>
<td>0.8%</td>
<td>-5.0%</td>
<td>0.8%</td>
<td>2.4%</td>
</tr>
</tbody>
</table>
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The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) fell in early June. The decline reversed much of the index's forward progress in May. Despite the latest decline, the leading index's [...]

ECRI Leaders Stutter, Growth Rate Rose

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.

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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.

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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.

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**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.

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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.

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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.

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Asia

Economic Letter From Asia: Chipping In

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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.

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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.

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- 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

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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.

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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.

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**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).

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**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).

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**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.

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**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.

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**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: June 2002

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