Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030731a.jpg" width="353">
Real GDP grew at a 2.4% annual rate in the second quarter, after increasing only 1.4% in each of the two previous periods. Consensus forecasts for 2Q GDP were 1.8% growth.
Personal consumption expenditures were 3.3% (a.r.) higher than last quarter with the bulk of the advance in durable goods purchases (+22.6% a.r.). Fixed investment rose by 6.6% a.r. the largest increase since the second quarter of 2000. Expenditures for equipment and software (+4.8% a.r.) grew for the first time since the fourth quarter of 2000.
Federal defense spending soared by 44.1% a.r. in the second quarter, while federal nondefense and state and local government expenditures were lower.
The largest drag on second quarter GDP was the trade balance. Exports were 3.1% a.r. lower while imports increased by 9.2% a.r. causing a negative contribution of 1.56 percentage points to real GDP.
Domestic final demand was up 4.6% a.r. last quarter, the largest increase since the first quarter of 2000.
Inflation was up a modest 1.0 % with the price indexes of many consumer goods declining.

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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">2Q&#39;03</th>
<th scope="col">1Q&#39;03</th>
<th scope="col">4Q&#39;02</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">GDP</td>
<td>2.4%</td>
<td>1.4%</td>
<td>1.4%</td>
<td>2.4%</td>
<td>0.3%</td>
<td>3.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-0.8%</td>
<td>-0.8%</td>
<td>0.3%</td>
<td>0.6%</td>
<td>-1.2%</td>
<td>0.1%</td>
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<td class="firstcol">Final Sales</td>
<td>3.2%</td>
<td>2.3%</td>
<td>1.1%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Trade Effect</td>
<td>-1.6%</td>
<td>0.8%</td>
<td>-1.6%</td>
<td>-0.7%</td>
<td>-0.2%</td>
<td>-0.7%</td>
</tr>
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<td class="firstcol">Domestic Final Demand</td>
<td>4.6%</td>
<td>1.4%</td>
<td>2.6%</td>
<td>2.4%</td>
<td>1.6%</td>
<td>4.3%</td>
</tr>
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<td class="firstcol">Chained GDP Price Deflator</td>
<td>1.0%</td>
<td>2.4%</td>
<td>1.8%</td>
<td>1.1%</td>
<td>2.4%</td>
<td>2.1%</td>
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Chicago Purchasing Agents' Index Advances 
by <a href="/comment/Stone.html">Carol Stone</a> July 31, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030731b.jpg" width="353">
After increasing by 1.3% in the first quarter of 2003 the employment cost index for civilian workers advanced a more modest 0.9% in the second quarter.
The components for both wages and salaries and benefit costs each showed smaller gains from March to June than in the previous three month period. The largest differences in wages and salaries were in the finance, insurance and real estate industry which had surged 5.2% in the first quarter and was 0.8% higher in Q2, and in wholesale trade (+1.6% in Q1 vs &#150;0.1% in Q2).
Benefit costs in manufacturing, which had jumped 4.0% in the first quarter, gained 1.3% in the second.
Wages and salaries account for roughly 70% of the compensation index and benefit costs comprise about 30%.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB08/@EB08.HTM">ECI- Private Industry Workers</a></th>
<th scope="col">2Q&#39;03</th>
<th scope="col">1Q&#39;03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Compensation</td>
<td>0.8%</td>
<td>1.4%</td>
<td>3.6%</td>
<td>3.2%</td>
<td>4.2%</td>
<td>4.4%</td>
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<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.6%</td>
<td>1.0%</td>
<td>2.6%</td>
<td>2.7%</td>
<td>3.8%</td>
<td>3.9%</td>
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<td class="firstcol">&nbsp; Benefit Costs</td>
<td>1.3%</td>
<td>2.4%</td>
<td>6.2%</td>
<td>4.7%</td>
<td>5.1%</td>
<td>5.6%</td>
</tr>
</tbody>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030731c.jpg" width="353">
Initial claims for unemployment insurance edged down 3,000 in the July 26 week to 388,000 from an upward-revised 391,000 the prior week. This move extends to a second week an encouraging decline in claims below the 400,000 often associated with slack (or even recessionary) conditions in labor markets. It also adds further evidence that the bulge in claims in late June and early July was transitory, due to seasonal plant maintenance in such manufacturing industries as auto, apparel and furniture.
At the same time, the total number of unemployment benefit recipients &#150; also called &#147;continuing claims&#148; &#150; remained high the prior week and the associated &#147;insured unemployment rate&#148; returned to 2.9% from 2.8% the week before. Thus, even as the number of layoffs seems to be receding, it is still relatively difficult for those unemployed to get the new jobs that would remove them from the ranks of the unemployed.

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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">7/26/03</th>
<th scope="col">7/19/03</th>
<th scope="col">7/12/03</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Initial Claims</td>
<td>388.0</td>
<td>391.0</td>
<td>415.0</td>
<td>404.3</td>
<td>406.0</td>
<td>299.7</td>
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<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,648</td>
<td>3,585</td>
<td>3,575</td>
<td>3,022</td>
<td>2,114</td>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030731d.jpg" width="353">
The Chicago Purchasing Managers &#147;Business Barometer&#148; advanced 3.4 points in July to 55.9, its highest reading since January and well ahead of the consensus forecast for a 1.1-point rise. New orders led the gain, picking up nearly 7 points to 61.7, their highest since last November. Production increased 1.9 points, and employment, 2.2. This last however, remains below 50%, indicating the persistence of an adverse balance of layoffs and hires.
Seasonal factors for the overall index are supportive in July, accounting for some of the month-to-month firmness. However, this July&#146;s performance before seasonal adjustment is definitely better than the prior couple of years. The current July saw a decrease in the overall index of about 3 points from June, comparing favorably to declines of almost 8 points in July 2002 and 5 points in July 2001. Thus, there appears to be genuine improvement in manufacturing in the Chicago metropolitan area. Similarly, the Milwaukee Purchasing Managers Index rose from 48 in June to 58 in July. Although frequently more volatile, the Milwaukee survey indicates the geographic breadth of the improvement.

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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">July</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Business Barometer</td>
<td>55.9</td>
<td>52.5</td>
<td>52.2</td>
<td>52.7</td>
<td>41.4</td>
<td>51.8</td>
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<td class="firstcol">New Orders</td>
<td>61.7</td>
<td>54.8</td>
<td>54.6</td>
<td>56.3</td>
<td>42.3</td>
<td>53.1</td>
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<td class="firstcol">Prices Paid</td>
<td>47.9</td>
<td>49.1</td>
<td>53.7</td>
<td>56.9</td>
<td>50.4</td>
<td>65.6</td>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030731e.jpg" width="353">
The Conference Board&#146;s National Index of Help-Wanted Advertising increased slightly in June to 38 from its downward revised level of 35 in May. During the last ten years there has been a 92% correlation between the level of help-wanted advertising and the year-to-year % change in nonfarm payrolls.
The proportion of labor markets with rising want-ad volume junped to 73% in June, the highest since September, 2002.
The Conference Board surveys help-wanted advertising volume in 51 major newspapers across the country every month. 

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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">June</th>
<th scope="col">May</th>
<th scope="col">June2002</th>
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<td class="firstcol">National Help Wanted Index</td>
<td>38</td>
<td>35</td>
<td>47</td>
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Real GDP grew at a 2.4% annual rate in the second quarter, after increasing only 1.4% in each of the two previous periods. Consensus forecasts for 2Q GDP were 1.8% growth. Personal consumption expenditures were 3.3% (a.r.) higher than [...]

Initial Jobless Claims Below 400,000 a Second Week

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030730a.jpg" width="353">
The Chicago Fed National Activity Index (CFNAI) improved slightly in June to &#150;0.32 from a reading of &#150;0.40 in May.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth of over 3% a.r.
The June index was the highest since November, 2002. The three-month moving average of the CFNAI improved to &#150;0.58 from -0.70 in May.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders. Employment data accounted for &#150;0.35 of the &#150;0.32 June index, while output components contributed &#150;0.01 (an improvement from May) and all other components contributed +0.04 up from &#150;0.01 the previous month.
For a complete discussion of the latest Chicago Fed&#39;s National Activity Index click <a href="http://www.chicagofed.org/economicresearchanddata/national/index.cfm">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">June 2003</th>
<th scope="col">May 2003</th>
<th scope="col">June 2002</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">CFNAI</td>
<td>-0.32</td>
<td>-0.40</td>
<td>-0.04</td>
<td>-0.33</td>
<td>-1.19</td>
<td>-0.13</td>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030730b.jpg" width="353">
Mortgage applications plunged last week, according to survey data compiled by the Mortgage Bankers Association of America. The overall index of mortgage applications dropped 24.3% on the week to 972.4, the lowest since last December (3/16/90 = 100). The abrupt, sharp upturn in interest rates has put a heavy brake on refinancing activity, pulling that sub-index down 32.9% this last week alone, putting it 58.4% below its all-time high of 9977.8 reached just eight weeks ago on May 30. The index for loan applications for home purchase, however, remained firm, edging down just 3.5% on the week; at 426.9, this index stands 7.3% below its record 460.5 set in that same May 30 week.
Interest rates are the main drag on this market. The contract rate on 30-year fixed rate loans tabulated by the Federal Home Loan Mortgage Corporation (&#147;Freddie Mac&#148;) was up 27 basis points last week to 5.94%, 73 basis points above its recent low set in the week ended June 20 and the highest since mid-January. The bigger part of the impact of this rapid rise in rates has been on refinancing activity, which had been used by consumers to help fund new spending and also to pay down old debt.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders.
Visit the Mortgage Bankers Association site at <a href="http://www.mbaa.org/">www.mbaa.org.</a>

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">7/25/03</th>
<th scope="col">7/18/03</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Total Market Index</td>
<td>972.4</td>
<td>1,284.3</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
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<td class="firstcol">&nbsp; Purchase</td>
<td>426.9</td>
<td>442.4</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
</tr>
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<td class="firstcol">&nbsp; Refinancing</td>
<td>4145.8</td>
<td>6,181.2</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
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The Chicago Fed National Activity Index (CFNAI) improved slightly in June to 0.32 from a reading of 0.40 in May. A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth of over 3% [...]

Mortgage Applications Plunged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030725d.jpg" width="353">
After Thursday&#146;s report of strong retail sales in the UK for June, tepid growth in second quarter GDP was disappointing. The Preliminary estimate showed only a 0.3% increase from the first quarter (1.8% from a year ago).
The early GDP tabulation represents estimates of industrial value added. It indicates that oil, gas and other mineral extraction declined, and manufacturing production was probably flat. Service sector output gained about 0.4% on the quarter. Thus, while retail sales suggest that consumer demand improved, other segments of the UK economy were sluggish.

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<th scope="col" class="firstcol">UK: Constant GDP (1995=100)</th>
Q2 2003
Q1 2003
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">&nbsp;</td>
<td>Q/Q%Chg</td>
<td>Y/Y%Chg</td>
<td>Q/Q%Chg</td>
<td>Y/Y%Chg</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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<td class="firstcol">Total</td>
<td>0.3</td>
<td>1.8</td>
<td>0.1</td>
<td>2.1</td>
<td>1.9</td>
<td>2.1</td>
<td>3.1</td>
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<td class="firstcol">Service Industries</td>
<td>0.4</td>
<td>2.6</td>
<td>0.4</td>
<td>2.6</td>
<td>2.6</td>
<td>3.5</td>
<td>3.6</td>
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</tbody>
</table>
German Inflation Drifting Lower 
by <a href="/comment/Stone.html">Carol Stone</a> July 25, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030725e.jpg" width="353">
German consumer prices are drifting ever so slightly lower, according to the preliminary July CPI data for the six &#147;Laender&#148; (states). Their individual states&#146; price indexes rose 0.2% to 0.3% each, averaged by the Federal Statistics Office to 0.2%, which yields a 0.1% decline after seasonal adjustment. This monthly performance produced year-on-year inflation in July at just under 1% for a fourth consecutive month. Details on the sources of the moderation in July will not be reported until the final data are issued in mid-August. But a quick glance at the trend in the euro suggests that its recent strength has been a factor in the current slow pace of inflation in Germany. 

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<th scope="col" class="firstcol">German CPI</th>
<th scope="col">July 2003, NSA</th>
<th scope="col">July 2003, SA</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">2000=100</td>
<td>0.19%</td>
<td>-0.10%</td>
<td>0.87%</td>
<td>1.37%</td>
<td>1.97%</td>
<td>1.47%</td>
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After Thursdays report of strong retail sales in the UK for June, tepid growth in second quarter GDP was disappointing. The Preliminary estimate showed only a 0.3% increase from the first quarter (1.8% from a year ago). The early GDP [...]

U.K. Q1 GDP Lower than Expected

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030725a.jpg" width="353">
Durable goods orders surged 2.1% in June, double the Consensus expectation for a 1.0% rise. May figures were revised up slightly.
A 20.0% m/m jump in orders for commercial aircraft &amp; parts accounted for the upside surprise in orders. That gain lifted all transportation sector orders by 3.9%. Excluding the transportation sector, durable orders rose 1.4% (2.7% y/y) following a 0.9% gain in May.
Nondefense capital goods orders jumped 2.0% on the gain in aircraft orders. Excluding aircraft and parts, nondefense capital goods orders rose 0.6% (8.3% y/y) following an upwardly revised 0.5% May gain.
For a report from the Federal Reserve Bank of St. Louis titled &quot;Waiting for the Investment Boom? It Might Be a While&quot; click <a href="http://research.stlouisfed.org/publications/net/20030501/cover.pdf">here</a>.
During the last nine years there has been an 85% correlation between the y/y change in nondefense capital goods orders and the change in nonresidential investment in equipment &amp; software. There has been a 96% correlation between the change in shipments of these capital goods and investment.
Shipments of durable goods rose 1.3% (-0.8% y/y). Durable goods shipments were up 1.3% YTD.
Durable inventories dropped 0.6% (-1.7% y/y), the largest one month decline since March 2002. Lower inventories in the transportation sector accounted for much of the drop.

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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">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
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<td class="firstcol">Durable Goods Orders</td>
<td>2.1%</td>
<td>0.0%</td>
<td>4.4%</td>
<td>-0.1%</td>
<td>-11.4%</td>
<td>3.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nondefense Capital Goods</td>
<td>2.0%</td>
<td>0.2%</td>
<td>12.3%</td>
<td>-5.3%</td>
<td>-16.5%</td>
<td>7.9%</td>
</tr>
</tbody>
</table>
New Home Sales Stronger Still 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 25, 2003


<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030725b.jpg">
Sales of new single family homes in June continued the recent surge and added 4.7% m/m to the 10.9% May gain which was revised down slightly. June sales were at a record 1.160M unit rate versus Consensus expectations for 1.100M.
Sales gains were spread across the country&#39;s regions in June but were strongest in the Northeast where sales rose 32.3% (24.6% y/y). In the Midwest sales rose 9.8% (20.3% y/y).
Elsewhere, sales in the South rose 0.9% (21.8% y/y) and in the West sales rose 2.7% (19.2% y/y).
The median price of a new home fell to $187,000 (-1.9% y/y) and the prior month&#39;s figure was revised up.
The new home sales data reflect current sales versus the existing home sale figures which reflect closings on past sales.

<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/@E9/@E904/@E90401/@E90401.HTM">Homes Sales (000s, AR)</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">New Single-Family</td>
<td>1,160</td>
<td>1,108</td>
<td>21.0%</td>
<td>977</td>
<td>907</td>
<td>880</td>
</tr>
</tbody>
</table>
Existing Home Sales Dip 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 25, 2003


<img align="left" border="0" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030725c.jpg">
Sales of existing single family homes fell short of Consensus expectations for 6.00M. Sales in June were 5.830M, down 0.3% from May. Figures back to 1989 were revised slightly due to new seasonal factors.
Lower sales in the Northeast and in the Midwest were partially offset by a gain in the West and stability in the South.
The median price of an existing home rose to $176,500 (+7.7% y/y).
The figures reflect closings of past home sales.

<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/@E9/@E905/@E90501/@E90501.HTM">Existing Home Sales (000, AR)</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Existing Single-Family</td>
<td>&nbsp;5,830</td>
<td>&nbsp;5,850</td>
<td>8.6%</td>
<td>5,595</td>
<td>5,292</td>
<td>5,158</td>
</tr>
</tbody>
</table>
</body>
</html>

Durable goods orders surged 2.1% in June, double the Consensus expectation for a 1.0% rise. May figures were revised up slightly. A 20.0% m/m jump in orders for commercial aircraft & parts accounted for the upside surprise in orders. [...]

U.S. Durable Goods Orders Surge

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030724c.jpg" width="353">
Warm weather and the new &#147;Harry Potter&#148; book helped to bolster retail sales in the UK last month. The standard yardstick, the seasonally adjusted index of sales volume, surged 1.9% over May. Analysts had forecast a 0.4% gain.. Anecdotal evidence cited by the UK Office for National Statistics (ONS) highlights the role of warm, sunny weather in prompting good sales of seasonal merchandise such as barbecue equipment and summer clothes. Sales at &#147;non-specialized stores&#148; rose 3.6% and those at &#147;non-store retailers&#148;, i.e., Internet and other mail order outlets, were up 3.7%, the latter attributed by some to demand for the popular Harry Potter novel, which was released June 21. Similarly in the US, June sales at &#147;sporting goods, book, hobby and music stores&#148; jumped 3.0%, suggesting the same phenomenon at work.. The UK retail sales index was up a whopping 7.0% in June from a year ago. But the ONS notes that the Queen&#146;s Jubilee in June 2002 probably distorts that comparison, and it should be interpreted cautiously.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">UK: Retail Sales (1995=100)</th>
<th scope="col">June 2003</th>
<th scope="col">&nbsp;% Change &nbsp;from May</th>
<th scope="col">% Change from &nbsp;June 2002</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">All Retailing</td>
<td>140.9</td>
<td>1.9</td>
<td>7.0</td>
<td>5.4</td>
<td>5.9</td>
<td>4.5</td>
</tr>
<tr>
<td class="firstcol">Non-food Stores</td>
<td>154.9</td>
<td>2.5</td>
<td>7.9</td>
<td>6.4</td>
<td>8.0</td>
<td>6.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Non-store Retailing &amp; Repair</td>
<td>125.0</td>
<td>3.7</td>
<td>-0.1</td>
<td>5.8</td>
<td>3.1</td>
<td>0.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Warm weather and the new Harry Potter book helped to bolster retail sales in the UK last month. The standard yardstick, the seasonally adjusted index of sales volume, surged 1.9% over May. Analysts had forecast a 0.4% gain.. [...]

U.K. Retails Sales Surge

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030724a.jpg" width="353">
Initial claims for unemployment insurance dropped below 400,000 for the first week since early February. Claims fell 29,000 to 386,000 versus the prior week which was revised up slightly. Consensus expectations had been for claims of 418,000.
The recent volatility in initial claims may reflect temporary, seasonal layoffs in the auto, textile and apparel industries.
The four-week moving average of initial claims dropped to 419,250 (+8.2% y/y), the lowest level since early March.
Continuing claims for unemployment insurance fell for the second week. The 24,000 decline followed a 151,000 collapse the prior week which was revised from a 117,000 drop.
During the last ten years there has been a 79% (inverse) correlation between the level of initial claims for unemployment insurance and the y/y change in nonfarm payrolls.
The insured rate of unemployment fell to 2.8% from 2.9% the week prior. It was the lowest level for this rate of unemployment since mid-April.
New research from the Federal Reserve Bank of Kansas City titled &quot;A Closer Look at Jobless Recoveries&quot; can be found <a href="http://www.kc.frb.org/Publicat/econrev/Pdf/2q03schr.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">7/19/03</th>
<th scope="col">7/12/03</th>
<th scope="col">Y/Y</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>386.0</td>
<td>415.0</td>
<td>3.5%</td>
<td>404.3</td>
<td>406.0</td>
<td>299.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,605</td>
<td>3.4%</td>
<td>3,575</td>
<td>3,022</td>
<td>2,114</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance dropped below 400,000 for the first week since early February. Claims fell 29,000 to 386,000 versus the prior week which was revised up slightly. Consensus expectations had been for claims of [...]

Initial Claims for Jobless Insurance Below 400,000

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030724b.jpg" width="353">
Consumer sentiment in Japan recovered somewhat in the second quarter, rising 1.2 points to 37.3, the first increase in a year. Better employment conditions made the largest contribution, as that survey component advanced 2.3 points from a first quarter low. People&#146;s sense of their overall standard of living gained 1.0 point, perhaps reflecting the continuing improvement in the Japanese stock market. The Nikkei 225 stock price index stood at just 7608 on April 28 but by the time the sentiment survey was taken as of June 15, it had rebounded some 18% to 8981.[In subsequent weeks, these key stocks have added another 635 points.]. Despite the latest quarter&#146;s improvement in survey participants&#146; feelings about their well-being, they maintain a general malaise about economic prospects. The consumer confidence index is at a very low level. People are still worried about income growth and their expectations about leisure pursuits have eroded consistently. However, there is better news elsewhere in Japan: GDP has risen for five quarters and the widely watched TANKAN survey of business prospects indicates less concern among business executives. Along with the better stock market, these improvements, taken together, show at least some stabilization in the Japanese economy.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Japan: Consumer Behavior Survey</th>
<th scope="col">Q2 2003</th>
<th scope="col">&nbsp;Q1&nbsp; 2003</th>
<th scope="col">Q4 2002</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment Index</td>
<td>37.3</td>
<td>36.1</td>
<td>38.1</td>
<td>38.8</td>
<td>38.7</td>
<td>43.0</td>
</tr>
<tr>
<td class="firstcol">Job Situation</td>
<td>27.3</td>
<td>25.0</td>
<td>27.1</td>
<td>27.7</td>
<td>25.2</td>
<td>38.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Standard of Living</td>
<td>37.7</td>
<td>36.7</td>
<td>38.2</td>
<td>39.0</td>
<td>39.4</td>
<td>43.6</td>
</tr>
</tbody>
</table>
</body>
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Consumer sentiment in Japan recovered somewhat in the second quarter, rising 1.2 points to 37.3, the first increase in a year. Better employment conditions made the largest contribution, as that survey component advanced 2.3 points [...]

Japanese Consumer Sentiment Improves

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030723b.jpg" width="353">
Prices for crude oil and natural gas have fallen substantially from their highs set earlier this year. Reports of improved inventory conditions and events in Iraq prompted the declines.
Yesterday, the domestic spot market price for West Texas Intermediate crude oil fell $1.60 to $30.18. That price still was up roughly 15% y/y.
A report from the Federal Reserve Bank of St. Louis titled &quot;A Case for Oil&quot; can be found <a href="http://research.stlouisfed.org/publications/net/20030601/cover.pdf">here</a>.
The spot price for natural gas very recently has been stable near $5.00/mmbtu. That is down sharply from over $6.00/mmbtu in June and down from the spike to $19.00 in February.

Rates Up, Mortgage Applications Down Sharply 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 23, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030723a.jpg" width="353">
As interest rates rose, the index of mortgage applications compiled by the Mortgage Bankers Association fell a sharp 5.4% last week following a slight blip up the week earlier.
The latest decline in the index for all mortgage applications pulled it down by nearly one third from the peak level in late May.
Applications to refinance fell 7.2% last week and were down 38.1% from the peak in late May.
The decline in mortgage refinancings came as interest rates surged. Rates on a conventional 30-Year mortgage jumped 40 basis points w/w to 6.02%, the first week over 6.0% since early April. The effective rate on a 15-year mortgage also surged to 5.46%.
Applications for home purchase remained firm, down only 1.1% last week following an 8.0% jump the week prior. So far in July mortgage applications for home purchase are up 3.0% from June (16.1% y/y) and are setting a new record.
During the last ten years there has been a 53% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders.
Visit the Mortgage Bankers Association site at <a href="http://www.mbaa.org/">www.mbaa.org.</a>

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">7/18/03</th>
<th scope="col">7/11/03</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>1,284.3</td>
<td>1,358.2</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>442.4</td>
<td>447.2</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>6,181.2</td>
<td>6,657.2</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
</tr>
</tbody>
</table>
</body>
</html>

Prices for crude oil and natural gas have fallen substantially from their highs set earlier this year. Reports of improved inventory conditions and events in Iraq prompted the declines. Yesterday, the domestic spot market price for [...]

Oil & Gas Prices Well Off Highs

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

US consumers much more optimistic than those in the Euro area and the UK

  Job openings take a step down in 2024

Fed's super core services inflation measure pushing up core rate

Blue Chip forecasters expect significant monetary easing this year except in Japan

Euro area economy stagnating while US grows above trend

Chinese and Japanese equity markets are diverging markedly

Chinese population declines in 2023 for second consecutive year

Outlook for US GDP growth on the rise; declining in euro area, Japan and China

There are still 1.4 job openings for every unemployed person in the US

US PCE inflation over the past six months has slowed to the Fed's 2% target

FOMC think rate hikes are done and looks for 75bps of decline in 2024

Weaker economic data surprises pushing down US interest rates

Recent disinflation has been widespread across Europe and North America

Recent decline in US inflation expectations helping to lower interest rates

China is losing its luster as foreign direct investment heads out

Blue Chip forecasters think Fed will be tighter for longer

Systemic stress on rise in Europe, less so in US

Recent increase in longer-term US market interest rates not due to inflation

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240419F11.jpg

240419G11.jpg

The U.S. Leading Economic Index fell 0.3% (-5.5% y/y) during March after a 0.2% February increase, revised from 0.1%, according to a report by The Conference Board. These two changes followed a 0.5% January decline. A 0.1% slip in March had been expected in the Action Economics Forecast Survey.

Five of ten components contributed negatively to the overall index in March including average weekly claims for unemployment insurance, the ISM new orders index, building permits, the spread between the 10-year Treasury and the Fed funds rate, and consumer expectations for business/economic conditions. The length of the average workweek, stock prices and the leading credit index contributed positively. New orders for capital goods and new orders for consumer goods made minimal positive contributions to the index change.

A 0.3% increase in the Coincident Economic Index in March followed a 0.1% February rise. These gains came after a 0.3% January decline. All four of the components made positive contributions to the coincident index in March, including personal income less transfers, industrial production, nonagricultural payroll employment and real manufacturing & trade sales.

The Lagging Economic Index held steady last month (+1.0% y/y) after increasing 0.3% in February and 0.6% in January. Two of the index’s seven components made slightly negative contributions last month, the average duration of unemployment and commercial & industrial loans outstanding. The six-month change in business inventories and the six-month change in labor costs made minimally negative contributions. The six-month change in the services CPI contributed positively, while banks’ prime rate and the ratio of consumer credit-to-income were unchanged.

The ratio of the coincident index to the lagging index is also viewed as a leading indicator of economic activity. This measure rose 0.2% in March, following two straight monthly declines. It was 0.7% below its most recent peak in December of last year.

The Conference Board figures are available in Haver's **BCI** database; the components are available there, and most are also in **USECON**. The expectations are in the **AS1REPNA** database. Visit the Conference Board's [website](https://www.conference-board.org/) for coverage of leading indicator series from around the world.

240419H11.jpg

240419I11.jpg

- Drop in leading index follows first rise in two years.
- Coincident Indicators exhibit strength.
- Lagging index holds steady after two monthly increases.

U.S. Leading Economic Indicators Resume Decline in March

Robert Brusca

240419E.jpg

Global inflation trends have been in concert for major money center countries/areas- excluding Japan, of course. Inflation flared after Covid struck and in the wake of the Russian invasion of Ukraine. It continued to ramp up more than central bankers thought. Interest rates were raised from very low levels- the U.S. led the pack in terms of rate hike speed, getting its key rate up to its prevailing inflation rate in record time after a long period of being asleep at the switch. It said it stood prepared to hold rates ‘higher longer.’ Then the next unexpected thing happened; inflation fell sooner and more sharply than expected and it did this globally, not just in the U.S.  However, we are now into phase three of this process: inflation went up more and longer, inflation then fell more and faster and now inflation is off peak but not back were we want it—and it is looking stubborn. This is more or less a global money center country/area description of inflation. Inflation that went through its boom-bust phase, as you clearly see from the sequential growth rates of the German PPI is now up from its lows. The headline price level is falling but losing momentum. The core PPI is only falling in its ‘legacy’ 12-month rate.

German PPI inflation falls by 2.8% over 12 months, falls at a 3.4% annual rate over six months, and falls at a 1.2% rate over three months. Core PPI inflation falls by 0.7% over 12, months then rises at a 0.7% annual rate over six months and three months. The core points the way for trend.

The NSA (not seasonally adjusted) sequential data show acceleration across and three major PPI sectors: consumer goods, investment goods and intermediate goods. Prices only fall over 12 months for intermediate goods. All other sectors trends show increases by period and all show acceleration in progress.

German CPI data show higher inflation over three months than over 12 months for the headline and the core with a dip in between – not a steady state acceleration but a clear hint at where things are headed and with German inflation rates clearly above the EMU-wide 2% mark.

240419.jpg

**Summing up**
Inflation is now a major issue. Growth is struggling but depending on the country it is limping by and showing some signs of improving. While that is good for growth, it can’t be good for over-the-top inflation. Inflation does not just need to stabilize; it needs to fall. PPI inflation is running below the ECB target pace for the euro area (a target that applies to the HICP), but PPI inflation does not include the service sector where the inflation problem resides in its greatest intensity. The PPI does not have a target or even a specific benchmark. The key to the future will be service sector inflation that is high and falling slowly. The trends for inflation in the PPI and CPI are going to be trends we will have to watch closely. Of course, the official target is for the HICP and for the euro area-wide HICP; the ECB has no targets by country or for other price indexes. But every new report matters. The German HICP report carries a great weight in the ECB scheme of things. Right now, it appears that inflation progress is slowing and may even be backtracking. If so, the outlook for rate cuts, that is still widely held, could be in jeopardy.

Germany

German PPI Stops Falling and Flatlines – Is That Good Enough?

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240418K4.jpg

Sales of existing homes fell 4.3% (-3.7% y/y) during March to 4.19 (SAAR) million from an unrevised 4.38 million in February. January sales also were unrevised at 4.0 million. Sales remained increased from the low of 3.85 million in October 2023. The Action Economics Forecast Survey expected March sales of 4.13 million units. The sales figures are based on closings of sales signed in earlier months.

The median price of all existing homes (NSA) improved 2.5% (4.8% y/y) to $393,500 after rising to $383,800 in February. Prices remained 4.9% below the June 2022 peak of $413,800. The median price of an existing single-family home in March improved 2.4% (4.7% y/y) to $397,200 after rising 1.3% in February. The median price for condos & co-ops surged 4.2% (5.8%) to $357,400 after rising 1.0% in February.

Single-family home sales fell 4.3% (-2.8% y/y) last month to 3.80 million units after rising 10.3% February. Sales remained 35.0% below their high of 5.85 million in October 2020. Condo and co-op sales declined 4.9% (-11.4% y/y) to 390,000 after rising 2.5% in February. Sales have declined 47.3% since the January 2021 high of 740,000.

Sales declined throughout most of the country last month. Sales in the West fell 8.2% (-3.7% y/y) to 780,000 after rising 16.4% in February. Sales in the Midwest weakened 1.9% (-1.0% y/y) to 1.01 million last month after rising 8.4% in February. Sales in the South declined 5.9% (-5.0% y/y) in March to 1.90 million after rising 9.8% in February. Sales in the Northeast rose 4.2% (-3.8% y/y) to 500,000 after holding steady for three straight months.

The number of existing homes for sale (NSA) rose 4.7% (14.4% y/y) to 1.1 million in March after rising 5.0% in February. The supply of homes on the market at the current selling rate (NSA) rose to 3.2 months from 2.9 months in February. The record low in supply of 1.6 months was reached in January, 2022. These figures date back to January 1999.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.

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- Sales retreat from twelve-month high.
- Home prices rebound to seven-month high.
- Sales decline in much of country.

U.S. Existing Home Sales Decline in March

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The Federal Reserve Bank of Philadelphia reported in its April survey of manufacturing activity that the Current Activity Diffusion Index jumped to 15.5 this month from 3.2 in March and 5.2 in February. An index reading of 0.9 had been expected in the Action Economics Forecast Survey. The Philly Fed survey responses were collected from April 8 to April 15.

The ISM-Adjusted Composite Index, calculated by Haver Analytics from the survey results, improved to 49.8 this month from 48.0 in March. It was the highest level since August 2022, but remaining below 50, it still suggests a net contraction in activity. It compared to a March 2023 low of 39.6.

Changes in the individual series were mixed this month. New orders surged to 12.2 from 5.4 in March. An improved 32.5% of respondents reported an increase in new orders while a lessened 20.3% reported a decline. The shipments index rose to 19.1 from 11.4, as a higher 36.5% reported increased shipments and a steady 17.4% reported declines. The delivery time reading rose to -9.4 from -16.7 as 10.0% reported faster delivery speeds, while 19.4% reported slower speeds.

Working lower, the unfilled orders measure eased to 0.8 in April from 1.0 in March. A lessened 13.6% reported an increase in order backlogs while 12.8% reported a decline. The inventories reading dropped to -8.9 from 4.4, negative for the sixth month in the last seven.

Job market conditions deteriorated this month as indicated by an employment reading which fell to -10.7 from -9.6 in March. Six percent of respondents reported more hiring while 16.4% reported less. Also weakening, the average workweek figure declined to -18.7 from -0.2.

The index of prices paid surged this month to 23.0 after a March decline to 3.7. This reflected 25.9% of respondents reporting increased prices and 2.8% reporting a decline. The prices received index improved to 5.5 from 4.6 and remained up from a low of -2.7 in May of last year. A steady 11.6% of respondents reported price increases and a lessened 6.2% reported declines.

Expectations for business conditions in the next six months deteriorated slightly with the April reading of 34.3 down from 38.6 in April. It remained up, however, from -4.0 in January. Expected shipments & new orders eased but employment expectations rose to the highest level in nine months. The expected workweek reading surged to the highest level since October 2021. Expectations for prices paid also strengthened to the highest level since June 2022. The prices received index eased, however, after strengthening in April.

The diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. The Philadelphia Fed data can be found in Haver's **SURVEYS** database. The expectations forecast figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Composite index moves to highest level in two years as new orders & shipments strengthen.
- Prices paid measure jumps; prices received increases as well.
- Expectations ease slightly but remain positive.

Philadelphia Fed Manufacturing Index Surges in April

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Initial claims for unemployment insurance were steady at 212,000 seasonally adjusted in the week ended April 13, with the earlier week revised marginally from 211,000 initially reported. The Action Economics Forecast Survey expected the latest week at 215,000. The four-week moving average of initial claims was 214,500 in the April 13 week, unchanged from the week before. These latest amounts extend a narrow range for initial claims of 187,000 to 261,000 that has prevailed since the middle of 2021.

Insured unemployment, also known as continued weeks claimed, was 1.812 million in the week ended April 6, up slightly from 1.810 million the prior week. The earlier week was revised down from 1.817 million reported before. As with initial claims, these continuing claims have hovered in a narrow range for an extended period; they have run from 1.728 million to 1.829 million since May 2023.

The insured unemployment rate, that is, the amount of insured unemployment as a percentage of covered employment, is yet again 1.2% in the April 6 week. It has been at that amount continually since May 11, 2023.

Unemployment insurance rates vary widely across individual states. In the week ended March 30, the highest rates were in New Jersey (2.6%), California and Minnesota (both 2.4%), Rhode Island (2.3%), Massachusetts (2.1%) and Illinois (1.9%). The lowest rates were in Kansas (0.3%), Alabama, Florida, Kentucky, North Carolina and Virginia (all 0.4%) and Mississippi, Nebraska, New Hampshire, South Dakota and Tennessee (all 0.5%). Among other notable states, New York, Pennsylvania and Washington were all 1.8% and Texas was 1.1%. These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They go back to 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986. The expectations figure is from the Action Economics Forecast Survey in the **AS1REPNA** database.

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- Initial claims maintain tight range for almost 2 years.
- Continuing claims still fairly steady since May 2023.
- Insured unemployment rate holds at 1.2%, also since May 2023.

Economy in Brief: July 2003

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