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/030829d.jpg" width="353">
Industrial production in Japan rose 0.5% in July, turning up after a 1.2% decline in June. Analysts and market participants in Japan were encouraged with the July performance; they had, on average, projected a smaller 0.2% increase. The July gain was led by nonferrous metals, electronics, ceramics and &quot;other&quot; manufacturing. Most machinery and transport equipment segments saw declining output.
Month-to-month swings in Japan&#146;s industrial production are wide, making it problematical to analyze the rigor in two or three month movements, let alone a single month. Some trend becomes discernible at four months, though, as seen in the accompanying chart. That shows an 0.11% average increase in the four months to July, the first positive reading in that moving average since January, carrying the suggestion that the industrial sector is at least stabilizing in Japan, if not actually starting to grow again.
Separately, two more GDP reports for the second quarter appeared today, 29 August. These too showed mixed performances. Canada saw growth slip into negative territory, at -0.1% (quarterly rate from first quarter). Domestic demand was firm, however, with a 0.7% increase. The trade accounts saw an influx of imports, which grew 1.4% on the quarter, swamping a 0.6% rise in exports to make a net drag on total GDP. In Hong Kong, GDP dropped by a sizable 3.4%, pushed lower by declines in private consumption, fixed investment and net exports. This last resulted from a 2.8% drop in exports after a sustained five-quarter advance; imports also fell, by 1.9%, shrinking the trade balance to HK$28.2 billion from HK$33.5 billion.

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<th scope="col" class="firstcol">Japan: Industrial Production, %Changes</th>
<th scope="col">July 2003</th>
<th scope="col">June 2003</th>
<th scope="col">May 2003</th>
Dec/Dec
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2002</td>
<td>2001</td>
<td>2000</td>
</tr>
<tr>
<td class="firstcol">Month/Month</td>
<td>0.5</td>
<td>-1.2</td>
<td>2.6</td>
<td>5.5</td>
<td>-13.7</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">4-Month Moving Avg</td>
<td>0.1</td>
<td>0.0</td>
<td>-0.1</td>
<td>n.a.</td>
<td>n.a.</td>
<td>n.a.</td>
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Industrial production in Japan rose 0.5% in July, turning up after a 1.2% decline in June. Analysts and market participants in Japan were encouraged with the July performance; they had, on average, projected a smaller 0.2% increase. [...]

Volatile Japanese Industrial Production Appears to Turn Positive

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030829b.jpg" width="353">
Tax cuts and rebate checks lowered personal tax payments by 9.3% (-10.3% y/y) last month. That decline raised disposable personal income by 1.5% m/m and by 5.2% y/y.
The surge in disposable income fueled an expected 0.8% gain in personal consumption expenditures. Spending on durable goods jumped 2.1% as sales of light vehicles surged 5.5% to 17.34M units, the highest selling rate since December. Lower prices added to the incentive to buy. The durables&#39; price deflator fell 0.2% (-3.1% y/y). Constant dollar durables spending rose 2.4% (6.1% y/y).
Personal consumption of services rose 0.5% (4.6% y/y) while services prices rose a moderate 0.3% (3.0% y/y), the same as in the prior two months. Nondurables spending rose 0.8% (5.5% y/y) following a like gain in June.
In contrast to the strong gains in after tax income, wages and salaries were down slightly (2.5% y/y) after two months of 0.3% gain. That weakness was behind only a slight 0.2% rise in personal income, the weakest gain since April and slightly lower than Consensus expectations for a 0.3% uptick. Proprietors&#39; income rose 1.1% (9.1% y/y) but personal interest income was unchanged (0.1% y/y).
The saving rate jumped to 3.8% on the strength in disposable income. That was the highest savings rate since February.
Less food &amp; energy the chain price index for PCE rose 0.2% (1.4% y/y), a slight uptick from the 0.0-0.1% gains of the prior nine months.

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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">July</th>
<th scope="col">June</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>
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<td class="firstcol">Personal Income</td>
<td>0.2%</td>
<td>0.4%</td>
<td>3.3%</td>
<td>2.7%</td>
<td>3.3%</td>
<td>8.0%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.8%</td>
<td>0.6%</td>
<td>4.6%</td>
<td>4.5%</td>
<td>4.5%</td>
<td>7.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>3.8%</td>
<td>3.1%</td>
<td>3.2%</td>
<td>3.7%</td>
<td>2.3%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">PCE Price Deflator</td>
<td>0.2%</td>
<td>0.2%</td>
<td>1.8%</td>
<td>1.4%</td>
<td>2.0%</td>
<td>2.5%</td>
</tr>
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U.S. Consumer Sentiment Lower Than Expected 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 29, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030829a.jpg" width="353">
The University of Michigan&#146;s consumer sentiment index fell somewhat more than expected for the full month of August. The decline to 89.3 implied that sentiment deteriorated throughout the month and was versus Consensus expectations for a reading of 90.5.
The mid-month reading of sentiment reported earlier this month fell to 90.2 from 90.9 in July.
The Index of Consumer Expectations added to a slight decline reported mid-month and fell 1.4% (2.4% y/y). It was the third consecutive monthly drop.
The read of Current Economic Conditions fell 2.4% from July but was up 1.2% y/y. That decline was slightly larger than the 1.6% drop reported mid-month.
Over the last ten years there has been a 70% correlation between the level of consumer sentiment and the y/y change in real PCE. The correlation over the last five years has been 82%.
The University of Michigan survey is not seasonally adjusted.It is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
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<td class="firstcol">Consumer Sentiment</td>
<td>89.3</td>
<td>90.9</td>
<td>89.7</td>
<td>89.6</td>
<td>89.2</td>
<td>107.6</td>
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Chicago Purchasing Agents' Index Rose Further 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 29, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030829c.jpg" width="353">
The Chicago Purchasing Managers &#147;Business Barometer&#148; rose another 3.0 points in August to 58.9. That was the highest reading since May of last year and beat the Consensus estimate of 56.0.
Higher production led the gain in the total barometer, up to 61.6 versus a low of 49.1 in March. Employment also rose strongly to 51.2, the highest level since January 2000. New orders fell slightly to a still high 60.5.
During the last twenty years there has been a 59% correlation between the level of the Chicago PMI and quarterly growth in real GDP.
The index of prices paid moved up to 52.4, the first month over 50 since May.
View the latest release from the Chicago Purchasing Managers <a href="http://www.napm-chicago.org/current.pdf">here</a>.

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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">Aug</th>
<th scope="col">July</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 class="odd">
<td class="firstcol">Business Barometer</td>
<td>58.9</td>
<td>55.9</td>
<td>54.0</td>
<td>52.7</td>
<td>41.4</td>
<td>51.8</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>60.5</td>
<td>61.7</td>
<td>54.0</td>
<td>56.3</td>
<td>42.3</td>
<td>53.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>52.4</td>
<td>47.9</td>
<td>65.1</td>
<td>56.9</td>
<td>50.4</td>
<td>65.6</td>
</tr>
</tbody>
</table>
ECRI Weekly Leading Indicators Tread Water 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 29, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030829e.jpg" width="353">
The Weekly Leading Index of the US economy published by the Economic Cycle Research Institute (ECRI) ticked up the week of August 22nd. That was enough to keep strong series&#39; growth rate, but since second week of July the index has been roughly unchanged.
A report titled &quot;How Did Leading Indicator Forecasts Perform During the 2001 Recession?&quot; by James H. Stock &amp; Mark W. Watson from the Federal Reserve Bank of Richmond can be found <a href="http://www.rich.frb.org/pubs/eq/search.cfm/article=185.">here</a> .
The six-month growth rate of the weekly leading index stood at 12.4%. That&#39;s about where it&#39;s been for the last six weeks.
Mortgage loan applications slipped due to anxiety over increasing long-term interest rates and that offset gains in the stock market and higher oil prices.
During the last five years there has been a 59% correlation between growth in the leading index and next quarter&#39;s growth in real GDP.
Construction of the ECRI Leading Index differs from the Index of Leading Economic Indicators published by the Conference Board. Nevertheless there has been a 77% correlation between the y/y percent change in the two series over the last 20 years.
The components of the ECRI weekly leading 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.
For more on ECRI and the Weekly Leading Index go to this <a href="http://businesscycle.com">link</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/weekly/@W8/@W801/@W801.HTM">ECRI Leading Index</a></th>
<th scope="col">8/22/03</th>
<th scope="col">8/15/03</th>
<th scope="col">Growth Rate</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">Weekly</td>
<td>127.8</td>
<td>127.6</td>
<td>12.4%</td>
<td>1.2%</td>
<td>-5.3%</td>
<td>-0.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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<td class="firstcol">&nbsp;</td>
<td>Aug</td>
<td>July</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Monthly</td>
<td>127.8</td>
<td>127.2</td>
<td>13.0%</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
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Tax cuts and rebate checks lowered personal tax payments by 9.3% (-10.3% y/y) last month. That decline raised disposable personal income by 1.5% m/m and by 5.2% y/y. The surge in disposable income fueled an expected 0.8% gain in [...]

U.S. After Tax Income Spiked, Personal Spending Surged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030828e.jpg" width="353">
The last few days have brought an on-rush of second quarter GDP reports from various countries around the world. Large countries have shown a mixed performance. Even as US growth was revised higher for that period, growth in Europe has slowed or turned negative. And, like the large economies, smaller economies have had a similar pattern. Of six recent GDP releases, three have been positive and three negative. In Europe, the Netherlands, much like neighboring Germany, saw its third noticeable decrease in a row, and in a &quot;flash&quot; estimate, Belgium reported a 0.1% decrease (quarterly rate), a downturn after five consecutive quarters of growth.
We noted here several days ago the contraction developing in the South Korean economy. Others in Asia are faring better, however, with the Philippines expanding 0.5% in the second quarter, a partial rebound from a first quarter drop. Growth in the Philippines was strong through much of last year, and the whipsaw in the first two quarters of 2003 seems mainly due to a wide swing in imports. Exports from this nation are rising, unlike many of the larger nations. Malaysia, too, had good growth in the second quarter, 1.7%, with strong consumption gains and an upturn in exports. Investment flattened, however, after three quarters of firm advances.
Elsewhere among emerging markets, Brazil saw a second consecutive quarter of decline as its economic woes continued through the spring. Domestic consumption and investment both suffered, although the trade accounts, exports and imports, provided some cushion. In South Africa, growth was modest; that nation reports its GDP on an industry basis, and agriculture and manufacturing exerted some drag, while service industries continued expanding.
This compilation of recent growth reports indicates that world economies are performing unevenly. There seems to be slight bias toward slowing, although outside Europe, this is due less to the declines in exports that plague that region.

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<th scope="col" class="firstcol">GDP in Various Nations (% Changes)</th>
<th scope="col">2nd Qtr 2003 (Q/Q)</th>
<th scope="col">1st Qtr 2003 (Q/Q)</th>
<th scope="col">Year/-Year</th>
4th Qtr/4th Qtr
</tr>
</thead>
<tbody>
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<td class="firstcol">2002</td>
<td>2001</td>
<td>2000</td>
</tr>
</tbody>
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<th scope="col" class="firstcol">Netherlands</th>
<th scope="col"><center></center></th>
<th scope="col">-0.5</th>
<th scope="col">-0.3</th>
<th scope="col">-0.9</th>
<th scope="col">0.3</th>
<th scope="col">0.3</th>
<th scope="col">2.4</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Belgium</td>
<td><center></center></td>
<td>-0.1</td>
<td>0.2</td>
<td>0.9</td>
<td>1.7</td>
<td>-0.8</td>
<td>2.4</td>
</tr>
<tr>
<td class="firstcol">Philippines</td>
<td><center></center></td>
<td>0.5</td>
<td>-1.2</td>
<td>3.2</td>
<td>5.7</td>
<td>3.8</td>
<td>5.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Malaysia</td>
<td><center></center></td>
<td>1.7</td>
<td>0.3</td>
<td>4.5</td>
<td>5.3</td>
<td>-0.8</td>
<td>6.8</td>
</tr>
<tr>
<td class="firstcol">Brazil</td>
<td><center></center></td>
<td>-1.6</td>
<td>-0.6</td>
<td>-1.3</td>
<td>3.2</td>
<td>-0.9</td>
<td>3.9</td>
</tr>
<tr class="odd">
<td class="firstcol">South Africa</td>
<td><center></center></td>
<td>0.3</td>
<td>0.4</td>
<td>2.0</td>
<td>3.0</td>
<td>2.5</td>
<td>3.5</td>
</tr>
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The last few days have brought an on-rush of second quarter GDP reports from various countries around the world. Large countries have shown a mixed performance. Even as US growth was revised higher for that period, growth in Europe [...]

Economic Fortunes Mixed Around the World

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030828a.jpg" width="353">
The US economy grew faster than estimated in the advance report issued last month. The upward revision to a 3.1% rate of growth was slightly greater than Consensus expectations for a revision to 2.9%. 2Q was the fastest rate of real GDP growth since 3Q 2002.
The upward revision reflected less of drag from the foreign trade sector and faster domestic demand. Exports were revised up to only a 0.5% rate of decline in 2Q versus the 3.1% drop estimated initially. Import growth was revised down modestly to 7.9%.
Domestic final demand grew at a 5.0% annual rate versus the 4.6% rate estimated initially. Growth in Federal defense spending was raised slightly to 45.9% and that accounted for over half of the economy&#39;s growth last quarter.
Personal consumption expenditures growth was raised to 3.8% that reflected a 33.5% spike in purchases of motor vehicles and a 17.5% surge in buying of furniture &amp; household equipment. Growth in fixed investment was revised up slightly to 6.9% due to an 8.2% rise in expenditures for equipment and software which was nearly double the initially estimated gain. Residential investment grew at a 4.5% (6.2% y/y) rate.
Corporate profits with adjustment for depreciation (CCA) and inventory valuation (IVA) rose at a 50.8% (15.3% y/y) annual rate. The spike reflected a huge surge in the depreciation allowance. These &quot;operating profits&quot; rose at an 80.6% rate after tax. Reported corporate profits after tax fell at a 13.0 rate (6.5% y/y). Operating profits after tax at nonfinancial corporations rose at a 64.7% (20.0% y/y) rate. The gain in operating profits contrasts with an 18.8% (11.9% y/y) gain in S&amp;P profits
Inflation was revised down slightly to 0.9%, the slowest rate of price gain since a decline in prices in 4Q 2001. Deflation was widespread in the prices for consumer durables and nondurables as well as for residential and nonresidential investment.

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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 (Prelim)</th>
<th scope="col">2Q&#39;03 (Advance)</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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>3.1%</td>
<td>2.4%</td>
<td>1.4%</td>
<td>2.5%</td>
<td>2.4%</td>
<td>0.3%</td>
<td>3.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-0.9%</td>
<td>-0.8%</td>
<td>-0.8%</td>
<td>-0.2%</td>
<td>0.6%</td>
<td>-1.2%</td>
<td>0.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>4.0%</td>
<td>3.2%</td>
<td>2.3%</td>
<td>2.7%</td>
<td>1.8%</td>
<td>1.5%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Trade Effect</td>
<td>-1.2%</td>
<td>-1.6%</td>
<td>0.8%</td>
<td>-0.4%</td>
<td>-0.7%</td>
<td>-0.2%</td>
<td>-0.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>5.0%</td>
<td>4.6%</td>
<td>1.4%</td>
<td>3.1%</td>
<td>2.4%</td>
<td>1.6%</td>
<td>4.3%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Deflator</td>
<td>0.9%</td>
<td>1.0%</td>
<td>2.4%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>2.4%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
Initial Claims for Jobless Insurance Up Slightly 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 28, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030828b.jpg" width="353">
Initial claims for unemployment insurance rose to 394,000 and the prior week&#39;s level was revised up slightly to 391,000. Consensus expectations had been for claims of 395,000.
The Labor Department indicated that the blackout two weeks ago in the Northeast accounted for about 2,000 to 3,000 new claims, delayed because they could not be filed during the power failure.
The four-week moving average of initial claims rose slightly to 396,250 (+0.8% y/y).
Continuing claims for unemployment insurance rose 26,000 (0.7%) w/w) but a 41,000 gain the prior week was revised down to only 3,000.
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">8/23/03</th>
<th scope="col">8/16/03</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>394.0</td>
<td>391.0</td>
<td>-2.0%</td>
<td>404.3</td>
<td>406.0</td>
<td>299.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,657</td>
<td>2.8%</td>
<td>3,575</td>
<td>3,022</td>
<td>2,114</td>
</tr>
</tbody>
</table>
Help-Wanted Advertising Still Low 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 28, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030828c.jpg" width="353">
The Conference Board&#146;s National Index of Help-Wanted Advertising was unchanged last month at 38. The last two months represented slight improvement from a low 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 nearly halved to 37% in July versus 75% in June.
The Conference Board surveys help-wanted advertising volume in 51 major newspapers across the country every month. 

<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">July</th>
<th scope="col">June</th>
<th scope="col">July &#39;02</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">National Help Wanted Index</td>
<td>38</td>
<td>38</td>
<td>44</td>
</tr>
</tbody>
</table>
Chicago Fed National Activity Index Up Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 28, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030828d.jpg" width="353">
The Chicago Fed National Activity Index (CFNAI) again rose slightly in July to &#150;0.20 versus -0.32 in June. The gain represented the third month of improvement from an April low.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth of over 3%.
The three-month moving average of the CFNAI improved to &#150;0.29 from -0.59 in June.
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.
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">July</th>
<th scope="col">June</th>
<th scope="col">July &#39;02</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>-0.20</td>
<td>-0.32</td>
<td>-0.01</td>
<td>-0.33</td>
<td>-1.19</td>
<td>-0.13</td>
</tr>
</tbody>
</table>
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The US economy grew faster than estimated in the advance report issued last month. The upward revision to a 3.1% rate of growth was slightly greater than Consensus expectations for a revision to 2.9%. 2Q was the fastest rate of real [...]

2Q U.S. GDP Growth Revised Up, Profits Surged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030827b.jpg" width="353">
Operating profits of Canadian companies fell 7.3% in the second quarter after five consecutive quarters of gains. Thus, even with this latest quarterly decrease, they were still 11.2% ahead of a year earlier. Within the nonfinancial sector, net profits after taxes showed the same general pattern &#150; down on the quarter, but well ahead of last year &#150; and also reveal a differential performance of manufacturing and non-manufacturing firms.
As noted in the chart below, manufacturers&#146; earnings rebounded sharply in the second half of 2002 after their recession-related downtrend in 2001. They remain, however, subdued relative to prior peaks. Non-manufacturing firms (calculated as a simple difference between total nonfinancial profits and those of manufacturing companies) also saw significant gains late last year and in the first quarter of 2003, although by contrast, the profits of these industries &#150; trade, travel, nonfinancial business services, health care and so on &#150; reached new highs early this year. Their recessionary decline was not so protracted nor extensive as that of the factory sector, so their subsequent rebound has been able to surpass its previous magnitudes.

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<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Percent Changes</th>
<th scope="col">&nbsp;Q2 2003 </th>
<th scope="col">Q1 2003 </th>
<th scope="col">Year/Year </th>
 4th Qtr/4th Qtr 
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"> 2002 </td>
<td> 2001 </td>
<td> 2000 </td>
</tr>
<tr>
<td class="firstcol">Nonfinancial companies</td>
<td>-10.2</td>
<td>19.2</td>
<td>30.4</td>
<td>69.8</td>
<td>-44.0</td>
<td>1.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Manufacturing</td>
<td>-9.7</td>
<td>49.8</td>
<td>22.0</td>
<td>28.4</td>
<td>-33.9</td>
<td>-37.9</td>
</tr>
<tr>
<td class="firstcol">Non-Manufacturing</td>
<td>-10.4</td>
<td>8.6</td>
<td>34.8</td>
<td>91.0</td>
<td>-48.0</td>
<td>35.4</td>
</tr>
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Operating profits of Canadian companies fell 7.3% in the second quarter after five consecutive quarters of gains. Thus, even with this latest quarterly decrease, they were still 11.2% ahead of a year earlier. Within the nonfinancial [...]

Canadian Business See Quarterly Profit Decline after Strong Recovery

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030827a.jpg" width="353">
The index of mortgage applications compiled by the Mortgage Bankers Association fell last week to the lowest level since June of last year. The index of all mortgage applications fell 13.3% last week pulling the average for this month so far down 51.6% from the monthly peak in late May.
Applications to refinance continued to plummet. They fell 21.3% last week and are down 78.3% from the weekly peak in late May.
Purchase applications also have fallen, but not as drastically. Last week mortgage applications for home purchase fell 3.6%. For the month so far purchase applications are down 5.8% from the July average which was the peak.
During the last ten years there has been a 55% correlation between the y/y change in purchase applications and the change in new plus existing home sales.
Interest rates on a conventional 30-Year mortgage were about steady last week at 6.48%. That was versus a low for 30-Year financing of 5.31% in the second week of June. The effective rate on a 15-year mortgage was 5.86%.
The average size of mortgage applications has been falling. Purchase application size fell to $193,600 last week versus the weekly peak of $201,200 in mid-May. The average size of a mortgage refinancing fell to $166,700, down 14.3% from the peak of $194,600.
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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<colgroup><col><col><col><col><col></colgroup>
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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">8/22/03</th>
<th scope="col">8/15/03</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>638.6</td>
<td>736.7</td>
<td>799.7</td>
<td>625.6</td>
<td>322.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>375.5</td>
<td>389.5</td>
<td>354.7</td>
<td>304.9</td>
<td>302.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>2,169.0</td>
<td>2,756.8</td>
<td>3,388.0</td>
<td>2,491.0</td>
<td>438.8</td>
</tr>
</tbody>
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The index of mortgage applications compiled by the Mortgage Bankers Association fell last week to the lowest level since June of last year. The index of all mortgage applications fell 13.3% last week pulling the average for this month [...]

Mortgage Applications Fell Further

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030826e.jpg" width="353">
The IFO index that measures overall business confidence in West Germany rose from 89.3 in Julyto 90.8 in August, the highest level since June, 2002. Businesses reported improved confidence in their current situation and in the expectations for the next six months.. Businesses in East Germany also reported an improvement in overall confidence--the result of an increase in confidence regarding current conditions, and a slight decline in confidence regarding expectations for the next six months.. The rise in the confidence of investors reported earlier this month in the ZEW measure and now the improvement in business confidence as reflected in the IFO indexes suggest that business activity in Germany may be about to pick up after declines of 0.2% and 0.1% in GDP the first and second quarters of this year. In addition to low interest rates and the proposed income tax reductions scheduled for 2004 that have contributed to the improved economic atmosphere, the recent decline in the Euro by almost 10% from its May 27 peak is another bright spot.

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<thead>
<tr>
<th scope="col" class="firstcol"></th>
<th scope="col"></th>
<th scope="col"></th>
<th scope="col"></th>
Percent Change
<th scope="col"></th>
<th scope="col"></th>
<th scope="col"></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"></td>
<td>Aug 03</td>
<td>July 03</td>
<td>Aug 02</td>
<td>M/M</td>
<td>Y/Y</td>
<td>2002</td>
<td>2001</td>
<td>2000</td>
</tr>
<tr>
<td class="firstcol">West Germany</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Business Climate</td>
<td>90.8</td>
<td>89.3</td>
<td>88.6</td>
<td>1.68</td>
<td>2.48</td>
<td>89.1</td>
<td>89.8</td>
<td>99.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Current Conditions</td>
<td>79.9</td>
<td>78.7</td>
<td>77.2</td>
<td>1.52</td>
<td>3.50</td>
<td>77.6</td>
<td>85.1</td>
<td>93.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Business Expectations</td>
<td>102.1</td>
<td>100.2</td>
<td>100.3</td>
<td>1.90</td>
<td>1.79</td>
<td>101.0</td>
<td>94.7</td>
<td>105.6</td>
</tr>
<tr>
<td class="firstcol">East Germany</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Business Climate</td>
<td>104.1</td>
<td>103.1</td>
<td>98.9</td>
<td>0.97</td>
<td>5.26</td>
<td>98.6</td>
<td>101.3</td>
<td>106.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Current Conditions</td>
<td>123.3</td>
<td>121.1</td>
<td>115.3</td>
<td>1.82</td>
<td>6.94</td>
<td>114.3</td>
<td>120.7</td>
<td>124.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Business Expectations</td>
<td>85.9</td>
<td>86.2</td>
<td>83.3</td>
<td>-0.35</td>
<td>3.12</td>
<td>83.7</td>
<td>83.1</td>
<td>88.7</td>
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The IFO index that measures overall business confidence in West Germany rose from 89.3 in Julyto 90.8 in August, the highest level since June, 2002. Businesses reported improved confidence in their current situation and in the [...]

West German IFO Index Rises to 14-Month High

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030826a.jpg" width="353">
Durable goods orders added another 1.0% in July to the upwardly revised 2.6% gain in June. The gain matched Consensus expectations for a 1.0% rise.
A 5.5% jump for motor vehicles &amp; parts powered the July orders gain. However, for the transportation sector as a whole orders fell 0.8% due to a 14.6% drop in aircraft orders which reversed a 10.9% jump in June. Excluding the transportation sector, durable orders rose 1.7% (1.7% y/y) following a little revised 1.5% gain in June.
Nondefense capital goods orders added 1.2% to the 3.8% June gain. Excluding aircraft and parts, nondefense capital goods orders rose 0.4% (5.0% y/y). That followed a 2.1% gain in June, revised up from 0.6% reported initially.
During the last nine years there has been an 86% 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.
Orders for computers &amp; electronic products were robust for the fifth month this year, up 1.9% (9.3% y/y) in July. Orders for computers &amp; related products surged 2.4% (24.3% y/y). Machinery orders advanced 1.8% (-2.1% y/y) for the second consecutive strong monthly gain.
Shipments of durable goods jumped 2.6% (-0.1% y/y) on top of an upwardly revised 1.7% gain in June. Durable goods shipments were up 4.9% YTD.
Durable inventories fell sharply again, last month down 0.9% (-3.2% y/y). Inventory decumulation was across the board.

<table border="0" cellspacing="0" width="100%">
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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">July</th>
<th scope="col">June</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">Durable Goods Orders</td>
<td>1.0%</td>
<td>2.6%</td>
<td>-2.0%</td>
<td>-1.7%</td>
<td>-10.5%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nondefense Capital Goods</td>
<td>1.2%</td>
<td>3.8%</td>
<td>3.7%</td>
<td>-7.2%</td>
<td>-15.5%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
Weekly Chain Store Sales Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 26, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030826b.jpg" width="353">
Chain store sales rose 0.2% last week according to the BTM-UBSW survey, partially recovering a 0.5% decline the week earlier.
The level of sales in August, with the just one week left to tally, is 0.9% above the July average. July sales rose 1.4% from June.
During the last five years there has been a 62% correlation between the year-to-year percent change in chain store sales and the change in nonauto retail sales less gasoline.
The BTM-UBSW retail chain-store sales index is constructed from the sales results reported by seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.

<table border="0" cellspacing="0" width="100%">
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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">8/23/03</th>
<th scope="col">8/16/03</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">Total Weekly Retail Chain Store Sales</td>
<td>426.9</td>
<td>426.2</td>
<td>4.5%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
New Home Sales Slip But Top Estimates 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 26, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030826d.jpg" width="353">
Sales of new single family homes slipped 2.9% in July. That followed an 8.3% surge in June which was nearly double the initial estimated gain. July sales were the second highest on record at a 1.165M unit rate and slightly beat Consensus expectations for 1.150M.
In the Northeast, sales fell 20.8% (0.0% y/y) from a downwardly revised June level. In the West sales fell 16.3% (19.8% y/y) from a June level that was revised up.
Elsewhere sales rose last month. In the Midwest sales rose 17.3% (21.1% y/y) following an 18.1% June gain that was nearly doubled. Sales in the South rose 1.1% (24.9% y/y).
The median price of a new home rose to $191,500 (9.1% y/y). The prior month&#39;s figure was revised down slightly.
The new home sales data reflect current sales versus the existing home sale figures 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">July</th>
<th scope="col">June</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>1,165</td>
<td>1,200</td>
<td>21.2%</td>
<td>977</td>
<td>907</td>
<td>880</td>
</tr>
</tbody>
</table>
Consumer Confidence Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 26, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030826c.jpg" width="353">
The Conference Board&#146;s Index of Consumer Confidence in August gained back most of a moderate decline in July. The index rose 5.6% to 81.3 versus Consensus estimates for a reading of 80.0.
The rise in Confidence contrasted with the mid-month read of consumer sentiment from the University of Michigan which fell 0.8% versus July.
The August gain in Confidence reflected a 9.4% (-1.2% y/y) rise in the index of consumer expectations.Consumers&#39; read of the present situation fell for the sixth month this year, down 2.2% (-33.8% y/y).
Consumers&#146; appraisal of current business conditions deteriorated as jobs were viewed as hard to get by 34.1% of respondents, the highest level in nearly 10 years. Despite this gloom consumers&#39; plans for purchasing a home and major appliances improved. Plans to buy carpet or an automobile fell and have been trending lower.
The Conference Board&#146;s survey is conducted by a mailed questionnaire to 5,000 households and about 3,500 typically respond.

<table border="0" cellspacing="0" width="100%">
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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">August</th>
<th scope="col">July</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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</thead>
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<td class="firstcol">Consumer Confidence</td>
<td>81.3</td>
<td>77.0</td>
<td>-14.0%</td>
<td>96.6</td>
<td>106.6</td>
<td>139.0</td>
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Durable goods orders added another 1.0% in July to the upwardly revised 2.6% gain in June. The gain matched Consensus expectations for a 1.0% rise. A 5.5% jump for motor vehicles & parts powered the July orders gain. However, for the [...]

U.S. Durable Goods Orders Rose Further

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

Resilient US economy is pushing up longer-term inflation expectations and interest rates

Positive US economic data surprises leading to upward adjustment of interest rate expectations

Recent aggressive policy easing in China has given a massive boost to equity prices

FOMC expects much more easing now than in June

US is clear world leader in business capital spending on artificial intelligence

Blue Chip forecasters expect US to lead aggressive policy rate cuts over coming year—apart from Japan

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

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Andrew Cates

**Energy and labour markets**
Chart 1 below highlights two key trends: the real consumer price of energy in the OECD economies (indexed to 1970) has shown significant volatility, with sharp spikes during periods of energy crises (e.g., 1970s oil shocks, 2008, and post-pandemic supply constraints) and declines following market adjustments or advances in energy production. Meanwhile, the US labour share of business output has experienced a steady decline since the 1980s, reflecting structural changes in the economy such as globalization, technological advances, a shift in bargaining power away from labour toward capital as well as higher real energy prices. These trends and the interplay between them will arguably form the basis of several policy choices that will be made (or already are being made) by a new US administration.

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**Electricity prices**
Energy prices, their level and their volatility, arguably play a much bigger role in broader macroeconomic fluctuations than they are given credit for. Chart 2 below shows electricity prices (a 2-year average) across six major developed economies. It shows that the US has faced the cheapest electricity at around $44/MWh. The UK and Germany, in contrast, have faced the most expensive electricity at respectively $106/MWh and $94/MWh. This disparity reflects a mix of factors: European countries, particularly the UK and Germany, face elevated prices due to heavy reliance on natural gas imports, exacerbated by geopolitical tensions (e.g., reduced Russian supply), higher renewable energy integration costs, and carbon pricing mechanisms. The US, in contrast, enjoys lower electricity costs due to more abundant domestic energy resources, particularly natural gas, and less exposure to international energy markets. Against this backdrop it is hardly a surprise that the US economy has flourished (relative to other advanced economies) while the UK and Germany have floundered.

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**The UK labour market**
This week’s labour market data additionally suggest that the UK will probably struggle to keep pace with the US economy in the period immediately ahead. The data specifically revealed that employment growth is slowing on all measures, and the PAYE measure of payrolls in particular (see chart 3 below). And while private sector pay growth has also slowed, the 6-month annualised rates of growth still stood at a relatively lofty 5.8% in December. Weaker employment growth will encourage the BoE to cut rates again before too long (probably in February) but weaker wage growth could also be necessary for a much looser policy stance to be enacted over the next few months.

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**Household savings and labour market activity**
At a broader global level, a key risk to the economic outlook at present concerns restrictive monetary policy and its impact on labour market activity and household spending. Chart 4 below shows that household saving rates in the world’s major economies have – on the whole – been rebounding over the past two years. Simultaneously, the unemployment rate in advanced economies has begun to climb. These trends align with the tightening of monetary policy that’s been enacted in recent years and economic uncertainty. But if that combination persists, it could place a bigger brake on the world economy this year than many analysts are anticipating.

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**China’s credit impulse**
Another big source of uncertainty, at present, concerns China. Chart 5 below compares the Citigroup Economic Surprise Index for emerging markets (EM) and Haver’s calculations for China’s credit impulse (the change in new credit as a percentage of GDP). The chart suggests that China's credit growth influences broader EM economic fluctuations. During periods of robust credit growth (e.g., 2020-2021), driven by stimulus measures, EM economies benefited from improved liquidity and demand from China. Conversely, periods of credit tightening (e.g., 2017 and 2023-2024) weighed on economic surprises, reflecting weaker support for growth. These dynamics underline China’s outsized role in shaping sentiment and economic conditions in emerging markets. That its credit impulse, moreover, remained negative in Q4 (of 2024) underscores how China might continue to exert downward pressure on the world economy in the period immediately ahead.

250123Z5.jpg

**South Korean trade**
Another source of uncertainty for the world economy, at present, is the optimism surrounding AI. While proponents highlight its transformative potential to boost productivity, efficiency, and innovation across industries, sceptics question the timeline for a meaningful economic impact. With that in mind it would be inappropriate to draw strong conclusions from chart 6 below but it is certainly of note that South Korea – which has been heavily reliant on AI-fuelled trade – saw a big slowdown in export growth in the first 20 days of January. Much of that slowdown, moreover, could be traced to a big drop in semiconductor trade.

250123Z6.jpg

Financial markets have enjoyed a notable lift in sentiment over recent days, driven by renewed optimism about the domestic economic policies of a new US administration. Investors have certainly been cheered by early signals of a pro-growth strategy, with the energy sector taking centre stage following a ceasefire between Israel and Gaza and the announcement of measures aimed at reducing US energy costs (see charts 1 and 2). Meanwhile, China’s stronger-than-expected growth figures last week and softer-than-expected inflation readings from both the US and the UK have fuelled gains across equity and bond markets, bolstering risk appetite in other markets. However, despite the prevailing optimism, several factors warrant caution. Chief among them is the global uncertainty that surrounds the policy choices of a new US administration. The policy choices of central banks will also be critical, particularly as labour market strength could keep inflation risks alive (charts 3 and 4). Questions also linger about China’s ability to sustain its growth momentum, especially as its property sector and consumer demand face ongoing challenges (chart 5). Finally, while artificial intelligence is increasingly seen as a driver of future growth and productivity, doubts persist over its near-term potential to meaningfully transform the world economy (chart 6). For now, investors appear content to ride the wave of positive sentiment, but vigilance over these risks will be critical as the economic landscape continues to evolve.

Charts of the Week: Trump Cards

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Initial claims for unemployment insurance rose to 223,000 in the third week of January from an unrevised 217,000 during the prior week. A 215,000 increase in initial claims had been expected in the Action Economics Forecast Survey. Initial claims have risen from a 203,000 low in the first week of January. During the last four weeks, initial claims averaged 213,500, down from 226,750 four weeks earlier.

Continuing claims for jobless insurance increased 46,000 (7.8% y/y) to 1.899 million in the week ended January 11 from 1.853 million in the prior week. Ongoing claims have risen from a low of 1.834 million in the third week of December. The four week moving average of continuing jobless insurance claims eased to 1.866 million, down from a 1.888 million high in the third week of November.

The insured rate of unemployment was 1.2% for the fourth straight week. This level was increased from a 2022 low of 0.9% and compares to the rise in the overall unemployment rate to 4.1% from 3.4% over the same period.

Unemployment rates vary widely across states. The Labor Department reports that for the week ended January 4, the insured unemployment rate was highest in Rhode Island (3.22%), New Jersey (3.07%), Minnesota (2.73%), Washington (2.52%) and Massachusetts (2.41%). The insured unemployment rates were lowest in Florida (0.33%), Virginia (0.43%), Tennessee (0.58%) and Alabama (0.52%) and the Virgin Islands (0.67%). Rates in other notable states include California (2.32%), Pennsylvania (2.24%), New York (2.08%) and Texas (1.13%). These state rates are not seasonally adjusted.

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

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- Initial jobless claims increase to highest level in six weeks. 
- Continuing claims approach four-week high.
- The insured unemployment rate remains low.

U.S. Unemployment Insurance Claims Rise in Latest Week

Robert Brusca

250123E.jpg

EU order trends ‘improved’ slightly in January as the net diffusion reading rose from -40 to -34. Still, that improvement leaves orders below their 3-month, 6-month, or 12-month averages. The queue standard of January orders is in the lower 14th percentile of its historic queue of data. Obviously, it remains a historically weak reading. The order series is volatile as the chart shows. But it is still in a clear downtrend even with the uptick this month.

Export orders have approximately the same profile as for orders overall. But export orders weaken slightly in January compared to December. Export orders overall have a slightly weaker queue standing than total orders at a 13.4 percentile level.

The diffusion readings for stocks of finished goods weakened in January but even with its weaker January assessment, stocks have a firm-to-strong 72.5 percentile standing.

Looking ahead, the outlook for output volume over the next three months improved sharply from its stunning weak reading of -31 in December. However, the rise to -19 in January represents only a 4.8 percentile standing.

Unfortunately, average output prices for three months ahead has reading of +27 in January, up from +23 in December and +11 in November; the backtracking in prices expected, has brought the expectation level for the current reading to a high, 90-percentile standing. These rising inflation expectations are going to be a real problem for the Bank of England.

IP data lag the CBI survey responses. The manufacturing IP growth rate, year-on-year, has a 17.4 percentile standing as of its most recent observation in November 2024. That is also very weak. The CBI results are not giving a different message from the industrial production data, but they are timelier.

The ramp up in inflation expectation is not good new with CPI-H inflation at 3.5% year-over-year and with the core pace at 4.2%. Core inflation, sequentially, is looking stable around the 4.2% pace; for the headline, the pace has accelerated from 3.5% over 12 months to a pace of 5.4% over three months. These results, coupled with the rise in CBI expectations, are not good news for the U.K. or for the BOE.

250123.jpg

United Kingdom

U.K. Order Trends Are Still Eroding

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The Conference Board's Leading Economic Index fell 0.1% (-3.0% y/y) during December, following a 0.4% November rise, revised from 0.3%, and a 0.3% October decline, revised from -0.4%. A 0.1% easing in the December index had been expected in the Action Economics Forecast Survey. The Leading Index is comprised of 10 components which tend to precede changes in overall economic activity. The index has been trending lower since January 2022, contrasting with positive real economic growth.

During December, component changes amongst the leaders diverged. Series which contributed positively to the index change included a longer factory sector workweek, improved factory orders for consumer goods, an increase in orders for nondefense capital goods excluding aircraft, higher stock prices in the S&P 500 index and the leading credit index. Series contributing negatively were higher initial unemployment insurance claims, a lower ISM new orders index, falling building permits, the interest rate yield curve and consumer expectations for business/economic conditions.

The Coincident Economic Index rose 0.4% last month (1.6% y/y) after rising 0.2% in November and holding steady in October. Movement amongst the four components was uniformly positive in December. Industrial production jumped by the largest amount since February, real personal income strengthened steadily, payroll employment improved on prior two months’ increases while real manufacturing & trade sales rose steadily.

The Lagging Economic Index improved 0.1% last month (0.3% y/y) after rising 0.2% in November and remaining unchanged in October. The 6-month change in the services CPI, the 6-month change in unit labor costs and the ratio of consumer installment credit-to-personal income contributed positively to the index change. The business inventory-to-sales ratio contributed nothing to the index change. The duration of unemployment, the prime interest rate charged by banks and commercial & industrial loans outstanding contributed negatively to the index change.

The ratio of coincident-to-lagging indicators, considered another leading indicator, rose 0.3% last month after holding steady for two straight months.

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/us/) for coverage of leading indicator series from around the world.

250122H11.jpg

250122I11.jpg

- Movement in leading indicator components remains mixed.
- Coincident indicators strengthen.
- Lagging indicators edge higher.

U.S. Leading Indicators Ease

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Retail gasoline prices for all grades rose to an average $3.23 per gallon (1.5% y/y) in the week ending January 20 from $3.16 in the prior week. The all-time high of $5.11 was in the week ending June 13, 2022. The retail price for on-highway diesel fuel jumped	to $3.72 per gallon (-3.2% y/y) in the week of January 20, the highest level since early-August, from $3.60 in the prior week. The latest price was down from a high of $4.63 in the week ending September 18, 2023 and a peak of $5.81 in the week ending June 20, 2022.

The price of West Texas Intermediate crude oil rose to $78.58 per barrel (7.3% y/y) in the week ending January 17 after increasing to $74.32 in the prior week. It was the highest level in five months but still below the peak of $120.46 in the week of June 10, 2022. Yesterday, the price was $75.89 per barrel. The price of European Brent crude oil rose to $82.53 per barrel (3.0% y/y) in the week of January 17 from $78.14 in the prior week. Prices remained below a peak of $127.40 in the week of June 10, 2022. Yesterday’s price was $80.57 per barrel.

Natural gas prices surged to an average $5.47/mmbtu (87.3% y/y) in the week of January 17 from $3.93 in the prior week, posting the highest level since a high of $5.11/mmbtu in the week of January 12, 2024. Prices reached a low of $1.40/mmbtu in the week of March 15, 2024 and a peak of $9.56 in the week of August 26, 2022. Yesterday, the price was $4.40/mmbtu.

Gasoline demand rose 0.8% y/y in the four weeks ending January 10 on top of a 1.2% y/y gain in the prior four weeks. Demand for all petroleum products increased 1.1% y/y in the four weeks ending January 10. Crude oil input to refineries increased 1.2% y/y in the four weeks ending January 10 after a 1.5% y/y rise in the prior four weeks.

Gasoline inventories fell 1.8% y/y in the week ending January 10 after a 3.0% y/y decline in the prior week. In contrast, residual fuel oil inventories fell 12.1% y/y in the week of January 10 following a 5.7% y/y decrease in the prior week. Crude oil inventories rose 2.7% y/y in the week of January 10, the same as during the prior week.

Measured in days’ supply, gasoline inventories rose to 28.7 days in the week of January 10 from 27.5 days in the prior	 week, registering the highest reading since the end of February 2024. The recent low was 22.9 days in the week of November 8. The supply of crude oil was little changed at 24.6 days in the week of January 10, still near the lowest number since a low of 24.8 days in the week of September 20, 2024 and below a high of 31.9 days in the week of March 3, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** & **USENERGY** database.

- Gasoline prices reach three-month high.
- Crude oil costs surge.
- Natural gas prices strengthen to two-year high.

Economy in Brief: August 2003

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