Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030930d.jpg" width="353">
The United Kingdom released revised Gross Domestic Product data showing that the economy rose twice as fast in the second quarter as preliminary data had revealed. The new data are the result of a major revision in the National Accounts. The revisions include revised data on construction from the Department of Trade and Industry, the results of the latest available surveys, new information on prices and, for the first time, the use of annually weighted and chained estimates of volume measures. The base year has been changed from 1995 to 2000. 
The attached chart compares the old and new measures of real output. Although growth in 2002 has been reduced to 1.7% from 1.9%, the longer term trend of annual growth is somewhat above that indicated by the old data.

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<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">2Q 03 </th>
<th scope="col">1Q 03</th>
<th scope="col">4Q 02&nbsp;</th>
<th scope="col">3Q 02&nbsp; </th>
<th scope="col">2Q 02&nbsp; </th>
<th scope="col">1Q 02 </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">Real GDP % Change</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">New Chained Volume&nbsp;</td>
<td>0.6</td>
<td>0.2</td>
<td>0.5</td>
<td>0.7</td>
<td>0.5</td>
<td>0.3</td>
<td>1.7</td>
<td>2.1</td>
<td>3.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Old Constant Prices</td>
<td>0.3</td>
<td>0.1</td>
<td>0.5</td>
<td>0.9</td>
<td>0.6</td>
<td>0.3</td>
<td>1.9</td>
<td>2.1</td>
<td>3.1</td>
</tr>
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The United Kingdom released revised Gross Domestic Product data showing that the economy rose twice as fast in the second quarter as preliminary data had revealed. The new data are the result of a major revision in the National [...]

Revised UK GDP Data Show Greater Growth

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030930a.jpg" width="353">
Chain store sales fell 0.4% last week. It was the third consecutive weekly decline according to the BTM-UBSW survey.
The decline in sales followed a huge 1.8% slide the prior week as Hurricane Isabel struck. It pulled the level of sales in September 0.7% below the August average with just a few days left to be tallied.
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 non-auto 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.

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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">9/27/03</th>
<th scope="col">9/20/03</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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</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Retail Chain Store Sales</td>
<td>418.7</td>
<td>420.2</td>
<td>4.4%</td>
<td>3.6%</td>
<td>2.1%</td>
<td>3.4%</td>
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</tbody>
</table>
Chicago Purchasing Agents' Index Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 30, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030930c.jpg" width="353">
The Chicago Purchasing Managers Business Barometer for September fell much more than expected to 51.2 from 58.9 in August. Consensus expectations had been for a more moderate decline to 57.0.
All of the component indexes fell with the exception of inventories. Production (55.8) and orders (53.2) fell to the lowest levels since April. Employment also retraced most of the prior two months&#39; modest improvement.
During the last twenty years there has been a 57% correlation between the level of the Chicago PMI and quarterly growth in real GDP.
The index of prices paid fell to 51.8.
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"> Sept</th>
<th scope="col">Aug</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>51.2</td>
<td>58.9</td>
<td>49.4</td>
<td>52.7</td>
<td>41.4</td>
<td>51.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>53.2</td>
<td>60.5</td>
<td>51.3</td>
<td>56.3</td>
<td>42.3</td>
<td>53.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>51.8</td>
<td>52.4</td>
<td>59.1</td>
<td>56.9</td>
<td>50.4</td>
<td>65.6</td>
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</tbody>
</table>
Consumer Confidence Slid 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 30, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030930b.jpg" width="353">
The Conference Board&#146;s Index of Consumer Confidence in September slid to the lowest level since March. The index fell 6.0% from August to 76.8. That was versus Consensus estimates for a reading of 81.5.
Consumers&#39; gloom translated into sharp cutbacks in plans for purchasing a home and major appliances. Plans to buy carpet or an automobile also fell.
The drop in Confidence was deeper than the 1.8% September decline in Consumer Sentiment reported by the University of Michigan.
Lower Confidence reflected a 6.9% (-9.1% y/y) drop in the index of consumer expectations.Consumers&#39; read of the present situation fell 4.0% (-32.8% y/y) for the seventh drop this year.
Jobs were viewed as hard to get by 35.3% of respondents. Expectations rose that in six months there would be fewer job opportunities. This rise in pessimism erased all of a decline that occurred over the prior six months.
The Conference Board&#146;s survey is conducted by a mailed questionnaire to 5,000 households and about 3,500 typically respond.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF14/@EF1401/@EF1401.HTM"> Conference Board</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</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">Consumer Confidence</td>
<td>76.8</td>
<td>81.7</td>
<td>-18.0%</td>
<td>96.6</td>
<td>106.6</td>
<td>139.0</td>
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Chain store sales fell 0.4% last week. It was the third consecutive weekly decline according to the BTM-UBSW survey. The decline in sales followed a huge 1.8% slide the prior week as Hurricane Isabel struck. It pulled the level of [...]

Weekly Chain Store Sales Fell Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030929b.jpg" width="353">
With the settlement of strikes at Hyundai Motors and other firms, Korean industrial production rose 3.39% in August. However, as some labor unrest continued into August the level of production in industries other than mining is still below pre-strike levels.
Expectations that September would see more normal conditions have been severely dampened (no pun intended) by Typhoon Maemi, with its heavy rains and winds up to 134 miles per hour that hit Korea on September 13th. In addition to cutting power supplies, the storm damaged ports and shipping.
The Bank of Korea has warned that its forecast of growth of 3.1% for this year may not be achieved.

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<colgroup><col><col><col><col><col><col><col><col></colgroup>
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<th scope="col" class="firstcol">Industrial&nbsp; Production&nbsp; (2000=1000)</th>
<th scope="col">AUG 2003</th>
<th scope="col">JULY 2003</th>
<th scope="col">JUN 2003&nbsp;</th>
<th scope="col">M/M&nbsp; %</th>
<th scope="col">Y/Y&nbsp; %</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</td>
<td>112.9</td>
<td>109.2</td>
<td>113.5</td>
<td>3.39</td>
<td>-3.79</td>
<td>108.9</td>
<td>100.6</td>
<td>100.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Manufacturing</td>
<td>112.6</td>
<td>108.8</td>
<td>113.1</td>
<td>3.49</td>
<td>-3.80</td>
<td>108.5</td>
<td>100.1</td>
<td>100.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Mining</td>
<td>101.2</td>
<td>94.1</td>
<td>96.5</td>
<td>7.55</td>
<td>-2.49</td>
<td>104.1</td>
<td>99.5</td>
<td>99.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Electricity, gas,&nbsp;&nbsp;&nbsp;&nbsp; water</td>
<td>118.9</td>
<td>115.1</td>
<td>120.1</td>
<td>3.30</td>
<td>-4.16</td>
<td>115.2</td>
<td>106.9</td>
<td>100.2</td>
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With the settlement of strikes at Hyundai Motors and other firms, Korean industrial production rose 3.39% in August. However, as some labor unrest continued into August the level of production in industries other than mining is still [...]

Industrial Production in Korea Rebounds from Strike Affected Levels

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030929a.jpg" width="353">
Personal disposable income surged for a second month in August. The 0.9% (5.7% y/y) jump followed a 1.5% gain in July, both spurred by lower personal tax payments.
Wages and salaries rose just 0.1% following no change in July. That continued to reflect the recent weakness in job growth. During the last ten years there has been a 78% correlation between y/y wage growth and growth in nonfarm payrolls. However, the strength of a 1.8% y/y gain in wages relative to a 0.4% y/y decline in payrolls reflects the payoff for higher worker productivity.
Higher disposable income again fueled consumer spending which rose an expected 0.8% (5.4% y/y), the fifth firm gain in the last six months. Personal spending on durable goods jumped 2.8% (4.9% y/y) led by a 9.6% m/m gain in sales of light vehicles to 19.00M units, the highest selling rate since October 2001.
In addition, weak pricing power drove the incentive to buy. Though the PCE price deflator was lifted 0.3% in August by higher fuel prices, the deflator less food and energy rose just 0.1% (1.3% y/y). The durables&#39; price deflator continued a slide that began in early 1995, falling 0.2% (-3.2% y/y). Constant dollar durables spending rose 3.0% in August (8.3% y/y).
Personal consumption of services rose 0.3% (4.9% y/y) while services prices were tame, up just 0.2% (3.0 y/y).
The saving rate rose to 3.8% from a downwardly revised July level. It was the highest savings rate since February.

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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">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>
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<td class="firstcol">Personal Income</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.1%</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>0.9%</td>
<td>5.4%</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>3.6%</td>
<td>3.3%</td>
<td>3.7%</td>
<td>2.3%</td>
<td>2.8%</td>
</tr>
<tr>
<td class="firstcol">PCE Price Deflator</td>
<td>0.3%</td>
<td>0.2%</td>
<td>1.9%</td>
<td>1.4%</td>
<td>2.0%</td>
<td>2.5%</td>
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Personal disposable income surged for a second month in August. The 0.9% (5.7% y/y) jump followed a 1.5% gain in July, both spurred by lower personal tax payments. Wages and salaries rose just 0.1% following no change in July. That [...]

U.S. After Tax Income Surged Again

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/030926d.jpg" width="353">
Progress is fitful, but both retail sales and consumer prices in Japan are showing signs of stabilization after their protracted declines.
In August, retail sales rebounded by 2.8% from a similar-sized drop in July. After a steep drop from March to April, sales seem to be finding some footing, despite some wide monthly swings. Participation by various groups of stores is uneven, however, making it difficult to judge the staying power of overall demand. Sales at clothing stores, for instance, fell in August. But they have been relatively stable all of this year, breaking a distinct downtrend that has lasted generally throughout the history of these data back to 1992.
Consumer prices suffered marked declines during 2001, as seen in both the accompanying table and graph. But some improvement is evident more recently. The whole index has hovered in a narrow range of 98.0 to 98.3 (2000 = 100) since August of 2002, ending a marked downtrend that had begun in late 1998. Furniture prices, for example, are still declining, but the rate of decline has slowed from nearly 4% in mid-2002 to 2.5% in the last couple of months.
Perhaps it is grasping at straws to use the word &quot;improvement&quot; for sales and price levels that are still going down. But the shifts in both trends away from accelerating contractions that might have resulted in some self-reinforcing downward spiral is still quite encouraging for Japanese stores and their customers.

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<th scope="col" class="firstcol">% Changes</th>
Month/Month
Year/Year
Dec/Dec
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<tbody>
<tr class="odd">
<td class="firstcol">July</td>
<td>Aug</td>
<td>July</td>
<td>2002</td>
<td>2001</td>
<td>2000</td>
<td></td>
</tr>
<tr>
<td class="firstcol">Retail Sales (seas. adj. -- Year/Year not seas. adj.)</td>
<td>2.8</td>
<td>-2.6</td>
<td>-2.1</td>
<td>-3.0</td>
<td>-3.3</td>
<td>-5.9</td>
<td>-1.1</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
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<td class="firstcol">Consumer Price Index - General (seas. adj. -- Year/Year not seas. adj.)</td>
<td>-0.2</td>
<td>0.1</td>
<td>-0.3</td>
<td>-0.2</td>
<td>-0.3</td>
<td>-1.2</td>
<td>-0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Price Index Excl Imputed Rent (not seas. adj.)</td>
<td>0.2</td>
<td>-0.1</td>
<td>-0.4</td>
<td>-0.3</td>
<td>-0.3</td>
<td>-1.6</td>
<td>-0.5</td>
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</tbody>
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Progress is fitful, but both retail sales and consumer prices in Japan are showing signs of stabilization after their protracted declines. In August, retail sales rebounded by 2.8% from a similar-sized drop in July. After a steep drop [...]

Sales and Prices Improve in Japan

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030926b.jpg" width="353">
US economic growth was revised up slightly to 3.3% for 2Q03 from 3.1% reported last month and from 2.4% estimated in July. The upward revision beat Consensus expectations for 3.1% growth. Revisions were mostly technical and were the last before &quot;benchmark&quot; revisions later this year.
The upward revision reflected less drag from inventory reductions and somewhat faster growth in domestic final demand, up at a 5.1% rate.
Growth in fixed investment was ticked up slightly to 7.1% due to raised growth in nonresidential structures of 4.2%. Expenditures on equipment and software grew at an unrevised 8.2% rate. Growth in Federal defense spending was revised little at 45.8%, accounting for over half of the economy&#39;s growth last quarter.
Personal consumption expenditures growth was unchanged at 3.8%. Purchases of motor vehicles surged at a 33.5% rate and buying of furniture &amp; household equipment rose at a 17.9% rate.
Growth in corporate profits with adjustment for depreciation (CCA) and inventory valuation (IVA) was revised down slightly to 45.7% (AR, 14.3% y/y) from 50.8%. The spike reflected a huge surge in the depreciation allowance. These &quot;operating profits&quot; rose 72.1% (AR) after tax. 
Growth in operating profits after tax at nonfinancial corporations was revised up to 71.8% (AR, 21.3% y/y) from 64.7% estimated last month. This figure is derived from the income side of the National Income and Product Accounts.
Inflation was revised up slightly to 1.0%. The price index for domestic final demand grew at a 0.3% rate (1.7% y/y).
&quot;The 2001 Recession: How Was It Different and What Developments May Have Caused It?&quot; is the question explored in <a href="http://research.stlouisfed.org/publications/review/03/09/Kliesen.pdf"> this</a> paper from the Federal Reserve Bank of St. Louis.

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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 (Final)</th>
<th scope="col">2Q&#39;03 (Prelim)</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>3.3%</td>
<td>3.1%</td>
<td>1.4%</td>
<td>&nbsp;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>-0.7%</td>
<td>-0.9%</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>4.0%</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>-1.3%</td>
<td>-1.2%</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>5.1%</td>
<td>5.0%</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>1.0%</td>
<td>0.9%</td>
<td>2.4%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>2.4%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Eased This Month 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 26, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030926c.jpg" width="353">
The University of Michigan&#146;s consumer sentiment index for September fell more than indicated in the mid-month report. The figure for the full month fell to 87.7 versus the mid-month read of 88.2 and versus 89.3 in August. Consensus expectations had been for a reading of 88.5.
During the last five years there has been an 83% correlation between the level of consumer sentiment and the y/y% change in real PCE.
The Index of Consumer Expectations fell for the fourth consecutive month to the lowest level since April.
The read of Current Economic Conditions fell for the second month.
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.

<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/@EF/@EF14/@EF1402/@EF1402.HTM"> University of Michigan</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</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">Consumer Sentiment</td>
<td>87.7</td>
<td>89.3</td>
<td>1.9%</td>
<td>89.6</td>
<td>89.2</td>
<td>107.6</td>
</tr>
</tbody>
</table>


</html>

US economic growth was revised up slightly to 3.3% for 2Q03 from 3.1% reported last month and from 2.4% estimated in July. The upward revision beat Consensus expectations for 3.1% growth. Revisions were mostly technical and were the [...]

2Q U.S. GDP Growth Revised Up Again. Profit Surge Lessened But Nonfinancial Profits Raised

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030925h.jpg" width="353">
Similar to the United States, the Czech Republic is presently experiencing GDP growth without appreciable employment gains. Newly reported data on consumer confidence for September show a worsening trend in people&#39;s moods that could well be tied to this manner of economic expansion.
Businesses, however, seem to have a rather different perspective. Their confidence index, while somewhat erratic, is basically trendless. The local Czech stock market has been rising and interest costs are low. The circumstance of jobless growth was accomplished by sizable gains in productivity in the first half of this year. With these favorable business developments, business confidence is at least able to hold at a plateau. However, if consumer confidence continues declining, it remains to be seen how long business sentiment can be sustained.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Czech Republic: Confidence Measures and Related Factors</th>
<th scope="col">Sept 2003</th>
<th scope="col">Aug 2003</th>
<th scope="col">July 2003</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 Confidence&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (% Balance)</td>
<td>-17</td>
<td>-12</td>
<td>-15</td>
<td>-7</td>
<td>-5</td>
<td>-12</td>
</tr>
<tr>
<td class="firstcol">Business Confidence&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (% Balance)</td>
<td>3</td>
<td>5</td>
<td>4</td>
<td>4</td>
<td>2</td>
<td>N.A.</td>
</tr>
<tr class="odd">
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Prague Stock Exchange PX 50 (Index, 3/1/95 = 100)</td>
<td>N.A.</td>
<td>585.3</td>
<td>550.8</td>
<td>438.0</td>
<td>411.0</td>
<td>550.6</td>
</tr>
<tr class="odd">
<td class="firstcol">% Change, Annual Rate</td>
<td>2Q 2003</td>
<td>1Q 2003</td>
<td>4Q 2002</td>
<td>2002</td>
<td>2001</td>
<td>2000</td>
</tr>
<tr>
<td class="firstcol">GDP</td>
<td>2.4</td>
<td>3.4</td>
<td>2.0</td>
<td>1.8</td>
<td>3.3</td>
<td>3.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Employment</td>
<td>-1.9</td>
<td>-4.4&nbsp;</td>
<td>0.5</td>
<td>1.3</td>
<td>0.4&nbsp;</td>
<td>-0.2&nbsp;</td>
</tr>
<tr>
<td class="firstcol">Productivity (Output/Employee)</td>
<td>4.3</td>
<td>8.2</td>
<td>1.4</td>
<td>0.9</td>
<td>2.9</td>
<td>3.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Similar to the United States, the Czech Republic is presently experiencing GDP growth without appreciable employment gains. Newly reported data on consumer confidence for September show a worsening trend in people's moods that could [...]

Czech Consumer Confidence Erodes; Business Confidence Holds Firm

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030925b.jpg" width="353">
Initial claims for jobless insurance fell unexpectedly last week. The decline to 381,000 was from a level the prior week revised up 1,000 to 400,000. Expectations had been for claims of 400,000.
Claims the prior week were for the September survey period for nonfarm payrolls and they were up slightly from the August survey week.
During the last ten years there has been a 80% correlation (inverse) between the level of initial claims and the y/y change in payroll employment.
The four-week moving average of initial claims fell to 407,000 (-1.3% y/y).
Continuing claims for unemployment insurance fell 28,000 to 3,631,000. The prior week&#39;s level was revised down.
The insured rate of unemployment held steady at 2.9%. The rate has averaged 2.9% since April.

<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">9/20/03</th>
<th scope="col">9/13/03</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>381.0</td>
<td>400.0</td>
<td>-6.6%</td>
<td>404.3</td>
<td>406.0</td>
<td>299.7</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,631</td>
<td>1.0%</td>
<td>3,575</td>
<td>3,022</td>
<td>2,114</td>
</tr>
</tbody>
</table>
U.S. Durable Goods Orders Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 25, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030925a.jpg" width="353">
Durable goods orders fell 0.9% in August but the previously reported 1.0% rise in July was revised to 1.5%. Consensus expectations had been for a 1.0% rise.
Excluding the volatile transportation sector, durable orders fell 0.3% (3.3% y/y) following sizable gains in five of the prior seven months.
Orders for the transportation sector as a whole dropped 2.2% as orders for both motor vehicles and aircraft fell.
Excluding aircraft and parts, nondefense capital goods orders fell 0.8% (3.7% y/y).
Orders for computers &amp; electronic products eased a slight 0.1% (12.1% y/y) following strong gains for much of this year. Orders for computers &amp; related products fell 2.3% (18.2% y/y). Machinery orders fell a slight 0.7% (2.4% y/y) following two months of strong gain.
Shipments of durable goods gave back all of the prior month&#39;s gain and fell 2.9% (-1.4% y/y). Year-to-date shipments of durable goods were up 2.0%.
Durable inventories fell 0.4% last month (-3.1% y/y). Inventory decumulation continued across industries.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</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>
<td class="firstcol">Durable Goods Orders</td>
<td>-0.9%</td>
<td>1.5%</td>
<td>-1.9%</td>
<td>-1.7%</td>
<td>-10.5%</td>
<td>3.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nondefense Capital Goods</td>
<td>-2.0%</td>
<td>1.4%</td>
<td>-3.4%</td>
<td>-7.2%</td>
<td>-15.5%</td>
<td>7.4%</td>
</tr>
</tbody>
</table>
New Home Sales Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 25, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030925c.jpg" width="353">
Sales of new single family homes slightly beat Consensus expectations for a 1.115M sales rate and rose to 1.15M. Sales in July were revised slightly.
Sales of new homes last month were the second highest on record.
Sales were strong and rose throughout the country, but in the South sales dipped 1.1% (10.2% y/y) for the second monthly decline.
The median price of a new home fell 4.2% to $184,500 (3.1% y/y). 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">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>
<td class="firstcol">New Single-Family</td>
<td>1,150</td>
<td>1,112</td>
<td>12.2%</td>
<td>977</td>
<td>907</td>
<td>880</td>
</tr>
</tbody>
</table>
Existing Home Sales Surge to Another Record 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 25, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030925d.jpg" width="353">
Sales of existing single family homes handily beat Consensus expectations for a decline to 6.00M. The 5.5% gain in August to a record 6.470M added to a 5.1% rise the prior month which was revised up slightly.
The figures reflect closings of past home sales.
Sales rose in each of the country&#39;s regions. Huge gains were logged in the West, up 8.0% (24.8% y/y), and in the South where sales rose 6.5% (22.4% y/y). In the Northeast sales rose 1.4% m/m (12.7% y/y) and in the Midwest sales rose 3.0% (22.1% y/y).
The median price of an existing home fell m/m to $177,500 (+9.8% y/y).
The latest release from the National Association of Realtors is available <a href="http://www.realtor.org/PublicAffairsWeb.nsf/Pages/EHS03August?OpenDocument">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E905/@E90501/@E90501.HTM">Existing Home Sales (000, AR)</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>
<td class="firstcol">Existing Single-Family</td>
<td>&nbsp;6,470</td>
<td>&nbsp;6,130</td>
<td>21.8%</td>
<td>5,595</td>
<td>5,292</td>
<td>5,158</td>
</tr>
</tbody>
</table>
Help-Wanted Advertising Weak 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 25, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030925g.jpg" width="353">
The Conference Board&#146;s National Index of Help-Wanted Advertising fell slightly last month to 37, the midpoint of a depressed range of readings in place since March.
During the last ten years there has been a 93% 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 improved just slightly to 45% from a depressed July reading of 35%.
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">Aug</th>
<th scope="col">July</th>
<th scope="col">Aug &#39;02</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">National Help Wanted Index</td>
<td>37</td>
<td>38</td>
<td>41</td>
</tr>
</tbody>
</table>
Chicago Fed National Activity Index Eased 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 25, 2003


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/030925f.jpg" width="353">
The Chicago Fed National Activity Index (CFNAI) fell in August to &#150;0.28 versus 0.05 in July which was revised up slightly.
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;0.16 from -0.18 the prior period.
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>.

<table border="0" cellspacing="0" width="100%">

</table>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">Aug</th>
<th scope="col">July</th>
<th scope="col">Aug &#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>-0.28</td>
<td>0.05</td>
<td>-0.62</td>
<td>-0.34</td>
<td>-1.19</td>
<td>-0.12</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for jobless insurance fell unexpectedly last week. The decline to 381,000 was from a level the prior week revised up 1,000 to 400,000. Expectations had been for claims of 400,000. Claims the prior week were for the [...]

Initial Claims for Jobless Insurance Fell

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

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

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Industrial production (IP) rose a larger-than-expected 0.9% m/m (0.5% y/y) in December following an upwardly revised 0.2% increase in November (-0.1% initially) and a downwardly revised 0.5% decline in October (-0.4% previously), data from the Federal Reserve Board showed. A 0.3% m/m December increase had been expected in the Action Economics Forecast Survey. The December IP index at 103.2 was the highest since June 2024; it was 4.2% above a low of 99.0 in September 2021 and 8.1% above a low of 95.5 in February 2021. The Fed estimated that increases in aircraft & parts output contributed 0.2 percentage point to December IP growth after the resolution of the Boeing strike. In Q4 2024, IP fell 0.2% q/q after falling 0.2% q/q in Q3 2024, dropping at a 0.6% annualized rate following a 0.8% Q3 annualized rate of decline. IP fell 0.3% in 2024 after rising 0.2% in 2023 and 3.4% in 2022.

By **industry groups**, manufacturing production gained 0.6% (0.03% y/y) in December following an upwardly revised 0.4% increase in November (+0.2% initially) and two consecutive m/m declines. Durable goods production rose 0.4% (-1.2% y/y) in December following a 0.9% rebound in November. This reflected m/m output rises of 6.3% (-5.6% y/y) in aerospace & miscellaneous transportation equipment, 1.7% (-1.9% y/y) in primary metals, 0.9% (-0.4% y/y) in fabricated metal products, and 0.5% (3.0% y/y) in electrical equipment, appliances & components. Notably, aircraft & parts production climbed 11.4% (-9.2% y/y), the largest m/m gain since May 2020, following a 0.7% November rebound. In contrast, the following durable goods categories fell m/m in December, including output drops of 2.0% (-3.7% y/y) in furniture & related products, 1.0% (-4.9% y/y) in miscellaneous durables goods, 0.7% (+3.8% y/y) in computer & electronic products, 0.6% (-5.7% y/y) in motor vehicles & parts, 0.6% (-1.3% y/y) in nonmetallic mineral products, 0.2% (+0.7% y/y) in machinery, and 0.2% (+2.7% y/y) in wood products.

Nondurable goods production rose 0.7% (1.4% y/y) in December after edging up 0.1% in November and October. The December rise reflected m/m output increases of all nondurable goods categories, including 1.6% (1.2% y/y) in petroleum & coal products, 1.5% (5.5% y/y) in printing & related support activities, 1.2% (-7.2% y/y) in apparel & leather goods, 0.8% (5.4% y/y) in chemicals, 0.6% (-1.0% y/y) in food, beverages & tobacco, 0.3% (1.3% y/y) in paper, 0.2% (-4.2% y/y) in plastics & rubber products, and 0.1% (2.3% y/y) in textiles & product mills.

Mining activity rose 1.8% (0.3% y/y) in December following an upwardly revised 0.5% decline in November (-0.9% initially). Utilities output rose 2.1% (4.3% y/y) following an upwardly revised 0.7% November drop (-1.3% initially). They increased for the second time in three months.

By **market groups**, business equipment output rose 1.4% (-4.3% y/y) in December following a 1.4% rise in November and two successive m/m decreases. Materials production advanced 1.2% (1.4% y/y) after virtually unchanged. Construction supplies production increased 0.9% (0.9% y/y) after holding steady. Consumer goods output rose 0.5% (0.3% y/y) in December after a 0.5% rebound, reflecting a 0.4% decline (-5.3% y/y) in durable consumer goods and a 0.7% gain (1.9% y/y) in nondurable consumer goods.

In **special classifications**, factory output of selected high-tech industries rose 1.1% (7.9% y/y) in December after holding steady in November (+0.3% initially) and four straight m/m rises. Manufacturing production excluding selected high-tech industries grew 0.6% (-0.2% y/y) following a 0.4% November rebound and two consecutive m/m declines. Manufacturing production excluding selected high-tech and motor vehicles & parts rose 0.7% (0.3% y/y) after a 0.2% November increase and three straight m/m decreases.

Capacity utilization rose to 77.6% in December, the highest since August, after holding at 77.0% in November (76.8% initially). The Action Economics Forecast Survey forecasted 77.0%. The December reading was 2.1 percentage points below its long-run (1972–2023) average. Manufacturing capacity utilization rose to 76.6% in December, the highest since September, from 76.2% in November (76.0% initially); the December rate was 1.7 percentage points below its long-run average.

Industrial production and capacity data are in Haver’s **USECON** database. Additional detail on production and capacity utilization can be found in the **IP** database. The expectations figures come from the **AS1REPNA** database.

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- Dec. IP +0.9% m/m (+0.5% y/y), up for the second straight month; IP Index at a 6-month high.
- Mfg. IP +0.6% m/m, w/ durable goods up 0.4% and nondurable goods up 0.7%.
- Mining activity +1.8% and utilities output +2.1%, up for the second month in three.
- Key categories in market groups all gain.
- Capacity utilization increases to a 4-month-high 77.6%.

U.S. Industrial Production Exceeds Expectations in December

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Total housing starts jumped 15.8% m/m to a higher-than-expected 1.499 million units at a seasonally adjusted annual rate (SAAR) in December after declines of 3.7% to 1.294 million in November (-1.8% m/m, 1.289 million initially) and 0.8% to 1.344 million in October (-3.2% m/m, 1.312 million previously), data from the U.S. Census Bureau showed. The Action Economics Forecast Survey had expected 1.320 million starts for December. The December reading was the first m/m rise since August and the highest level since February 2024. The year-on-year rate was at -4.4% in December, the smallest y/y decline since September and less severe than -14.3% in November; it was +17.0% y/y in December 2023. Starts were 18.0% below a recent peak of 1.828 million in April 2022. During all of 2024, housing starts fell 4.0% after falling 8.4% in 2023 and 3.3% in 2022.

Single-family starts rose 3.3% (-2.6% y/y) to 1.050 million in December on top of a 7.7% rise to 1.016 million in November (1.011 million initially), registering the fourth m/m rise in five months and the highest level since February 2024. They reached a high of 1.222 million in November 2021 and a high of 1.286 in December 2020. Multi-family starts surged 61.5% (-8.4% y/y) to 449,000, the highest level since December 2023, reversing a 30.7% November decrease to 278,000. They reached a high of 624,000 units in November 2022 and a high of 627,000 units in April 2022.

Housing starts gained in all the major regions except in the West. Starts in the Northeast jumped 40.2% (22.7% y/y) to a three-month-high 157,000 in December, the third m/m increase in four months, after a 2.8% rebound in November. Starts in the Midwest recovered 20.0% (1.0% y/y) to 204,000, up for the second month in three, following a 32.5% November slump. Starts in the South advanced 17.7% (0.1% y/y) to 853,000, the highest level since February 2024, following a 10.2% November rise and two consecutive m/m declines. To the downside, starts in the West fell 0.7% (-26.2% y/y) to 285,000 on top of an 11.7% decrease, registering the third m/m fall in four months and the lowest level since July 2024. Notably, the South continued to post the largest level figure (853,000) for housing starts among the four regions. It showed a peak of 1.048 million in April 2022.

Building permits slid 0.7% (-3.1% y/y) to 1.483 million in December, the third m/m slide in four months, following a 5.2% rise to 1.493 million in November (compared to 1.493 million recently revised on December 23 and 1.505 million initially reported on December 18). They reached a high of 1.915 million in January 2022 and a high of 1.883 million in January 2021. Single-family permits rose 1.6% (-2.5% y/y) to 992,000, the third straight m/m rise and the highest level since February 2024, after a 0.5% increase to 976,000. They reached a high of 1.251 million in January 2022 and a high of 1.250 in January 2021. Multi-family permits fell 5.0% (-4.3% y/y) to 491,000, down for the third month in four, after having recovered 15.4% to 517,000. They reached a peak of 813,000 units in February 2023 and a high of 799,000 units in June 2022.

The housing starts and permits figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Housing starts +15.8% (-4.4% y/y) to 1.499 mil. in Dec. vs. -3.7% (-14.3% y/y) to 1.294 mil. in Nov.
- Single-family starts highest since Feb. ’24; multi-family starts highest since Dec. ’23.
- Housing starts up m/m and y/y in the Northeast, Midwest and South but down in the West.
- Building permits fall for the third month in four, due to a drop in multi-family permits.

U.S. Housing Starts Rebound in December; Highest Level Since February 2024

Robert Brusca

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U.K. sales volume for retail sales has been slipping roughly since mid-2024. The 3-month volume index is falling at a 4.4% annual rate over three months. Sales are up at a scant 0.2% annual rate over six months and by 3.5% year-over-year. Passenger car registrations show weakness falling at a 7.6% annual rate over three months, gaining at a 4.6% pave over six months, and then showing contraction at a minor -0.1% rate over 12 months.

**Volume Trends**
Apart from the sequential data, the monthly volume results show a decline in December, a gain in November and a drop in October. The monthly nominal data show small nominal gain in November and December against a sharper nominal decline in October.

U.K. nominal sales QTD relative nominal decline in the fourth quarter with retail sales volumes also show decline dropping at a 2.9% annual rate overall. Passenger car registrations are falling at a 12.4% annual rate in the fourth quarter.

**Surveys and Confidence**
U.K. surveys on retailing for the ‘time of year’ and the ‘volume of orders’ from the Confederation of British Industry (CBI) show sputtering monthly results. The CBI reading for time of year (TOY) and volume of orders (VoO) both show net decline of three months. VoO also falls over six months whereas TOY sales are higher over six months. Both TOY and VoO sales are higher over 12 months. TOY sales are up by 2-index points while VoO sales are up by 28 of their index points. While the year-on-year survey results show short-term agreement, their year-on-year signals seem different. But their long-term ranking results alone again show similarity at the TOY sales log a 21.8 percentile standing vs. VoO that is even weaker at a14-percentile mark. It is an even weaker full-sample standing despite the better 12-month gain. We often see this sort of thing in data comparisons. But if surveys are well-constructed, they usually track but there often are still disparities. That is true here as well and we can nit-pick the details but the overarching message here is that conditions are weak. Consumer confidence from GfK has been volatile over the span but when we rank the confidence index, it stands at 40.5 percentile level, which is stronger than for the surveys but still below its median and barely over half the standing of real retail sales growth.

**Rankings/Standings**
The consumer confidence standing is interesting at 40.5% but it is not ‘close’ to the volume ranking which is at its 77-percentile. The confidence ranking is still slightly below its median. The retail sales ranking is applied to real sales and their 12-month growth rate. The ranking of sales volume is much higher than any ranking registered by CBI surveys or by consumer confidence. Passenger car registrations are weak, too, at a 47.2 percentile standing. In contrast, nominal retail sales have a 60.6 percentile standing. Part of that is the boost they get from the 80.9 percentile standing from the CPI-H, from inflation.

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United Kingdom

U.K. Retail Sales Volumes Slide

Andrew Cates

**Global bond markets**
The sell-off in bond markets has been a global phenomenon. This is illustrated in chart 1 showing the movement in 10-year government bond yields in the US, UK and Germany over the past 12 months. Still, as the chart’s scaling indicates, divergences in yield levels between the US and UK versus Germany suggest different dynamics have been at play. The US and UK, for example, have been leading the sell-off compared with Germany (and other eurozone members).

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**Global inflation expectations**
That suggests that inflation expectations coupled with inflation uncertainty have been a driver of higher yields. Chart 2 below shows the evolution of consensus forecasts for CPI inflation in 2025 across the US, UK, the euro area (and Japan) throughout 2024. Notably, expectations for inflation in the US and UK inflation rose steadily over the year. In contrast, euro area inflation forecasts remained relatively stable, hovering close to the ECB’s target of around 2%. We will focus more on this again below but for the record Japan’s inflation forecasts saw a gradual uptick, at the same time, but remained modest, increasing from 1.5% to just above 2%.

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**Overseas demand**
The role of overseas demand for US government debt in driving US yields higher could also have been significant. Chart 3 below shows the evolution of foreign holdings of US Treasury securities from 2013 to 2024, segmented by key regions: Japan, China, Europe, and the rest of the world. Over the period, total foreign holdings steadily increased, surpassing $9 trillion by 2024. Notably, Japan has now emerged as the largest single holder of US Treasuries, with its share growing significantly, while China’s holdings, though substantial, have showed some decline in recent years. But a new US administration led by President-elect Trump could now be further disrupting this picture. A potential pivot toward more protectionist policies alongside some question marks about the independence of the Fed and the dollar’s role as the world’s reserve currency could be combining to undermine overseas demand for safe-haven assets in the United States.

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**Japan**
Japan is worthy of some further separate comment in this regard. That’s because its capital flows are highly significant for global financial markets due to Japan's status as one of the world’s largest net creditor nations. Changes in Japanese capital flows—such as a shift back to domestic assets driven by rising yields or inflation expectations—usually create ripple effects, influencing global bond yields, currency markets (particularly the yen), and risk sentiment. This is why, notwithstanding relatively stable consensus inflation forecasts for 2025 that we noted above, the sharp rise in longer-term market-based inflation forecasts is noteworthy. Chart 5 below illustrates Haver’s calculations for the 5-year breakeven inflation rate in Japan from 2019 to 2024, and shows a sustained increase in those expectations in recent years. That follows several years of subdued expectations driven by entrenched deflationary pressures and weak demand. That the 5-year breakeven inflation rate crossed 2% toward the end of last year is also noteworthy given the Bank of Japan’s inflation objectives. For it potentially signals that monetary policy is still loose and that a further campaign to normalise policy beckons in the months ahead.

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**Quantitative tightening** 
Central bank monetary policies more generally are also worthy of some discussion and particularly their balance sheet policies. Chart 5 below depicts the relationship between central banks' asset holdings as a percentage of GDP (a four-quarter change of an unweighted average for the US, Japan, and the euro area) and the real 10-Year bond yield in the US. The chart underscores the close connection between central bank asset purchases and real yields. In combination with looser US fiscal policy – and a higher degree of government bond issuance – the underlying supply and demand dynamics in the US Treasury market (and other government debt markets) have been shifting. Reduced demand from central banks, in other words, has coincided with additional supply from governments, and thereby amplifying upward pressure on real yields. 


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**US and UK inflation**
The key takeaway from this discussion is that a confluence of factors has driven global yields higher in recent weeks. Inflation and monetary policy concerns, fiscal policy uncertainty, and shifts in capital flows have all likely contributed. As highlighted earlier, the trajectory of yields from here will hinge on incoming economic data and how policymakers respond. On that first point, however, it was notable that this week brought some encouraging news: the latest CPI inflation reports from both the US and UK came in weaker than expected. Notably, the details were also reassuring, with service-sector inflation showing further signs of moderation in both economies (see chart 6 below). This could ease some of the pressure on central banks to keep monetary policy restrictive in the period immediately ahead.

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A steep sell-off in global bond markets has dominated financial headlines over the past week or so, drawing intense scrutiny from investors and policymakers alike (chart 1). The implications of this for the global economy, however, will depend on the underlying drivers that have been fuelling the rout. With our charts this week, we examine the data to identify some of the likely culprits. Inflation concerns are front and centre, with rising consumer prices in recent months (chart 2) reigniting fears of tighter monetary policy. Waning overseas demand, particularly from Japan and China (charts 3 and 4), may also be playing a significant role. Meanwhile, quantitative tightening (chart 5) has possibly siphoned liquidity from financial markets, while fiscal policy uncertainties are further rattling investor confidence. The easy conclusion is that all these factors—ranging from inflationary pressures to fiscal risks—are complicit to varying degrees. However, whether this marks the beginning of a broader reckoning or merely a passing squall hinges on how incoming data now evolve and how policymakers respond to these challenges. On that first point, weaker-than-expected inflation data from the US and UK this week appear to have stopped the rot for now (chart 6). On the latter, a new US administration could add another layer of unpredictability and the coming weeks could prove pivotal in shaping market expectations and the trajectory of the global economy.

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Charts of the Week: Yielding Conclusions

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Total retail sales increased a less-than-expected 0.4% m/m in December after an upwardly revised rises of 0.8% in November (+0.7% initially) and 0.6% in October (+0.5% previously), data from the U.S. Census Bureau showed. The December m/m reading was the fourth consecutive m/m gain and the fifth in six months. A 0.6% m/m December increase had been expected in the Action Economics Forecast Survey. The year-on-year rate decelerated to 3.9% in December from 4.1% in November. The latest y/y figure, below 5.2% in December 2023, was also lower than a high of 17.1% in February 2022 and significantly below a peak of 52.5% in April 2021. During all of 2024, retail sales rose 2.6% after gaining 3.6% in 2023 and 9.1% in 2022.

Excluding motor vehicles & parts, retail sales rose 0.4% (2.9% y/y) in December after an unrevised 0.2% increase in November, registering the fourth successive m/m rise and the sixth in seven months. A 0.5% m/m December increase had been expected. Sales of motor vehicles & parts grew 0.7% (8.4% y/y), the fourth straight m/m gain, on top of a 3.1% November increase; this compared to a 3.1% rise (7.2% y/y) in unit light vehicle sales following a 3.0% November increase.

Sales in the retail control group, which excludes autos, building materials, gasoline stations, and food services, rose 0.7% (4.1% y/y) in December, up for the third month in four, following a 0.4% rise in November. These sales are used in the construction of personal consumption expenditures in NIPA accounts. Nonauto sales excluding gasoline & building materials grew 0.5% (3.8% y/y), the fourth consecutive m/m gain, after a 0.3% November increase.

Sales by category were mostly positive in December. Miscellaneous store sales jumped 4.3% (3.7% y/y) in December, the first m/m gain since September, reversing a 3.9% drop in November. Sporting goods, hobby shop, book & music store sales rose 2.6% (1.8% y/y), the first m/m rise in three months, following a 0.3% November decline. Furniture & home furnishing store sales advanced 2.3% (8.4% y/y), the eighth m/m gain in nine months, on top of a 1.3% November increase. Clothing & accessory store sales rebounded 1.5% (2.4% y/y), the third m/m gain in four months, following a 0.8% November drop. Gasoline station sales rose 1.5% (-1.2% y/y) in December after rising 0.2% in the prior two months. Electronics & appliance store sales rose 0.4% (5.8% y/y), the third straight m/m rise, after a 0.9% November increase. General merchandise store sales rose 0.3% (2.6% y/y), up for the third month in four, after holding steady in November; within this grouping, department store sales edged up 0.1% (-1.8% y/y) after falling 0.4% in November and October. Nonstore retail sales grew 0.2% (6.0% y/y), the third m/m increase in four months, after a 1.7% November gain.

To the downside, building materials & garden equipment store sales slid 2.0% (-1.8% y/y), the third consecutive m/m slide, on top of a 0.8% November decrease.

In the nondiscretionary sales categories, health & personal care store sales fell 0.2% (+3.4% y/y) in December, down for the second month in three, following a 0.3% increase in November. Food & beverage store sales, however, rose 0.8% (3.1% y/y), the third m/m rise in four months, reversing a 0.2% November decline.

Consumers seemed to eat out less frequently in December amid still-high inflation (December CPI +0.4% m/m, +2.9% y/y; core CPI +0.2% m/m, +3.2% y/y). Restaurant & drinking place sales fell 0.3% (+2.4% y/y) in December, the first m/m fall since March 2024, following an upwardly revised 0.1% uptick in November (-0.4% initially).

Retail sales data can be found in Haver’s **USECON** database. The expectations figures are from the Action Economic Forecast Survey in **AS1REPNA**.

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- December total retail sales +0.4% (+3.9% y/y), w/ m/m rises in most categories.
- Ex-auto sales +0.4% (+2.9% y/y); auto sales +0.7% (+8.4% y/y).
- Rebounds in miscellaneous store sales (+4.3%) and sporting goods store sales (+2.6%).
- Drops in building materials & garden equipt. store sales (-2.0%) and restaurant & drinking place sales (-0.3%).

Economy in Brief: September 2003

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