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/050930e.jpg" width="353">
As we have noted recently, European economic performance has been basically flat. Today, another piece of evidence in this direction comes from France, which reported its August unemployment rate steady at July&#39;s 9.9%. This does continue the reversal of a modest uptick in the rate to 10.2% in March, April and May. So conditions are not worsening, as it might have appeared during the spring. But the foundation appears fairly tenuous ahead of a winter when heating and other energy costs are likely to be burdensome for even the strongest economies.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930f.jpg" width="353">
These data, reported by age group, highlight another feature of the French labor market: the extraordinarily high unemployment rate among younger workers. The overall rate has risen a moderate 1.3 percentage points from a low of 8.6% in the spring of 2001. But that for workers under age 25, now at 23.1%, is up 5.5 percentage points over the same period. Similarly, the total number of unemployed is now 2.712 million, up 17.7% from 2.304 in March 2001, while those under 25 have increased to 625,000 from 452,000, a substantial 38.3% advance. Among the other age groups featured in the French data, for &quot;middle-aged&quot; workers, ages 25-49, unemployment has risen only modestly, with their rate at 9.0%, up from 8.0% at its mid-2001 low and the number unemployed up only about 8% during that period. Older workers have seen a larger percentage increase in their idle numbers, nearly 32%, but their rate is up just 0.9 percentage point from 6.2% to 7.1%. Perhaps more notably, since mid-2003 the rate for this last group is actually down a bit and the mid-range group has seen its rate flat.
Over a longer period, the picture for the youngest group gives greater concern; they have seen their number unemployed ratchet downward from about 1.0 million in 1985 to the 625,000 mentioned earlier, but their unemployment rate is virtually the same at 23%-plus. Thus, by implication, job opportunities for young would-be French workers have diminished markedly. 

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/FRANCE/FRANCE.HTM">France</a>&nbsp; Unemployment Rates Seasonally Adjusted</th>
<th scope="col">Aug 2005</th>
<th scope="col">July 2005</th>
<th scope="col">June 2005</th>
<th scope="col">Aug 2004</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>9.9</td>
<td>9.9</td>
<td>10.1</td>
<td>10.0</td>
<td>10.0</td>
<td>9.8</td>
<td>9.1</td>
</tr>
<tr>
<td class="firstcol">Age under 25</td>
<td>23.1</td>
<td>23.0</td>
<td>23.3</td>
<td>22.6</td>
<td>22.4</td>
<td>20.7</td>
<td>19.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Age 25 - 49</td>
<td>9.0</td>
<td>9.0</td>
<td>9.1</td>
<td>9.1</td>
<td>9.1</td>
<td>8.9</td>
<td>8.3</td>
</tr>
<tr>
<td class="firstcol">Age 50-plus</td>
<td>7.1</td>
<td>7.1</td>
<td>7.1</td>
<td>7.3</td>
<td>7.3</td>
<td>7.5</td>
<td>6.9</td>
</tr>
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As we have noted recently, European economic performance has been basically flat. Today, another piece of evidence in this direction comes from France, which reported its August unemployment rate steady at July's 9.9%. This does [...]

French Unemployment Little Changed in Short-Run, but Young Workers Suffer Significant Joblessness

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930d.jpg" width="353">
The Chicago Purchasing Managers Business Barometer improved unexpectedly in September to 60.5, recovering most of the 14.3 point decline in August. Consensus expectations had been for a slight increase to 52.
During the last ten years there has been a 65% correlation between the level of Chicago PMI and the three month change in factory sector industrial production.
The new orders index rose 16.9 points after a 23.1 point drop in August but the production index gained back less than half of the 14.3 point August shortfall. Employment fell for the fifth month in the last six. During the last ten years there has been a 75% correlation between the level of the employment index and the three month change in factory sector employment.
The index of prices surged 13.4 points to the highest level since Januarys. During the last ten years there has been an 86% correlation between the Chicago price index and the three month change in the &quot;core&quot; intermediate goods PPI.

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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">&nbsp;Sept &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Business Barometer</td>
<td>60.5</td>
<td>49.2</td>
<td>64.3</td>
<td>62.9</td>
<td>54.6</td>
<td>52.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>63.4</td>
<td>46.5</td>
<td>71.8</td>
<td>67.0</td>
<td>58.0</td>
<td>56.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>76.3</td>
<td>62.9</td>
<td>86.9</td>
<td>80.1</td>
<td>55.8</td>
<td>56.9</td>
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</tbody>
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The Chicago Purchasing Managers Business Barometer improved unexpectedly in September to 60.5, recovering most of the 14.3 point decline in August. Consensus expectations had been for a slight increase to 52. During the last ten years [...]

Chicago Purchasing Agents' Index Improved Unexpectedly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930c.jpg" width="353">
The University of Michigan indicated that its final reading of consumer sentiment during September was unchanged from the preliminary indication of a 13.7% m/m decline to 76.9, the lowest level in over ten years. The September decline followed a 7.7% drop in August and Consensus expectations had been for improvement to 78.0 in August.
During the last ten years there has been a 78% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
Consumer expectations were depressed 17.7% as the index of expected business conditions during the next 12 months cratered 39.2% (-46.6% y/y). Unemployment was expected to rise but interest rates were expected to decline.
The mean expected inflation rate for the next twelve months rose to 5.5% from 3.7% in August and that helped erode expectations for real income by 1.3% (-7.3% y/y).
The current conditions index fell 9.3% m/m, roughly double the decline in August. Sentiment regarding personal finances tumbled 12.0% m/m and was at its worst level in over two years.
The University of Michigan survey is not seasonally adjusted.The mid-month survey 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%">
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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">Sept (Final)</th>
<th scope="col">Sept (Prelim.)</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>76.9</td>
<td>76.9</td>
<td>89.1</td>
<td>-18.4%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>98.1</td>
<td>97.7</td>
<td>108.2</td>
<td>-5.4%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>63.3</td>
<td>63.6</td>
<td>76.9</td>
<td>-28.1%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
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The University of Michigan indicated that its final reading of consumer sentiment during September was unchanged from the preliminary indication of a 13.7% m/m decline to 76.9, the lowest level in over ten years. The September decline [...]

U.S. Consumer Sentiment Remained Depressed

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930b.jpg" width="353">
Personal income fell 0.1% last month after an unrevised 0.3% gain in July. Consensus expectations had been for a 0.3% August increase. The Commerce Department indicated that declines in rental &amp; proprietors&#39; income due to Hurricane Katrina probably reduced the two measures by a combined $100 billion annualized.
Wages &amp; salaries rose 0.2% (6.6% y/y) in August following an upwardly revised 0.7% increase in July. Factory sector wages rose 0.1% (4.7% y/y) after a 0.5% July increase. Service sector wages rose 0.2% (7.7% y/y) after an upwardly revised 0.9% July surge.
Disposable personal income fell 0.1% (+4.4% y/y) following two months of 0.4% increase. Adjusted for prices which rose 0.5%, take home pay fell 0.5% (+1.4% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930a.jpg" width="353">
Personal consumption expenditures fell 0.5% due to a sharp drop in light vehicle sales that pulled spending on durables down 8.9% (+3.2% y/y). Nondurables outlays surged 1.1% (9.4% y/y). Spending on gasoline &amp; fuel oil rose 5.7% (32.4% y/y) pumped by an 8.6% m/m increase in gasoline prices that rose another 16.8% this month. Services spending increased 0.4% (5.9% y/y) for the second consecutive month.
The personal savings rate remained negative for the third consecutive month. Nevertheless, the Federal Reserve indicated last week that household sector net worth (from the Flow of Funds Accounts) improved in 2Q to a four year high due to an increase in owners&#39; equity in real estate which has averaged 11.3% per year since 2001.
The PCE chain price index rose 0.5% last month. Less food &amp; energy prices rose 0.2% (2.0% y/y) following two months of 0.1% gain.
What&#39;s Driving Wage Inequality? from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2005/steelmanweinberg.pdf"> here</a>.
Inflation Modeling: A Policy Maker&#39;s Perspective, remarks made by Federal Reserve Board Governor Donald L. Kohn is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20050929/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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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">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>5.6%</td>
<td>5.9%</td>
<td>3.2%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>-0.5%</td>
<td>1.2%</td>
<td>6.6%</td>
<td>6.5%</td>
<td>4.9%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-0.7%</td>
<td>-1.1%</td>
<td>1.5%</td>
<td>1.7%</td>
<td>2.1%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.5%</td>
<td>0.3%</td>
<td>3.0%</td>
<td>2.6%</td>
<td>1.9%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.3%</td>
<td>1.8%</td>
</tr>
</tbody>
</table>
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Personal income fell 0.1% last month after an unrevised 0.3% gain in July. Consensus expectations had been for a 0.3% August increase. The Commerce Department indicated that declines in rental & proprietors' income due to Hurricane [...]

U.S. Personal Income Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930b.jpg" width="353">
Personal income fell 0.1% last month after an unrevised 0.3% gain in July. Consensus expectations had been for a 0.3% August increase. The Commerce Department indicated that declines in rental &amp; proprietors&#39; income due to Hurricane Katrina probably reduced the two measures by a combined $100 billion annualized.
Wages &amp; salaries rose 0.2% (6.6% y/y) in August following an upwardly revised 0.7% increase in July. Factory sector wages rose 0.1% (4.7% y/y) after a 0.5% July increase. Service sector wages rose 0.2% (7.7% y/y) after an upwardly revised 0.9% July surge.
Disposable personal income fell 0.1% (+4.4% y/y) following two months of 0.4% increase. Adjusted for prices which rose 0.5%, take home pay fell 0.5% (+1.4% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930a.jpg" width="353">
Personal consumption expenditures fell 0.5% due to a sharp drop in light vehicle sales that pulled spending on durables down 8.9% (+3.2% y/y). Nondurables outlays surged 1.1% (9.4% y/y). Spending on gasoline &amp; fuel oil rose 5.7% (32.4% y/y) pumped by an 8.6% m/m increase in gasoline prices that rose another 16.8% this month. Services spending increased 0.4% (5.9% y/y) for the second consecutive month.
The personal savings rate remained negative for the third consecutive month. Nevertheless, the Federal Reserve indicated last week that household sector net worth (from the Flow of Funds Accounts) improved in 2Q to a four year high due to an increase in owners&#39; equity in real estate which has averaged 11.3% per year since 2001.
The PCE chain price index rose 0.5% last month. Less food &amp; energy prices rose 0.2% (2.0% y/y) following two months of 0.1% gain.
What&#39;s Driving Wage Inequality? from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/economic_quarterly/pdfs/summer2005/steelmanweinberg.pdf"> here</a>.
Inflation Modeling: A Policy Maker&#39;s Perspective, remarks made by Federal Reserve Board Governor Donald L. Kohn is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2005/20050929/default.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
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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">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>5.6%</td>
<td>5.9%</td>
<td>3.2%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>-0.5%</td>
<td>1.2%</td>
<td>6.6%</td>
<td>6.5%</td>
<td>4.9%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings Rate</td>
<td>-0.7%</td>
<td>-1.1%</td>
<td>1.5%</td>
<td>1.7%</td>
<td>2.1%</td>
<td>2.4%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.5%</td>
<td>0.3%</td>
<td>3.0%</td>
<td>2.6%</td>
<td>1.9%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.3%</td>
<td>1.8%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Remained Depressed 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 30, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930c.jpg" width="353">
The University of Michigan indicated that its final reading of consumer sentiment during September was unchanged from the preliminary indication of a 13.7% m/m decline to 76.9, the lowest level in over ten years. The September decline followed a 7.7% drop in August and Consensus expectations had been for improvement to 78.0 in August.
During the last ten years there has been a 78% correlation between the level of consumer sentiment and the y/y change in real consumer spending.
Consumer expectations were depressed 17.7% as the index of expected business conditions during the next 12 months cratered 39.2% (-46.6% y/y). Unemployment was expected to rise but interest rates were expected to decline.
The mean expected inflation rate for the next twelve months rose to 5.5% from 3.7% in August and that helped erode expectations for real income by 1.3% (-7.3% y/y).
The current conditions index fell 9.3% m/m, roughly double the decline in August. Sentiment regarding personal finances tumbled 12.0% m/m and was at its worst level in over two years.
The University of Michigan survey is not seasonally adjusted.The mid-month survey 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><col></colgroup>
<thead>
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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">Sept (Final)</th>
<th scope="col">Sept (Prelim.)</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>76.9</td>
<td>76.9</td>
<td>89.1</td>
<td>-18.4%</td>
<td>95.2</td>
<td>87.6</td>
<td>89.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>98.1</td>
<td>97.7</td>
<td>108.2</td>
<td>-5.4%</td>
<td>105.6</td>
<td>97.2</td>
<td>97.5</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Consumer Expectations</td>
<td>63.3</td>
<td>63.6</td>
<td>76.9</td>
<td>-28.1%</td>
<td>88.5</td>
<td>81.4</td>
<td>84.6</td>
</tr>
</tbody>
</table>
Chicago Purchasing Agents' Index Improved Unexpectedly 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 30, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930d.jpg" width="353">
The Chicago Purchasing Managers Business Barometer improved unexpectedly in September to 60.5, recovering most of the 14.3 point decline in August. Consensus expectations had been for a slight increase to 52.
During the last ten years there has been a 65% correlation between the level of Chicago PMI and the three month change in factory sector industrial production.
The new orders index rose 16.9 points after a 23.1 point drop in August but the production index gained back less than half of the 14.3 point August shortfall. Employment fell for the fifth month in the last six. During the last ten years there has been a 75% correlation between the level of the employment index and the three month change in factory sector employment.
The index of prices surged 13.4 points to the highest level since Januarys. During the last ten years there has been an 86% correlation between the Chicago price index and the three month change in the &quot;core&quot; intermediate goods PPI.

<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/@EF05/@EF05.HTM">Chicago Purchasing Managers Index, SA</a></th>
<th scope="col">Sept</th>
<th scope="col">Aug</th>
<th scope="col">&nbsp;Sept &#39;04</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Business Barometer</td>
<td>60.5</td>
<td>49.2</td>
<td>64.3</td>
<td>62.9</td>
<td>54.6</td>
<td>52.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders</td>
<td>63.4</td>
<td>46.5</td>
<td>71.8</td>
<td>67.0</td>
<td>58.0</td>
<td>56.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid</td>
<td>76.3</td>
<td>62.9</td>
<td>86.9</td>
<td>80.1</td>
<td>55.8</td>
<td>56.9</td>
</tr>
</tbody>
</table>
French Unemployment Little Changed in Short-Run, but Young Workers Suffer Significant Joblessness 
by <a href="/comment/Stone.html">Carol Stone</a> September 30, 2005


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930e.jpg" width="353">
As we have noted recently, European economic performance has been basically flat. Today, another piece of evidence in this direction comes from France, which reported its August unemployment rate steady at July&#39;s 9.9%. This does continue the reversal of a modest uptick in the rate to 10.2% in March, April and May. So conditions are not worsening, as it might have appeared during the spring. But the foundation appears fairly tenuous ahead of a winter when heating and other energy costs are likely to be burdensome for even the strongest economies.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050930f.jpg" width="353">
These data, reported by age group, highlight another feature of the French labor market: the extraordinarily high unemployment rate among younger workers. The overall rate has risen a moderate 1.3 percentage points from a low of 8.6% in the spring of 2001. But that for workers under age 25, now at 23.1%, is up 5.5 percentage points over the same period. Similarly, the total number of unemployed is now 2.712 million, up 17.7% from 2.304 in March 2001, while those under 25 have increased to 625,000 from 452,000, a substantial 38.3% advance. Among the other age groups featured in the French data, for &quot;middle-aged&quot; workers, ages 25-49, unemployment has risen only modestly, with their rate at 9.0%, up from 8.0% at its mid-2001 low and the number unemployed up only about 8% during that period. Older workers have seen a larger percentage increase in their idle numbers, nearly 32%, but their rate is up just 0.9 percentage point from 6.2% to 7.1%. Perhaps more notably, since mid-2003 the rate for this last group is actually down a bit and the mid-range group has seen its rate flat.
Over a longer period, the picture for the youngest group gives greater concern; they have seen their number unemployed ratchet downward from about 1.0 million in 1985 to the 625,000 mentioned earlier, but their unemployment rate is virtually the same at 23%-plus. Thus, by implication, job opportunities for young would-be French workers have diminished markedly. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/FRANCE/FRANCE.HTM">France</a>&nbsp; Unemployment Rates Seasonally Adjusted</th>
<th scope="col">Aug 2005</th>
<th scope="col">July 2005</th>
<th scope="col">June 2005</th>
<th scope="col">Aug 2004</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>9.9</td>
<td>9.9</td>
<td>10.1</td>
<td>10.0</td>
<td>10.0</td>
<td>9.8</td>
<td>9.1</td>
</tr>
<tr>
<td class="firstcol">Age under 25</td>
<td>23.1</td>
<td>23.0</td>
<td>23.3</td>
<td>22.6</td>
<td>22.4</td>
<td>20.7</td>
<td>19.3</td>
</tr>
<tr class="odd">
<td class="firstcol">Age 25 - 49</td>
<td>9.0</td>
<td>9.0</td>
<td>9.1</td>
<td>9.1</td>
<td>9.1</td>
<td>8.9</td>
<td>8.3</td>
</tr>
<tr>
<td class="firstcol">Age 50-plus</td>
<td>7.1</td>
<td>7.1</td>
<td>7.1</td>
<td>7.3</td>
<td>7.3</td>
<td>7.5</td>
<td>6.9</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050929d.jpg" width="353">
Further data were reported today on foreign direct investment in China for 2004. These data covered the total value of foreign investment contracts, including direct investment and &quot;others&quot;, which covers leasing and other types of financing. The grand total of foreign investment contracts was $156.6 billion, 34% more than in 2003. A special vehicle, &quot;foreign investment enterprises&quot;, is the main Chinese counterparty in these transactions. The data for these began in 1989 with $1.7 billion in committed inflows; last year they brought in $117.3 billion. The more familiar &quot;joint venture&quot; ownership vehicle, a partnership between a Chinese and a foreign firm, accounted for $27.6 billion in 2004.
These figures come from contracts for new projects. The flows of actual funding, so-called &quot;capital utilized&quot; are lower as the projects are actually accomplished. In 2004, the total amount of capital utilized was $64.1 billion, up from $56.1 billion in 2003. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050929e.jpg" width="353">
As we examined these data, the geographic origins of these funds and ownership interests drew our attention. Hong Kong entities are by far the largest providers of foreign capital for China, with $20.8 billion last year, about 32% of capital utilized. Other Asian interests are well represented, including Japan with $5.5 billion and Korea, $6.3 billion. Notably, last year was the first in which Korean inflows were larger than those from Japan. Western investors were less involved (though perhaps some Hong Kong capital represents a flow-through of Western money). German investors, for instance, have averaged just about $1 billion in Chinese FDI annually in recent years, and the UK, about $800 million. Nine major European countries together invested $3.8 billion last year, compared with $3.9 billion for the US. As seen in the table below, US funding has actually declined recently; it had been $5.4 billion in 2002.
General interest in China is growing, of course. Separate figures on the value of contracts year-to-date show that new contracts for standard FDI projects (excluding the &quot;other&quot; financing categories) are up in the first half of this year by 19% from the first half of 2004. At the same time, this is slower than 30%-40% growth of the prior couple of years. And the flow of capital utilized was actually a bit smaller in the first half of this year than last. In part, this reflects normal volatility in what are by nature uneven, &quot;lumpy&quot; flows. Even so, the impression of a continuously mushrooming volume of outside funding going into China is not quite an accurate one.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Billions of US$</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
<th scope="col">2001</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Foreign Capital:&nbsp; &nbsp; Value of Contracts</td>
<td>156.6</td>
<td>116.9</td>
<td>84.8</td>
<td>72.0</td>
<td>71.1</td>
</tr>
<tr>
<td class="firstcol">Foreign Capital Utilized</td>
<td>64.1</td>
<td>56.1</td>
<td>55.0</td>
<td>49.7</td>
<td>59.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Utilized from Hong Kong</td>
<td>20.8</td>
<td>19.5</td>
<td>17.9</td>
<td>17.9</td>
<td>16.7</td>
</tr>
<tr>
<td class="firstcol">Japan</td>
<td>5.5</td>
<td>5.1</td>
<td>4.2</td>
<td>4.5</td>
<td>3.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Korea</td>
<td>6.3</td>
<td>4.5</td>
<td>2.7</td>
<td>2.2</td>
<td>1.5</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td>1.1</td>
<td>0.9</td>
<td>0.9</td>
<td>1.2</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">U.S.</td>
<td>3.9</td>
<td>4.4</td>
<td>5.4</td>
<td>4.5</td>
<td>4.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Further data were reported today on foreign direct investment in China for 2004. These data covered the total value of foreign investment contracts, including direct investment and "others", which covers leasing and other types of [...]

China Foreign Direct Investment: Strong but Uneven Gains, Heavy Reliance on Special "Foreign Investment Enterprises"

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050929c.jpg" width="353">
The Index of Help-Wanted Advertising from the Conference Board fell sharply in August to 35 from 39 in July, a record low.
During the last ten years there has been a 61% correlation between the level of help-wanted advertising and the three month change in non-farm payrolls.
The proportion of labor markets with rising want-ad volume collapsed to 20% from 71% in July and was less than the level averaged last year.
The Conference Board surveys help-wanted advertising volume in 51 major newspapers across the country every month.
The latest help wanted report from the Conference Board is available <a href="http://www.conference-board.org/economics/helpwanted.cfm">here</a>.

<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;04</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">National Help Wanted Index</td>
<td>35</td>
<td>39</td>
<td>37</td>
</tr>
</tbody>
</table>
</body>
</html>

The Index of Help-Wanted Advertising from the Conference Board fell sharply in August to 35 from 39 in July, a record low. During the last ten years there has been a 61% correlation between the level of help-wanted advertising and the [...]

Help-Wanted Advertising Down Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/050929b.jpg" width="353">
The &quot;final&quot; estimate of US real GDP growth during 2Q was unrevised at 3.3% (AR) and matched Consensus expectations. Downward revisions to foreign trade and inventories were offset by an upward revision to domestic demand growth.
The upward revision to domestic demand growth stemmed from business fixed investment growth to 8.8% from 8.4% (AR, 9.2% y/y) and growth in real PCE which was raised to 3.9% from 3.0% (3.9% y/y). Residential building growth also was raised to 10.8% from 9.8% (6.1% y/y).
Growth in operating corporate profits was reduced to 4.6% from 6.1% (16.0%) following a 5.6% gain during 1Q. Growth in US nonfinancial corporate sector earnings was lowered slightly to 11.5% from 11.9% (23.7% y/y), still the strongest quarterly increase in three years.Profit margin expansion last quarter was the greatest on record.
The positive contribution to GDP growth from a shallower foreign trade deficit was lessened to 1.1 percentage points. Import growth was reduced back to an estimated slight q/q decline (+5.7% y/y) but growth in exports was lowered more to 10.7% from 13.2% (AR, 7.7% y/y).
The negative growth contribution from inventory decumulation was lessened slightly and still was the third in the last four quarters and was the largest since 2000.
The chain price index was revised up to 2.6% as the chain price index for domestic final demand was raised to 3.3% (2.8% y/y).
Why Has Output Become Less Volatile? from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2005/el2005-24.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">2Q &#39;05 (Final)</th>
<th scope="col">2Q &#39;05 (Prelim.)</th>
<th scope="col">1Q &#39;05</th>
<th scope="col">Y/Y</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2002</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>3.3%</td>
<td>3.3%</td>
<td>3.8%</td>
<td>3.6%</td>
<td>4.2%</td>
<td>2.7%</td>
<td>1.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>-2.1%</td>
<td>-2.0%</td>
<td>0.3%</td>
<td>-1.4%</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>5.6%</td>
<td>5.4%</td>
<td>3.5%</td>
<td>4.2%</td>
<td>3.9%</td>
<td>2.7%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Foreign Trade Effect</td>
<td>1.1%</td>
<td>1.2%</td>
<td>-0.4%</td>
<td>0.1%</td>
<td>-0.5%</td>
<td>-0.3%</td>
<td>-0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>4.2%</td>
<td>3.9%</td>
<td>3.7%</td>
<td>4.1%</td>
<td>4.4%</td>
<td>3.0%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>2.6%</td>
<td>2.4%</td>
<td>3.1%</td>
<td>2.5%</td>
<td>2.6%</td>
<td>2.0%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

The "final" estimate of US real GDP growth during 2Q was unrevised at 3.3% (AR) and matched Consensus expectations. Downward revisions to foreign trade and inventories were offset by an upward revision to domestic demand growth. The [...]

US GDP Growth Unrevised

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

Chinese economy on downtrend could threaten global economy

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

Blue Chip forecasters look for widespread policy rate cuts just ahead

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

Announcement of snap French election is causing concern across Europe

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

US Beveridge Curve back to near pre-pandemic levels

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

Latest PMIs show US losing momentum while RoW is gaining momentum

Sticky services prices behind sticky overall PCE inflation

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

Outlook strengthens for US while it weakens for other major economies

Crude petroleum prices are having a big impact on inflation expectations

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241014A.jpg

241014D.jpg

The Industrial Materials Price Index from the Foundation for International Business and Economic Research (FIBER) increased 3.2% (3.7% y/y) during the four weeks ended October 11, 2024, the same as it did four weeks earlier.

Prices in the Metals group led the rise and increased 8.0% (15.8% y/y) over the most recent four weeks. Zinc prices gained 13.4% (25.5% y/y) in four weeks and aluminum prices rose 10.2% (18.2% y/y). Copper scrap prices rose 7.1% in four weeks (21.5% y/y), while tin prices gained 6.7% (35.6% y/y) in four weeks. Also, lead prices firmed 5.8% in four weeks (-4.2% y/y) and steel scrap prices rose 5.9% (6.0% y/y) over four weeks.

Crude Oil & Benzene group prices increased 2.7% (-9.1% y/y) in the latest four weeks. The cost of West Texas Intermediate crude oil rose 10.6	% in four weeks to $74.85 per barrel, but was 11.2% lower y/y. The cost of the petro-chemical benzene, used for making plastics & synthetic fibers, fell 5.6% (-23.1% y/y) in the last four weeks. Excluding crude oil, the industrial commodity price index rose 2.8% (4.6% y/y) in the latest four-week period.

Textile group prices rose 1.3% (-1.3% y/y) over the same four week period. Cotton prices rose 6.3% (-18.0% y/y) in four weeks. The cost of burlap posted a 2.6% rise (18.3% y/y) during the last four weeks.

Prices in the Miscellaneous group improved 0.9% during the last four weeks and were up 4.5% y/y. The cost of natural rubber rose 5.0% in four weeks and jumped 81.0% y/y. Plywood prices improved 3.2% over the last four weeks (5.1% y/y).

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

**Thoughts on the Economy and Policy Rules at the Federal Open Market Committee** by Fed Governor Christopher J. Waller can be found [here](https://www.federalreserve.gov/newsevents/speech/waller20241014a.htm).

241014B.jpg

241014C.jpg

- Metals prices surge for second consecutive period.	
- Increasing crude oil costs push energy price index higher.
- Textile prices continue to increase.

FIBER: Industrial Commodity Prices Strengthen Broadly in Latest Four Weeks

Tian Yong Woon

In this week’s letter, we examine the reactions of China’s equity markets following the Golden Week holidays, highlighting investors' disappointment over the latest stimulus announcements (see Chart 1). Despite this, forecasters have slightly raised their growth expectations for China (Chart 2), although pessimism lingers regarding the economy's ability to meet its 5% growth target for the year. Turning to monetary policy developments across Asia, several easing cycles have now been initiated across the region. For instance, New Zealand has begun its easing cycle with a 50 bps rate cut, driven by cooling inflation and weak domestic growth (Chart 3). In India, while the central bank kept policy rates unchanged, it made a significant move by officially shifting its stance to neutral, indicating a closer alignment with an easing approach. This comes amid a robust growth outlook, although inflation risks remain (Chart 4). In South Korea, the central bank has also commenced easing with a 25 bps cut, acknowledging cooling inflation and slower household debt growth (Chart 5), while signalling potential for further reductions ahead. Looking to the week ahead, we anticipate more rate decisions across the region, with additional easing moves seen likely (Chart 6).

**Post-Golden Week China**
Chinese equity markets resumed trading last week after the Golden Week holidays, showing a marked repricing of market expectations (Chart 1). Initial optimism over central bank easing measures faced a reality check following government announcements. Specifically, China’s National Development and Reform Commission outlined initiatives for October, including 200 billion yuan ($28.3 billion) in advance budget spending. However, despite the significance of these measures, a larger-scale stimulus package that many had anticipated was not announced. After initial market disappointment, Financial Minister Lan held a press conference last Saturday, pledging to bolster China’s economy. However, some observers were still underwhelmed by the lack of specific numerical commitments. Looking ahead, China will release its Q3 GDP figures on Friday, which are keenly awaited as indicators of the economy's health. This will be accompanied by a range of monthly data, including industrial production, retail sales, fixed asset investment, house prices, and unemployment figures. However, insights from these figures on the impact of the recent easing measures are expected to be limited.

241014T1.jpg

Against the backdrop of recently unveiled easing measures, Blue Chip panellists have slightly raised their growth projections for 2024 to 4.8%, up from 4.7% in September (Chart 2). Expectations for growth in 2025 have also improved, now at 4.4%, compared to the previous forecast of 4.3%. Meanwhile, inflation expectations remain stable at 0.5% for 2024 and 1.4% for 2025. However, the economic situation in China remains uncertain, with recent data indicating an uneven recovery and the impact of newly announced policy easing initiatives yet to materialize. Amidst a concerning trend of disappointing economic data, doubts persist about the country’s ability to achieve its 5% growth target for the year.

241014T2.jpg

**The week in rate decisions**
The past week revealed some noteworthy rate decisions across the region. In New Zealand, the Reserve Bank (RBNZ) cut its policy rate by 50 bps as widely expected (Chart 3), following the Fed’s lead in September. This substantial easing decision comes as the RBNZ assessed inflation to be within its 1-3% target range and “converging” on the 2% midpoint. The backdrop of soft economic growth in New Zealand also justified the RBNZ’s action, as the economy struggles to avoid a technical recession following a contraction in real GDP in Q2. Furthermore, the RBNZ noted that the New Zealand economy “is now in a state of excess capacity,” which is expected to dampen inflation on the supply side. While consumer sentiment remains weak compared to historical levels, some recent upticks have been observed.

241014T3.jpg

Monetary policy developments in India were also notable, as the Reserve Bank of India (RBI) opted to maintain its policy rates last week, as expected. However, the central bank shifted its policy stance from one focusing on a withdrawal of accommodation to “neutral.” This change has led observers to speculate that it could signal potential interest rate cuts in the near term. However, there are currently few strong justifications for the RBI to begin a rate cut cycle soon. For one, India’s economic growth remains robust (Chart 4) and is expected to remain robust in the coming quarters. Additionally, while inflation has eased in recent months, the RBI cautions that it may rise significantly in the near future due to base effects and other factors.

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Last Friday, South Korea's central bank (BoK) initiated its easing cycle by cutting the Base Rate by 25 bps to 3.25%, as widely anticipated. The bank justified this decision by citing recent easing inflation trends (Chart 5), as well as slowing growth in household debt and reduced foreign exchange risks. Looking ahead, the BoK appears open to further easing, with Governor Rhee indicating that there is room for additional rate cuts since the policy rate remains above the neutral interest rate. Observers will likely continue to monitor three key factors—inflation, household debt, and financial market stability—as they assess South Korea's future monetary policy trajectory.

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**The week ahead in rate decisions**
The week ahead will see several important rate decisions in Southeast Asia. Central banks in Indonesia, Thailand, and the Philippines are scheduled to announce their policy rate decisions on Wednesday. In Indonesia, while multi-year lows for CPI inflation could support further rate cuts, recent currency fluctuations—particularly the weakness of the rupiah—may prompt the central bank to hesitate, as maintaining currency stability is part of its mandate. In Thailand, the central bank has not signaled an intention to cut rates following its October meeting, but it continues to face pressure from the government and business groups. Meanwhile, in the Philippines, the possibility of additional rate cuts remains open, aligning with the Fed's adjustments.

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Asia

Economic Letter From Asia: Reality Check

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The Producer Price Index for final demand was unchanged (1.8% y/y) during September after rising 0.2% in August and holding steady in July, according to the Bureau of Labor Statistics. The reading compared to expectations for a 0.1% rise in the Action Economics Forecast Survey. Producer prices excluding food, energy & trade services edged 0.1% higher (3.2% y/y) in September after rising 0.2% in August, revised from 0.3%. The PPI excluding food & energy rose an expected 0.2% (2.8% (y/y) after increasing an unrevised 0.3% in August.

Final demand goods prices excluding food & energy rose 0.2% (2.0% y/y) for the third straight month. Core finished consumer goods prices increased 0.2% (2.2% y/y) after rising 0.4%. The increase in core nondurable goods prices moderated to 0.3% in last month (3.0% y/y), half the August increase. Durable consumer goods prices improved 0.1% (1.1% y/y) after rising 0.2% in August. Capital equipment prices rose 0.2% in September (2.6% y/y), the same as in August, after four straight months of 0.1% increase. Government-purchased goods prices increased	 0.3% (2.1% y/y) following a 0.1% uptick.

Final demand services prices rose 0.2% (3.1% y/y) in September, after increasing 0.4% in August. Trade services prices rose 0.2% (1.5% y/y) after strengthening 0.7%. Trade of finished goods prices improved 0.3% (0.9% y/y) following a 0.7% increase. Prices for final demand transportation and warehousing services gained 0.3% last month (0.4% y/y) after a 0.9% decline. Services prices less these costs edged 0.1% higher in September (4.1% y/y) following a 0.4% August rise.

Food prices strengthened 1.0% (3.2% y/y) during September after moving up 0.2% in August. Fruit & melon prices rose 8.3% (4.6% y/y) following a 2.9% decline. Grain prices rose 4.8% (-18.4% y/y) and processed fruit & vegetable costs improved 0.6% (2.3% y/y). Beef & veal prices rose 1.5% (-0.1% y/y) after falling 7.6% in August. Fresh egg prices fell 6.2% (+121.3% y/y) following a 55.1% jump. Fresh vegetable costs declined by 2.5% (+7.7% y/y) and reversed the August increase.

Final demand energy prices declined 2.7% last month (-13.8% y/y) after falling 1.0% in August. Gasoline prices weakened 5.6% (-25.7% y/y) after a 0.5% rise in August. Home heating oil prices fell 11.1% (-35.1% y/y) following a 3.0% decline. Electric power prices rose 2.0% (2.5% y/y) in September after falling 1.2% in August. Natural gas prices rose 1.6% (1.3% y/y) and reversed a 1.4% August decline.

Construction costs edged 0.1% higher in September (1.3% y/y) after holding steady in August.

Prices for intermediate demand of processed goods eased 0.8% (-2.7% y/y) in September after slipping 0.2% in August. Processed energy goods prices fell 4.7% following a 0.9% fall, while food prices rose 0.9% after a 0.2% decline.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver’s **USECON** database. Further detail is contained in **PPI** and **PPIR**. The expectations figures are available in the **AS1REPNA** database.

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- Core goods prices increase moderately for third straight month.
- Gain in services prices slows.
- Food prices surge while energy costs continue to decline.

U.S. Producer Price Index Holds Steady in September; Core Prices Edge Higher

Robert Brusca

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Money growth has turned positive and the main money center areas show net money growth. Money growth is at 1.9% year-over-year in the European Monetary Union, up by 2% in the U.S., up by 1.8% in the U.K., and by 1.3% in Japan. Comparing the 12-month growth rate to the three- and six-month growth rates in all these countries, we see a progression with money growth becoming stronger. The exception to this observation is Japan, where the M2 plus CDs measure grows 1.3% over 12 months and then reduces its pace over three and six months to 0.3% and 0.4% annualized.

In the European Monetary Union, credit growth is consistently positive and accelerating.

The monetary financial side of the ledger is starting to look very positive from the standpoint of creating growth, however, to the extent that it does that it is also being much less of a factor in terms of restraining inflation.

**Real money balances**
Real money balances over 12 months are still declining in the EMU, in the U.S., in the U.K., and in Japan. However, the situation is in flux; over three months, real money balances are growing in the monetary union- and growing fairly strongly in the U.S.; it is advancing in the U.K. Over three months only Japan shows declines in real money balances.

**EMU credit growth**
The European Monetary Union shows real credit growth contracting over 12 months but at growth rates of 1% or less. These negative growth rates are diminishing over three months. Credit to residents and private credit growth are declining at growth rates less than one-half of 1% as real credit in the monetary union begins to head for inflation-adjusted positive growth.

**A tailwind for growth—at last?**
With these changes in the provision of liquidity and the impact on credit growth, nominal and real GDP growth are going to find more of a tailwind… and so will inflation… 


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**The inflation worm is turning**
The overview for some of the key economic variables in these countries is in the table below. It shows inflation above target and all these major money centers to a greater or lesser extent. The table provides the headline inflation figures, although in most cases core inflation looks much higher than these since oil prices have been weak and falling. The bottom panel of the inflation chart shows changes in the year-over-year inflation rates over six months. There you can see the tendency for inflation to decline is diminishing. Japan is already looking at inflation increasing on balance in each of the last three months when we compare current year-over-year growth and inflation to its result six months ago.

**Industry remains weak but that weakness may be transitioning**
Our statistics are such that we are inundated with data on the industrial side of the economy. The table presents data for industrial production growth year-over-year and on that we have a sea of red figures indicating declines across all these countries and areas for at least the last six months. However, the rate of decline in industrial production has been diminishing.

**Changes in activity broadly**
The second lower panel looks at changes in composite PMI levels year-over-year. There, the story changes significantly, with year-over-year gains reported in the composite activity surveys. The EMU, the U.K., and Japan show increases. The U.S. is the outlier with weaker PMI values compared to a year ago-and in each of the last three months. However, these indicators aren't always the final word. All these countries and areas are continuing to show GDP growth. In the U.S., a popular statistic for tracking GDP known as GDP-Now updated by the Atlanta Fed has been consistently looking for a third quarter growth in the U.S. to be between 2.5% and 3%. That's not too shabby despite the U.S. PMI signals.

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**Are the easing campaigns still in force?**
Meanwhile, central banks have been on easing campaigns but have backed off or slowed the progress of these campaigns as the progress on inflation has slowed as the table above suggests. In the U.S., at least, job growth has come back strongly after a period of some weakness and some downward revisions to past growth rates. In Europe, unemployment rates are still broadly low and for the EMU as a unit, the rate is at an all-time low. Right now, central bankers in the U.S. aren't quite sure what to do with the most recent strong U.S. job growth report and the recent inflation report that has shown more strength than what the Fed had been expecting. Globally the move to less inflation progress is clear in this table and the notion that progress may stay slow, or stop is embedded in the trends for money growth and credit growth in the monetary union.

**Is the inflation turn decisive; will central bank policy change soon?**
All of this raises questions about what happens next and whether this period of inflation deceleration has been brought to an end as money growth turns positive, accelerates, and as real money balances and real credit balances begin to advance. A simple tracking of the inflation data is enough to give inflation-fearing central banker pause. Policy needs are rarely clear cut with unanimous support. U.S. leadership in monetary policy could become more important going forward since the Federal Reserve has just embarked on an easing campaign and launched it with a large rate reduction and - not exactly promises - but with very strong hints of many more cuts to come soon. However, economic data seem to be painting a different picture of the future than the one the Fed expected. Could the Fed easing program start and finish at the same time? That is unlikely but the exuberant expectation for rate cuts will be trimmed. One thing to be aware of is the massive increase in expectations for 5-year ahead and the rise in the expectations for one-year ahead inflation in the U. of Michigan inflation survey. The median rate in that survey (that the Fed prefers) is steady at 3% but the survey mean has shot up over 7% for five-year ahead inflation in the wake of the large Fed rate cut- something I do not think the Fed can continue to ignore.

**A very muddled outlook**
It may be that some of the weaknesses that the Fed thought it saw in economic and job growth was created by hurricane Beryl that hit Houston, Texas. This is significant because the U.S. is currently being blasted by or is cleaning up after two hurricanes: Hurricane Helene and Hurricane Milton. Helene, swept through North Carolina and has done terrible damage and raised a significant death toll. Milton is currently sweeping through Florida; it ripped the roof off the football stadium in Tampa, Florida and it is creating havoc on its own. These hurricanes are going to affect economic data; they're going to affect jobless claims data (already have), job growth data, and they may affect wage and price data as well. This will leave the Federal Reserve with some quandary about what to do with policy. I think it's fair to say in this environment where the Fed has had a bias to cut rates, it gives the Fed a freer hand to ignore economic data that might be strong or on the other hand to embrace weak economic data that are weak even if the reports come out of the distortion of a hurricane. U.S. data may be stepping into a data Twilight Zone; be on guard!

Europe

World Money Growth Is Back on Track...Is Inflation Too?

Andrew Cates

**US growth surprises and Fed policy**
Expectations of upcoming Fed rate cuts have been scaled back markedly over the past two weeks. On September 27, for example, the fed funds futures market looked for US policy rates to fall to 4.275% by the end of this year (the current target is 4.875%). That is, it expected another 60bps of FFR cuts at the remaining two FOMC meetings this year. Now, this market is anticipating only 38 bps of rate cuts at these two meetings. That repricing has been triggered by a bout of stronger-than-expected US dataflow and last week’s employment report for September in particular (see chart 1 below).

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**Supply chain pressures**
Global equity markets have, on the whole, tended to respond favourably to these positive US surprises largely because inflation has remained in check and most central banks are still on course to ease monetary policy in the coming months. There are several risks to this narrative, however, one of which concerns geopolitical tensions in the Middle East and their impact on global supply chains. An index calculated by the New York Fed suggests that global supply chain pressures have lately risen and are now above historical averages. As chart 3 below also suggests, that index has served as a useful leading indicator of upstream price pressures in recent years and certainly points to more elevated rates of producer price inflation in coming months, albeit from relatively depressed levels at present.

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**The consensus for China’s economic outlook**
Against the backdrop of recently announced policy easing measures, the latest Blue Chip survey of economic forecasters reveals some heightened optimism about China’s economic outlook. That survey, for example, yielded a small increase to the consensus growth projection for 2024, to 4.8% in October, up from 4.7% in September. Expectations for growth in 2025 also improved, and now stand at 4.4%, compared to the previous forecast of 4.3%. All that said, the economic situation in China remains uncertain, with recent data indicating an uneven recovery and the impact of newly announced policy easing initiatives yet to materialize. There are certainly many doubts, at present, about the country’s ability to achieve its 5% growth target for this year.

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**Electricity prices in the US versus Germany**
A sluggish Chinese economy tends to generate ripple effects for other economies that have high underlying trade and/or financial exposures. Germany is a good example because China is a major export market. But Germany’s economy has been struggling for other reasons as well, including its high dependence on Russian energy. It is certainly of note that Germany’s electricity prices remain highly elevated at present compared with most major European economies as well as compared with the US (see chart 4 below). Given Germany's large manufacturing sector, which is highly energy-intensive, this has led to substantial cost pressures, reduced profitability, and a broader impact on economic activity.

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**The global economic cycle**
On a brighter note this week’s sentix surveys revealed greater confidence from investors about the global economic outlook. Both the current situation balance and the more forward looking expectations balance improved in October to four month highs (chart 5). This improvement can likely be attributed to the easing cycles that have been initiated by several central banks, and most notably the US Fed, in recent weeks.

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**The Blue Chip growth consensus for 2025**
That aforementioned Blue Chip survey for October also reveals high confidence among economic forecasters that the world economy will experience a soft landing in the months ahead. Although GDP forecasts for 2025 for the euro area were downgraded by a fraction, the outlook for other big economies, was either left unchanged or, in the case of the US, improved. As noted above, moreover, the consensus GDP forecast for China was also increased a little. While the anticipated levels of GDP growth are subdued in many cases, they remain respectable, and are inconsistent with a hard landing scenario for the global economy.

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Last week’s stronger-than-expected US employment report have combined with some comments from FOMC members suggesting the Fed may be in no great hurry to reduce interest rates next year to generate a big repricing in financial markets over the past few days (see chart 1). Geopolitical uncertainty in the Middle East and its impact on supply chains have additionally been a key focus for many investors (chart 2). The outlook for China is also being more actively debated in light of recent policy initiatives designed to shore up the economy (chart 3). The plight of the euro area, and Germany in particular, is equally causing some concern (chart 4). All that said, the incoming survey data this week have offered some reassurance to those that are anticipating a soft landing for the world economy in the coming months (chart 5). That message was implicit too from the latest Blue Chip Survey of Economic Forecasters (chart 6).

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Economy in Brief: September 2005

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French Unemployment Little Changed in Short-Run, but Young Workers Suffer Significant Joblessness

Chicago Purchasing Agents' Index Improved Unexpectedly

U.S. Consumer Sentiment Remained Depressed

U.S. Personal Income Fell

U.S. Personal Income Fell

China Foreign Direct Investment: Strong but Uneven Gains, Heavy Reliance on Special "Foreign Investment Enterprises"

Help-Wanted Advertising Down Sharply

US GDP Growth Unrevised