Carol Stone, CBE

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The employment cost index slowed to an 0.8% advance for private industry workers in Q3, compared to 0.9% in Q2 and a Consensus forecast of 0.9%.
Wage and salary growth held at the 0.8% quarterly pace seen in Q2, with the year/year growth also at Q2&#39;s amount, 3.4%. Wages account for roughly 70% of the compensation index. The largest recent increase was 1.1% in Q1, driven by outsized increases in several industries.
Benefit costs dropped back from Q2&#39;s 1.1% to 0.8%; this put the year/year increase at 2.4%. For the first three quarters this year, the year/year growth rates are the lowest since 1998. This is at least in part due to a more moderate rise in the cost of health benefits, which was up 4.8% y/y again in Q3, the same as in Q2 and less than half the pace of 2002 and 2003.
Compensation costs also eased for state and local government workers. This group saw a rise of 0.8% in Q3, less than 1.1% in Q2 and 1.3% in Q1 and the lowest since Q1 2006. The move was in benefits, which rose &quot;only&quot; 0.7% in Q3, following 1.7% in Q2 and 2.1% in Q1. Wages and salaries actually picked up in Q3 to 1.0% from 0.8% in Q2.

<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031e.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031f.jpg">
<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/@EB/@EB08/@EB08.HTM">ECI- Private Industry Workers</a></th>
<th scope="col">3Q</th>
<th scope="col">2Q</th>
<th scope="col">1Q</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Compensation</td>
<td>0.8%</td>
<td>0.9%</td>
<td>0.6%</td>
<td>3.1%</td>
<td>2.9%</td>
<td>3.1%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.8%</td>
<td>0.8%</td>
<td>1.1%</td>
<td>3.4%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>4.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>1.1%</td>
<td>1.1%</td>
<td>-0.3%</td>
<td>2.7%</td>
<td>2.9%</td>
<td>4.6%</td>
<td>6.8%</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB08/@EB08.HTM">ECI- State &amp; Local Government Workers</a></td>
<td>0.8%</td>
<td>1.1%</td>
<td>1.3%</td>
<td>4.3%</td>
<td>3.9%</td>
<td>3.8%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

The employment cost index slowed to an 0.8% advance for private industry workers in Q3, compared to 0.9% in Q2 and a Consensus forecast of 0.9%. Wage and salary growth held at the 0.8% quarterly pace seen in Q2, with the year/year [...]

U.S. Employment Cost Index Moderates to 0.8% Quarterly Increase

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031j.jpg" class="large" align="left">
German retail sales rose in September with downward revision
to the earlier month showing a strong 2.3% rise in real ex-auto sales.
The series is up by 5.1% from one year ago, a pretty good Yr/Yr rise.
But in the third quarter this gain still only leaves sales up at a 1.4%
annual rate. The revival in sales was across the main retail
categories. While the rise of 1.4% in the quarter is not very strong it
is in line with what exceptions have been for German retailing where
the outlook has been set low all year long.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th colspan="9" scope="col"> German
Real and Nominal Retail Sales</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAgo</td>
<td>New QTR 
Saar</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>2.6%</td>
<td>-1.3%</td>
<td>0.6%</td>
<td>8.2%</td>
<td>4.8%</td>
<td>2.4%</td>
<td>5.6%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicle and Parts</td>
<td>#N/A</td>
<td>3.6%</td>
<td>0.9%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>15.2%</td>
<td>#N/A</td>
</tr>
<tr>
<td class="firstcol">Food, Beverages &amp;
Tobacco</td>
<td>3.4%</td>
<td>-1.2%</td>
<td>-0.1%</td>
<td>8.5%</td>
<td>4.7%</td>
<td>1.9%</td>
<td>5.1%</td>
<td>-0.9%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>3.4%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>16.0%</td>
<td>7.3%</td>
<td>14.0%</td>
<td>3.4%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Real</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>2.3%</td>
<td>-1.6%</td>
<td>0.7%</td>
<td>6.0%</td>
<td>3.0%</td>
<td>1.4%</td>
<td>5.1%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>
</body></html>

German retail sales rose in September with downward revision to the earlier month showing a strong 2.3% rise in real ex-auto sales. The series is up by 5.1% from one year ago, a pretty good Yr/Yr rise. But in the third quarter this [...]

German Retail Sales Show Unexpected Lift

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031i.jpg" class="large" align="left">
UK consumer confidence fell in October after dropping sharply
in September. The
index now resides in the lower 15 percentile of its range - a very poor
standing. But the index is not without its paradoxes. Consumers rate
their financial situation as the best ever, at the top of its range of
responses. But the environment for making major purchases is rated as
the worst ever (going back to January 1996).
Over the last 12 months the household financial situation was
rated
at zero, which garners a percentile standing of 75% - top 25 percentile
of its range. But the general economic condition is only rated in the
bottom 30%.
Over the next 12 months the financial situation is put at +13
which
is a top 15% of range standing. But again the general economic
situation is rated much lower, in its 46th
percentile below the neutral mark of 50%.
As to income levels the bottom income group and the top group
each
rate conditions in the bottom 20 percentile of range or worse.
Consumers in the UK are having some fickle moments. But for
the most
part their assessment of the economy and the period ahead is that the
times that lie ahead will not be so good.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th colspan="7" scope="col"> GFK
Consumer Survey</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>% of 2Yr</td>
<td>% of 10Yr</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>Range</td>
<td>Range</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Confidence</td>
<td>-8</td>
<td>-7</td>
<td>-4</td>
<td>-6</td>
<td> 14.3%</td>
<td>16.7%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">Current</td>
</tr>
<tr class="odd">
<td class="firstcol">Household Fin Sit</td>
<td>25</td>
<td>25</td>
<td>25</td>
<td>25</td>
<td> 100.0%</td>
<td> 100.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Major Purchases</td>
<td>-5</td>
<td>-3</td>
<td>4</td>
<td>-2</td>
<td> 0.0%</td>
<td> 0.0%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">Last
12 Months</td>
</tr>
<tr class="odd">
<td class="firstcol">Household Fin Sit</td>
<td>2</td>
<td>4</td>
<td>2</td>
<td>0</td>
<td>75.0%</td>
<td>70.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">General Econ Sit</td>
<td>-30</td>
<td>-29</td>
<td>-25</td>
<td>-25</td>
<td>29.4%</td>
<td>29.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI</td>
<td>69</td>
<td>64</td>
<td>62</td>
<td>66</td>
<td> 100.0%</td>
<td> 100.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings</td>
<td>38</td>
<td>38</td>
<td>42</td>
<td>42</td>
<td>81.0%</td>
<td> 93.1%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">
Next
12-months
</td>
</tr>
<tr class="odd">
<td class="firstcol">Household Fin Sit</td>
<td>13</td>
<td>12</td>
<td>12</td>
<td>13</td>
<td> 85.7%</td>
<td> 85.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">General Econ Sit</td>
<td>-17</td>
<td>-19</td>
<td>-15</td>
<td>-13</td>
<td>46.2%</td>
<td>56.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment</td>
<td>29</td>
<td>27</td>
<td>29</td>
<td>27</td>
<td>28.6%</td>
<td>58.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Major Purchases</td>
<td>-18</td>
<td>-20</td>
<td>-18</td>
<td>-21</td>
<td>62.5%</td>
<td>29.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings</td>
<td>19</td>
<td>17</td>
<td>20</td>
<td>17</td>
<td>63.6%</td>
<td> 85.2%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">By
Income</td>
</tr>
<tr class="odd">
<td class="firstcol">Lower</td>
<td>-14</td>
<td>-13</td>
<td>-11</td>
<td>-8</td>
<td>20.0%</td>
<td> 12.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Upper</td>
<td>-3</td>
<td>-1</td>
<td>1</td>
<td>0</td>
<td> 10.0%</td>
<td> 9.1%</td>
</tr>
</tbody>
</table>
</body></html>

UK consumer confidence fell in October after dropping sharply in September. The index now resides in the lower 15 percentile of its range - a very poor standing. But the index is not without its paradoxes. Consumers rate their [...]

UK Consumer Confidence Stays in a Downdraft

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031g.jpg" width="353">
Flash flare does not seem to be part of trend&#133;Wake up call or wrong number? 
The survey on flash inflation for the EMU region does not appear to be part of a trend. Indeed with the euro rising, the only real impulse to inflation right now is from commodity prices and since they are priced in dollars even that channel is muted. 
The jump in the flash HICP seems to be just a flash in the pan but it&#146;s a pan with explosives in it since the flash has made a huge impact. On a day when the EU Commission indexes show widespread losing in the Euro area and Draghi and Liikanen have made statements about the coming adverse impact on growth. On a totally different track, the BKK&#146;s/ECB&#146;s Weber has cautioned that the pressures on prices could force the ECB to act again to quell rising inflation pressures. 
The table below shows the relative trends. There are only three new observations for October for the flash overall rate and the overall rates for German and Italian inflation. For the others, trends derive from prices in September. Through that point there is no solid evidence of inflation spiking or even gradually rising. But Italy and Germany do support the acceleration in the overall rate in October. 
There is no core rate to look at to infer what the culprit was in creating price pressures. But there is little evidence of inflation building in the pipeline. In the Euro area 13 both goods and services prices have been pushed to lower rates of increase by the rising euro. For goods the strong euro is at work as the new three-month inflation rate through September is only 0.1% down from inflation in the area of 2% previously. Service sector inflation is at 2.1% for three months up from 2% over six months but down from 2.6% Yr/Yr. In short the 2.6% Euro area flash CPI may be a wake up call but it may also be a wrong number.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr><th colspan=" 8" scope="col"> Trends in HICP</th>

</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="grey3">
<td class="firstcol">EU-13</td>
<td>#N/A</td>
<td>0.4%</td>
<td>0.0%</td>
<td>1.8%</td>
<td>2.5%</td>
<td>2.1%</td>
<td>1.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.5%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Goods</td>
<td>#N/A</td>
<td>1.0%</td>
<td>0.0%</td>
<td>0.1%</td>
<td>2.2%</td>
<td>1.9%</td>
<td>1.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Services</td>
<td>#N/A</td>
<td>-0.5%</td>
<td>0.2%</td>
<td>1.8%</td>
<td>2.5%</td>
<td>2.5%</td>
<td>2.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">FLASH -&nbsp;</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>2.6%</td>
<td>1.6%</td>
</tr>
<tr class="grey2">
<td colspan="8" class="firstcol">Monthly Flash data are derived from Yr/Yr presentation</td>
</tr>
<tr class="grey3">
<td colspan="8" class="firstcol">HICP</td>
</tr>
<tr class="grey3">
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>3.1%</td>
<td>2.7%</td>
<td>2.7%</td>
<td>1.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.3%</td>
<td>1.8%</td>
<td>2.7%</td>
<td>1.6%</td>
<td>1.5%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Italy</td>
<td>0.7%</td>
<td>0.3%</td>
<td>0.2%</td>
<td>4.7%</td>
<td>3.3%</td>
<td>2.3%</td>
<td>1.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.1%</td>
<td>-0.4%</td>
<td>0.6%</td>
<td>1.7%</td>
<td>2.4%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.4%</td>
<td>0.0%</td>
<td>2.3%</td>
<td>2.8%</td>
<td>2.7%</td>
<td>2.9%</td>
</tr>
<tr class="grey3">
<td colspan="8" class="firstcol">Core Excl Food Energy &amp; A</td>
</tr>
<tr class="grey3">
<td class="firstcol">Germany</td>
<td>#N/A</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.4%</td>
<td>2.6%</td>
<td>2.3%</td>
<td>0.8%</td>
</tr>
<tr class="grey3">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.6%</td>
<td>1.2%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Italy</td>
<td>#N/A</td>
<td>0.4%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>1.8%</td>
<td>1.8%</td>
<td>2.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK</td>
<td>#N/A</td>
<td>#N/A</td>
<td>0.2%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.0%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>3.0%</td>
</tr>
<tr class="grey1">
<td colspan="8" class="firstcol">Blue shaded area data trail by one month</td>
</tr>
</tbody>
</table>
</body>
</html>

Flash flare does not seem to be part of trend Wake up call or wrong number? The survey on flash inflation for the EMU region does not appear to be part of a trend. Indeed with the euro rising, the only real impulse to inflation right [...]

Sentiment Slips but Flash Inflation Flares

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031h.jpg" align="left" class="large">
EU readings still strong&#8230;but countries and sectors are slowing 
 

The accompanying chart shows the diminished lift in the
aggregate EU sentiment index and the same result for the largest EMU
nations. Only France is still showing Yr/Yr gains in sentiment; the
rest have crossed the line to reveal Yr/Yr contraction. Not
surprisingly Italy, probably the least competitive of the large EMU
countries, is showing the sharpest contraction. Surprisingly France is
the most resilient, but the chart also tells why. France did not enjoy
the same degree of upswing that the others did. The EU and EMU members
plotted had Yr/Yr gains of 12% or more at some point. France&#8217;s peak
Yr/Yr gain came later and only amounted to 8%. In this way France seems
to be a laggard that is prospering off the growth of others. That
suggests that France&#8217;s decline will come later too. It does not promise
that France&#8217;s decline when it comes will be shallower. 
 

The top panel in the table below shows the relative strength
of the individual sectors within EU. Construction is the relative
strongest in that it is at the highest relative point in its own range
at the 93.3 percentile. That is followed by the industrial and retail
sectors at about a percentile reading of 85, consumer confidence at
75.9 and services at 65.8. 
 

In terms of the major EMU nations plus the UK, France as we
saw above is the relative strongest in EMU but, standing in the 88th
percentile of its range, the non-EMU UK is stronger still. The EMU
itself stands in the 73rd percentile of its range and the other major
EMU countries are below that with Germany in the 63rd percentile, Italy
in the 61st and Spain in the 50th. Over the last four months all of
these are showing slippage. Europe is slowing down. Is it the strong
euro or something else? With the spike in the inflation is the ECB
still going to hikes rates? All interesting questions to stay in touch
with, aren&#8217;t they? 
 
 


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th colspan="12" scope="col"> EU
Sectors and Country level Overall Sentiment</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">EU</td>
<td>Oct 
07</td>
<td>Sep 
07</td>
<td>Aug 
07</td>
<td>Jul 
07</td>
<td>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
<td>R-SQ 
w/ 
overall</td>
</tr>
<tr>
<td class="firstcol">Overall</td>
<td>109.5</td>
<td>110.6</td>
<td>113.1</td>
<td>113.3</td>
<td>82.9</td>
<td>48</td>
<td>117</td>
<td>74</td>
<td>43</td>
<td>100</td>
<td>1.00</td>
</tr>
<tr>
<td class="firstcol">Industrial</td>
<td>2</td>
<td>3</td>
<td>5</td>
<td>5</td>
<td>85.3</td>
<td>27</td>
<td>7</td>
<td>-27</td>
<td>34</td>
<td>-7</td>
<td>0.89</td>
</tr>
<tr>
<td class="firstcol">Consumer Confidence</td>
<td>-5</td>
<td>-4</td>
<td>-3</td>
<td>-2</td>
<td>75.9</td>
<td>42</td>
<td>2</td>
<td>-27</td>
<td>29</td>
<td>-10</td>
<td>0.82</td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>2</td>
<td>1</td>
<td>6</td>
<td>5</td>
<td>85.2</td>
<td>14</td>
<td>6</td>
<td>-21</td>
<td>27</td>
<td>-6</td>
<td>0.47</td>
</tr>
<tr>
<td class="firstcol">Construction</td>
<td>0</td>
<td>1</td>
<td>0</td>
<td>0</td>
<td>93.3</td>
<td>14</td>
<td>3</td>
<td>-42</td>
<td>45</td>
<td>-18</td>
<td>0.44</td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>19</td>
<td>19</td>
<td>22</td>
<td>20</td>
<td>65.8</td>
<td>61</td>
<td>32</td>
<td>-6</td>
<td>38</td>
<td>17</td>
<td>0.80</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>% m/m</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td colspan="2">Based on 
Level</td>
<td colspan="4">Level</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">EMU</td>
<td style="color: red;">-0.9%</td>
<td style="color: red;">-2.8%</td>
<td style="color: red;">-0.9%</td>
<td style="color: red;">-0.6%</td>
<td>73.7</td>
<td>70</td>
<td>117</td>
<td>74</td>
<td>44</td>
<td>100</td>
<td>0.94</td>
</tr>
<tr>
<td class="firstcol">Germany</td>
<td style="color: red;">-0.6%</td>
<td style="color: red;">-3.3%</td>
<td style="color: red;">-0.9%</td>
<td style="color: red;">-0.5%</td>
<td>63.7</td>
<td>64</td>
<td>121</td>
<td>79</td>
<td>42</td>
<td>100</td>
<td>0.62</td>
</tr>
<tr>
<td class="firstcol">France</td>
<td>0.1%</td>
<td style="color: red;">-1.5%</td>
<td style="color: red;">-1.2%</td>
<td>0.6%</td>
<td>81.4</td>
<td>26</td>
<td>119</td>
<td>72</td>
<td>47</td>
<td>100</td>
<td>0.80</td>
</tr>
<tr>
<td class="firstcol">Italy</td>
<td style="color: red;">-0.2%</td>
<td style="color: red;">-0.8%</td>
<td style="color: red;">-3.0%</td>
<td style="color: red;">-0.9%</td>
<td>61.5</td>
<td>90</td>
<td>121</td>
<td>72</td>
<td>49</td>
<td>100</td>
<td>0.79</td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td style="color: red;">-2.7%</td>
<td style="color: red;">-3.4%</td>
<td>1.1%</td>
<td style="color: red;">-0.9%</td>
<td>50.4</td>
<td>178</td>
<td>118</td>
<td>67</td>
<td>50</td>
<td>100</td>
<td>0.66</td>
</tr>
<tr>
<td class="firstcol">Memo: UK</td>
<td style="color: red;">-2.0%</td>
<td>1.1%</td>
<td>4.5%</td>
<td style="color: red;">-5.7%</td>
<td>88.3</td>
<td>15</td>
<td>119</td>
<td>69</td>
<td>50</td>
<td>101</td>
<td>0.39</td>
</tr>
<tr class="grey1">
<td colspan="5" class="firstcol">since 1990
except services (Oct
1996)208</td>
<td colspan="2">-count</td>
<td colspan="2">services:</td>
<td>126</td>
<td colspan="2">-count</td>
</tr>
<tr class="grey1">
<td colspan="12" class="firstcol">Sentiment
is
an index, sector
readings are net balance diffusion measures</td>
</tr>
</tbody>
</table>
</body></html>

EU readings still strong…but countries and sectors are slowing The accompanying chart shows the diminished lift in the aggregate EU sentiment index and the same result for the largest EMU nations. Only France is still showing Yr/Yr [...]

EU Readings Still Strong…but FADING

Tom Moeller

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<img align="left" class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031d.jpg">
The ADP National Employment Report, reported by the payroll processor, found that private nonfarm payrolls rose a much improved 106,000 during October versus a 61,000 rise during September.
The U.S. Bureau of Labor Statistics employment figure for October will be published this Friday.
Last month, ADP&#39;s measure of private nonfarm payrolls for September indicated an upwardly revised 61,000 increase in jobs that was followed by a 73,000 increase in private nonfarm payrolls.
The sub-index for small payrolls, rose 63,000.
The sub-index for large payrolls, conversely, fell 7,000.
According to ADP and Macro Advisers, the correlation between the monthly percentage change in the ADP estimate and that in the BLS data is 0.90.
ADP compiled the estimate from its database of individual companies&#39; payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator.
The ADP National Employment Report data is maintained in Haver&#39;s USECON database; historical data go back to December 2000. The figures in this report cover only private sector jobs and exclude employment in the public sector, which rose an average 11,083 during the last twelve months.
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/PDF/FINAL_NER_Report_October2007.pdf">here</a>, and the ADP methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Nonfarm Private Payroll Employment (m/m Chg.)</td>
<td>106,000</td>
<td>61,000</td>
<td>1.0%</td>
<td>1.7%</td>
<td>1.8%</td>
<td>1.3%</td>
</tr>
</tbody>
</table>
</body>
</html>

The ADP National Employment Report, reported by the payroll processor, found that private nonfarm payrolls rose a much improved 106,000 during October versus a 61,000 rise during September. The U.S. Bureau of Labor Statistics [...]

ADP Report: Private Payroll Growth Much Improved

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031a.jpg" width="353">
U.S. real GDP growth last quarter of 3.9% (AR), in the advance report from the Commerce Department, was higher than expectations for 3.2% growth.
The contribution to growth from net export improvement was another 0.9 percentage points after the 1.3 percentage point contribution during 2Q. Exports boomed at a 16.2% annual rate (9.6% y/y) while import growth of 5.2% (2.9% y/y) reflected the slowdown in U.S. final demand growth.
Growth in final sales to domestic purchasers at 2.5% (AR) wasn&#39;t bad following 2.1% 2Q growth and 1.7% growth in 1Q, but the likely increase for all of this year around 2.0% will lag last year&#39;s advance of 2.7% and 3.3% in 2004.
The shortfall in domestic demand growth was led by a whopping 20.1% AR (-16.4% y/y) decline in residential investment. It was near the top quarterly rate of decrease during this down cycle in the housing sector.
Firm growth in business fixed investment was again a mainstay of overall domestic demand. It rose 7.9% AR (4.8% y/y) rate after an 11.0% surge in 2Q. Spending on structures, in late cycle fashion, led that increase and rose 12.4% AR (12.8% y/y). Spending on equipment &amp; software also was firm at 5.9% (AR), the strongest since 1Q &#39;06, but the y/y gain of 1.4% was reduced by weak growth or q/q declines from 2Q &#39;06 to 1Q &#39;07.
Growth in real personal consumption expenditures also wasn&#39;t bad at 3.0% (3.0% y/y) which was double growth during 2Q. Growth in spending on durable goods amounted to 4.4% (4.7% y/y) as 11.8% growth in spending on furniture &amp; appliances offset a 5.4% drop in spending on motor vehicles. Spending on other durable goods boomed at an 11.7% rate. Nondurable goods spending turned in a 2.7% (2.4% y/y) advance and services spending growth was steady at 2.9% (3.0% y/y).
Inventories added just 0.4 percentage points to GDP growth after a 0.2 point contribution during 2Q. That contribution has been negative this year.
The GDP chain price index rose just 0.8% led by declines in both the nonresidential and residential price indexes. Consumer prices rose only 1.7%, held back by the decline in gasoline prices, while less food &amp; energy it rose just 1.8% (1.9% y/y).
<img align="right" class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031b.jpg"><img align="left" class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031c.jpg">

<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/@E7/@E701/@E701.HTM">Chained 2000$, % AR</a></th>
<th scope="col">3Q &#39; 07 Advance</th>
<th scope="col">2Q &#39;07</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">GDP</td>
<td>3.9</td>
<td>3.8</td>
<td>2.6</td>
<td>2.9</td>
<td>3.1</td>
<td>3.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Inventory Effect</td>
<td>0.4</td>
<td>0.2</td>
<td>-0.4</td>
<td>0.1</td>
<td>-0.2</td>
<td>0.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Final Sales</td>
<td>3.5</td>
<td>3.6</td>
<td>3.0</td>
<td>2.8</td>
<td>3.3</td>
<td>3.3</td>
</tr>
<tr>
<td class="firstcol">Foreign Trade Effect</td>
<td>0.9</td>
<td>1.3</td>
<td>0.9</td>
<td>-0.1</td>
<td>-0.2</td>
<td>-0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic Final Demand</td>
<td>2.5</td>
<td>2.1</td>
<td>2.1</td>
<td>2.7</td>
<td>3.3</td>
<td>3.8</td>
</tr>
<tr>
<td class="firstcol">Chained GDP Price Index</td>
<td>0.8</td>
<td>2.6</td>
<td>2.3</td>
<td>2.6</td>
<td>1.7</td>
<td>2.1</td>
</tr>
</tbody>
</table>


</html>

U.S. real GDP growth last quarter of 3.9% (AR), in the advance report from the Commerce Department, was higher than expectations for 3.2% growth. The contribution to growth from net export improvement was another 0.9 percentage points [...]

US GDP Growth Boosted Again by Improved Trade Deficit

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

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

Policy uncertainty has surged since the US national elections.

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

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

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

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

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

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

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

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

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

FOMC expects much more easing now than in June

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

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

Ratio of job openings to the number unemployed in the US now below pre-pandemic level

U.S. layoffs not showing as much cooling in labor markets as unemployment rate

While goods prices have moderated, service price inflation remains elevated and sticky

Since Jan 2023, BCEI US outlook has improved, worsened for Japan and the euro area

Persistent negative US economic surprises leading to big rate-cut expectations

Germany is Euro area weakling

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250124J4.jpg

250124K4.jpg

Sales of existing homes increased 2.2% (9.3% y/y) to 4.24 million (SAAR) during December after rising an unrevised 4.8% to 4.15 million in November. Sales increased 3.4% during October but fell 1.3% in September. The December sales increase accompanied an easing last month in the effective 30-year mortgage interest rate to an average 6.72% from 6.81% in November. The Action Economics Forecast Survey expected December sales of 4.17 million units. The sales figures are based on closings of sales signed over the past couple of months.

The median price of all existing homes (NSA) held steady (+6.1% y/y) in December at $404,400, with November, revised from $406,100. Prices remained below the $426,900 high this past June. The median price of an existing single-family home also was unchanged (+6.1% y/y) at $409,300 in December. The median price of condos and co-ops edged 0.2% higher (4.5% y/y) to $359,000 in December from $358,200 in November.

By region, sales of existing homes in the Northeast rose 3.9% (10.4% y/y) to 530,000 after an 8.5% November gain. Sales in the South increased 3.2% (9.0% y/y) to 1.93 million after a 5.6% November rise. Sales in the West improved 2.6% (12.9% y/y) to 790,000 after holding steady in November. To the downside, sales in the Midwest eased 1.0% (+6.5% y/y) to 990,000 after a 5.3% November increase.

The number of existing homes for sale (NSA) fell 13.5% (+16.2% y/y) to 1.15 million after falling 2.9% in November. The supply of homes on the market at the current selling rate (NSA) fell to 3.3 months from 3.8 months in November. This figure rose to a high of 4.3 months in September. The record low in supply of 1.6 months was reached in January 2022. These figures date back to January 1999.

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

**How Did U.S. Teenagers Benefit from Holiday Employment?** from the Federal Reserve Bank of St. Louis is available [here](https://www.stlouisfed.org/on-the-economy/2025/jan/how-us-teenagers-benefit-holiday-employment).

250124L4.jpg

250124M4.jpg

- Sales increase to highest level since February.
- Existing home sales rise in three of four regions of the country.
- Median price holds steady.

U.S. Existing Homes Sales Continue to Rise in December

250124E.jpg

The S&P composite PMIs in January improved across the board, with the exception of India and the United States. In the U.S., the PMI headline dropped back sharply on sharp weakness in the services sector in the month in the face of what had been resiliency and strength. 

From roughly February to July of 2024, the persistence of declines by sector especially in manufacturing diminished. However, now things have shifted, and we are again in a period when there seems to be more deterioration. The prevalence of manufacturing AND service sector deterioration together has reappeared.

The Russian invasion was a real catalyst of change for the EU, Germany, France, the United Kingdom, Japan, and the United States. Before Ukraine, the recovery from COVID was under way and both services and manufacturing sectors were running policies that left each sector with 50% or higher ranking in 60% to 100% of countries. After Russia’s aggressive action, both sectors were crushed across all these countries; the service sector rebounded first and from March 2024 to date services stood at a ranking above 50% or more in 60% to 100% of the countries. But in the post-invasion environment, the manufacturing sectors showed only about 20% of reporters above a 50% queue standing for manufacturing. Manufacturing continues to be hard hit and well short of normalcy.

Currently we are in another round of weakness looking at a broader group of early reporters that adds India and Australia into the mix. Still, six-month changes show weakness in at least two of three months or three of five months for manufacturing and service sectors. Together they are falling over the same six-months. The ‘best performance’ on this metric apart from the U.S. is Australia where manufacturing has improved on balance over six months for two months running but only after three months of deterioration on that basis.

U.S. performance is an outlier in several ways. The US service sector fell sharply in January, depressing services as well as the composite metric. But over six-months both US services and manufacturing have failed to worsen together for 16-months in a row.

The U.S. has been an anomaly in terms of international performance characteristics. U.S. manufacturing is weakening on balance over six months in six of the last seven months. But the service sector has risen on balance (over the previous six months) in 12 of the last 13 months.

The new sharp weakness in U.S. services (month-to-month) is an issue of it has any staying power.

The four-year queue standing of the manufacturing across eight countries and three sector readings (for each: two sectors plus a composite) shows only five of 24 of these rankings with standings above the 50% mark (above their respective medians) over the past four years. These readings are manufacturing in India (79.6%), services in Germany (63.3%) and services in the EMU (barely…. at 51.0%), and a 59.2 percentile standing for Japan’s service sector (the same for its composite).

250124.jpg

There is still a general trend of composite PMI readings to ease over three months compared to 12-months and generally to be in an easing profile. The U.S. is the only country showing composite progress accelerating sequentially (warning here: the sequential data lag by a month and are only executed on hard data so the sharp January U.S. weakness is not represented in this calculation).

Only eight of 24 sectors show a net rise over the last three months. Ten of 24 sectors still show net weakness over 12 months. Three composite readings are lower on balance over 12 months (India Japan, and the U.K.). Economic conditions are touch and go and, as we saw in Davos, there is some concern about the state of the European economy at a time that the U.S. is threatening to impose tariffs that will weaken their economies.

Composite PMIs Improve Except for the U.S.

250123A1.jpg

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

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

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

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

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

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

U.S. Unemployment Insurance Claims Rise in Latest Week

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

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

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

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

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

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

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

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United Kingdom

U.K. Order Trends Are Still Eroding

Andrew Cates

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

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

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

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

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

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

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

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Economy in Brief: October 2007

Jump to:

U.S. Employment Cost Index Moderates to 0.8% Quarterly Increase

German Retail Sales Show Unexpected Lift

UK Consumer Confidence Stays in a Downdraft

Sentiment Slips but Flash Inflation Flares

EU Readings Still Strong…but FADING

ADP Report: Private Payroll Growth Much Improved

US GDP Growth Boosted Again by Improved Trade Deficit

US GDP Growth Boosted Again by Improved Trade Deficit