Tom Moeller

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Real GDP growth was revised to 3.2% (SAAR) during Q4’23 from 3.3% reported last month as it followed a 4.9% Q3 increase. A 3.3% rise had been expected in the Action Economics Forecast Survey. Real GDP grew an unrevised 3.1% on a Q4/Q4 basis, after a 0.7% rise in 2022 and 5.4% growth in 2021. Growth averaged 2.5% last year versus 1.9% in 2022.

Contributions to growth from international trade & the change in inventories were revised. Inventories subtracted 0.27 percentage point from GDP growth, revised from a 0.07 percentage point addition reported initially, after contributing 1.27 point to growth in the third quarter. The 0.32 percentage point contribution to growth from net export improvement compared to a 0.43 percentage point estimated last month. It followed two straight quarters of minimal add. Exports grew a marginally-changed 6.4% (2.1% y/y) which followed a 5.4% Q3 rise. Imports grew an increased 2.7%, but were unchanged y/y, after rising 4.2% in Q3.

Growth in real final sales to domestic purchasers was increased to 3.1% (3.1% y/y) from 2.7% after rising 3.5% in Q3. Personal consumption expenditures rose a slightly raised 3.0% (2.7% y/y) after a 3.1% increase, adding 2.0 percentage points to Q4 growth. Durable goods spending growth was lessened to 3.2% (5.7% y/y), following a 6.7% gain. Motor vehicle expenditures fell an upwardly-revised 2.1% (+3.9% y/y), a bit more than it did Q3. Furniture & appliance buying rose 2.5% (2.4% y/y), revised from 4.1%, after a 5.5% gain in Q3 while recreational goods & vehicle purchases grew 7.3% (11.2% y/y) after strengthening 16.9% in Q3.

Nondurable goods outlays improved a little-changed 3.3% (2.1% y/y), following 3.9% growth in Q3. Apparel outlays rose a lessened 3.6% (0.9% y/y) after a 6.2% increase while food & beverage spending rose an unchanged 1.5% (0.3% y/y) following a 1.9% gain. Outlays on gasoline & other energy products rose an increased 4.3% (3.8% y/y), revised from 0.8%, after falling 1.0% in Q3.

Spending on services increased 2.8% (2.3% y/y), revised from 2.4%, last quarter following a 2.2% gain in Q3. Restaurant & hotel accommodations rose 7.9% (4.2% y/y) after gaining 7.1% in Q3, while growth in recreation outlays improved 4.1% (3.8% y/y), revised from 5.1%, after a 2.3% rise in Q3. Transportation services outlays growth of 2.8% (1.4% y/y) was lessened from 5.9% following a 0.9% rise. Housing & utilities outlays rose an unrevised 0.4% (0.7% y/y), after a 3.0% Q3 improvement. Health care purchases rose 1.5% (5.3 y/y), revised from 3.4%, following a 0.7% increase.

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Business fixed investment increased 2.4% (4.2% y/y), revised from 1.9% last quarter following a 1.5% Q3 rise as spending on nonresidential structures increased 7.6% (16.0% y/y), revised from 3.2% after rising 11.2% in Q3. Equipment investment fell 1.7% (-0.8% y/y), revised from +1.0% after falling 4.4%. Information processing investment surged 9.4% (-1.3% y/y), revised from 17.4% following four consecutive quarterly declines, while industrial equipment outlays eased 0.2% (-1.8% y/y), revised from a 3.7% gain, after falling 5.4%. Transportation equipment spending weakened a little-revised 21.8% (+2.8% y/y) after a 1.7% drop in Q3. Investment in intellectual property products rose 3.3% (2.9% y/y), revised from 2.1% after a 1.8% rise.

Residential structures investment increased 2.9% (0.4% y/y), revised from 1.0%, after a 6.7% increase.

Government spending increased 4.2% (4.5% y/y), revised from 3.3%, accounting for 0.73 percentage points of GDP growth, after a 5.8% rise. Federal government spending growth of 2.3% (3.9% y/y) was revised from 2.5% and followed a 7.1% jump. State & local government spending grew 5.4% (4.9% y/y), revised from 3.7%, following a 5.0% Q3 rise.

The GDP price index rose 1.6% (2.6% y/y), revised from 1.5% after a 3.3% Q3 gain. A 1.5% rise had been expected. The PCE price index increased a little-changed 1.8% (2.8% y/y) after a 2.6% rise. The PCE price index excluding food and energy prices rose 2.1% (3.2% y/y), about the same as it did in Q3. The PCE goods price index fell 1.4% (+0.1% y/y) after rising 0.9% as gasoline prices fell and services prices rose 3.5% (4.1% y/y), the same as they did in Q3. The services price index less energy & housing rose a minimally changed 2.7% (3.6% y/y) after a 2.9% rise.

The business fixed investment price index rose 1.8% (2.3% y/y) revised from 2.1%, following a 0.9% rise. The residential investment price index increased 4.0% (1.3% y/y), revised from 5.5% after a 4.8% gain. The government spending price index rose a minimally changed 1.8% both m/m and y/y after strengthening 5.1% in the third quarter.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- Growth accelerates y/y as domestic final demand growth remains strong.
- Foreign trade & inventory contributions offset one another.
- Halving of Q3 price gain remains in place.

U.S. GDP Growth Is Firm & Little Revised in Q4; Price Gain Remains Moderate

Carol Stone, CBE

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The advance estimate of U.S. international trade widened modestly in January to -$90.2 billion from $87.9 billion in December.  These “advance” estimates are not revised with releases of later foreign trade detail.  The Action Economics Forecast Survey had expected a January deficit of -$88.8 billion.

Exports of goods in January increased 0.2% from December (-2.9% y/y) following a 2.5% increase in December.  Exports of autos and associated goods had the biggest increase in January, 10.3% (-2.8% y/y), more than reversing a 3.2% decrease in December.  Consumer goods exports other than autos rose 2.6% (-5.5% y/y) in January after a 4.3% increase in December, and capital goods exports were up 1.4% (+2.1% y/y) in January after decreasing modestly by 0.5% in December.  Exports of other items decreased last month, most notably “other goods” -6.0% (+4.7% y/y) after a 5.6% increase in December.  Industrial supplies exports fell 2.1% (-3.2% y/y) after a sizable 5.8% increase in December.  Exports of foods, feeds & beverages were down 1.9% in January (-7.4% y/y), partially reversing a 5.1% gain in December.

Imports of goods rose 1.1% in January, although the y/y change was -1.8%; December’s goods imports had increased 1.5%. Among import categories, the largest monthly increase was in automotive vehicles and associated goods, up 5.1% (+6.6% y/y), more than reversing a 1.1% decrease in December.  Capital goods imports rose 4.2% in January (+3.0% y/y) after decreasing 1.4% in December.  “Other goods” imports were up 3.2% in January (+5.8% y/y), after increasing just 0.2% in December.  Imports of foods, feeds & beverages edged up 0.2% in January (-3.0% y/y), following a modest 0.3% decrease in December.  Two categories saw declines in imports in January. Industrial supplies imports decreased 2.7% (-2.4% y/y) after a 2.0% increase in December, and consumer goods imports fell 2.3% in January (-7.6% y/y), following a 5.5% rise in December.

The advance international trade data can be found in Haver's **USECON** database. The expectations figure is from the Action Economics Forecast Survey, which is in **AS1REPNA**.

- $90.2 billion deficit modestly wider than expected.
- Exports rise 0.2%, led by shipments of automotive goods.
- Imports increase 1.1%, with autos and associated goods up 5.1%.

U.S. Foreign Goods Trade Deficit Widens Slightly in January

Kathleen Stephansen, CBE

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Mortgage applications declined 5.6% (-8.6% y/y) in the week ended February 23 after plummeting 10.6% (-8.9% y/y) in the prior week. The level of applications was the lowest since the second week of November. Applications for loans to purchase a home fell 4.5% (-11.9% y/y) in the latest week, following a 10.1% (-13.0% y/y) drop the prior week. Applications to refinance a loan declined 7.3% (-1.1% y/y) in the February 23 week, after falling 11.4% (+0.1% y/y) the prior week. These data are from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey.

The effective interest rate on a 30-year fixed-rate loan eased to 7.23% in the week ended February 23 from 7.25% the prior week. It remained below the 8.12% high in mid-October of last year. The rate on 15-year fixed-rate mortgages rose 6bps to 6.87% in the latest week from 6.81% the prior week. The rate on 30-year Jumbo loans increased 7bps to 7.36% last week from 7.29% in the week ended February 16, while the rate on the 5-year ARM dropped 9bps to 6.54% from 6.63%.

The share of applications for refinancing an existing loan fell to 31.2% in the week ended February 23, from 32.6% in the week ended February 16. The percentage of applications that were ARMs rose to 7.5% last week from 7.4% in the prior week.

The average loan size declined 1.4% (-0.8% y/y) to $373,600 in the week ended February 23, from $379,000 in the week ended February 16. The average size of a purchase loan declined 2.1% (+1.1% y/y) to 430,000 in the latest week from $439,400 in the prior week. The average loan size to refinance a mortgage slipped 1.9% (-2.3% y/y) to $249,200 in the week ended February 23, from $254,000 in the prior week.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Mortgage loan applications decline for third consecutive week.
- Purchase loan applications decline for fifth consecutive week.
- 30-year fixed-rate mortgage eased only slightly in the last week.

U.S. Mortgage Applications Fell Again in the Latest Week

Robert Brusca

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In February, the European Commission economic sentiment index from the monetary union declined to 95.4 from January’s 96.1, a surprise development. This drops the reading below even its December level but above its November level. Declines are logged in three of five sectors with the industrial sector, the retail sector, and the services sector, each weakening month-to-month. The construction assessment was unchanged between January and February while consumer confidence increased to a -15.5 reading in February from -16.1 in January.

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The paths of these sectors are illustrated in the chart. It shows that all sectors declined sharply during COVID and then marked various degrees of recovery that were short-lived. This recovery, the wake of Russia’s invasion of Ukraine, has since turned into a decaying phase that remains in force with the exception of services, a sector that continues to move sideways at a reading that is below its historic median level. Consumer confidence, the weakest reading in terms of its net diffusion, is the only sector that shows some degree of recovery in progress.

**Overall sentiment month-to-month**
In February, each of the largest monetary union economies showed declines in their overall sentiment readings. Italy fell the most, dropping by 1.6% month-to-month, followed by Germany that fell by 0.7%, France fell by 0.3%, and Spain fell by 0.2%. Among the remaining thirteen countries, seven of them logged month-to-month declines in February. This shows mixed performance among the rank-and-file members of the monetary union juxtaposed to more concerted weakness among the largest economies. In January, there had been only one of the BIG-4 economies that showed a decline and only three other economies that showed declines.

**The rankings**
Turning to rankings, the ranking of the overall monetary union index is at its 31st percentile, putting it in the lower one-third of its queue of historic observations. All the BIG-4 economies have rankings below their respective 50th percentiles with Germany the weakest in its 15.6 percentile, and Spain the strongest, at nearly its 47th percentile. France sits in its 42.8 percentile with Italy at its 43rd percentile. Among the remaining countries, percentile rankings range from a high of a 60.7 percentile standing for Cyprus, followed by a 56.9 percentile standing for Greece- the only two countries with rankings above their 50th percentile - to a low ranking of 7% for Estonia, 11% for Malta, 13% for Austria, and 15.6% for Finland. There's a considerable spread of rankings outside of the top-4 economies; however, the center of gravity is clearly well-below 50 with a long tail of weakness.

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**Surprise weakness**
The EU Commission indexes for February are surprising and weaker than expected. They come with more concern about the Russia-Ukraine war given the emerging ambivalence from the split in U.S. politics as the U.S. points to elections in November of this year. The absence of U.S. financial support and the face of a domestic political split has placed more burden for Ukraine support on Europe and this may be one factor adversely affecting sentiment. While there is a lot of rhetoric directed at the U.S. and concern that Donald Trump could be re-elected, the simple fact is that his bombast was prompted by widespread European failure to spending their promised proportion of funds on defense. For a time, Germany refused to spend its 2% of GDP on defense, choosing instead to reduce it level of debt! Is it any wonder Trump below a gasket? Ironically, European nations may now have to spend even more if they begin to think the U.S. is a less dependable ally.

**Global conditions**
Global economic conditions remain touch and go and the bright spot which has been the decline in global inflation has reached a slowdown phase with inflation rates beginning to look a little more stuck while still above their target ranges after what was some unexpectedly fast progress on inflation made last year. Both the ECB in Europe and the Federal Reserve in the U.S. have begun to warn about the risks of cutting rates too soon; these warnings come on the heels of markets having nearly thrown rate-cut parties in anticipation of rate reductions later this year. Are central banks taking away the punch bowl even before party-goers have a sip?

**The outlook**
The outlook seems to have changed and while Europe is looking weaker in a lot of ways, the U.S. economy has begun to look a little more resilient and that poses a different sort of risk for everyone. The U.S. bond market and interest rates globally are particularly at risk because if U.S. interest rates cannot proceed lower, it will be more difficult for Europe to cut rates, and bonds may prove to be over-priced at current levels. Conditions have changed. It's time, once again, to hang on to every single economic report as though policy depended upon it - because it does.

Europe

EU Index Erodes; Germany Lags; Questions Are Raised...

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The Conference Board's Index of Consumer Confidence declined 3.8% (+3.2% y/y) during February to 106.7. A reading of 114.9 had been expected in the Action Economics Forecast Survey. The decline came after a 2.7% rise in January to 110.9, revised from 114.8, and an unrevised 6.9% December gain. The latest level remains well below the high of 137.9 in October 2018 and below the June 2021 high of 128.9.

The Present Situations Index fell 5.0% (-3.8% y/y) to 147.2 and reversed January’s 5.2% rise to 154.9, revised from 161.3. The Expectations Index fell 2.1% (+13.4% y/y) to 79.8 after easing 0.5% in January to 81.5, revised from 83.8.

A steady 21.2% of respondents characterized current business conditions as good in February, up from a low of 18.3% four months earlier, but remained below a high of 23.4% in June. Recent figures are above their low of 16.3% in July of 2022. Labor market readings deteriorated this month. The jobs gap, representing the difference between respondents indicating that jobs are plentiful and those saying jobs are hard to get, fell to 27.8% from 31.7% in January. The reading remained below the March 2022 high of 47.1%. Calculated by Haver Analytics, this series has a 64% correlation with the unemployment rate over the last ten years. The jobs plentiful measure fell to 41.3% from 42.7% and remained below the March 2022 high of 56.7%. The jobs hard-to-get measure of 13.5% compared to 11.0% in January. The jobs not-so-plentiful reading fell to 45.2% but remained well above its 30.5% low in September 2021.

Consumers assessment of future business conditions deteriorated as a lower 14.8% of respondents felt that conditions would be better in six months. This remained up, however, from a low of 13.2% in May of 2023, but remained below a high of 20.9% in December 2022. A lessened 14.7% of respondents felt there would be more jobs in six months, down from a high of 41.2% in April 2020. This remains below a recent high of 20.0% in December of 2022. A lessened 16.9% expected income to increase in six months, down from 18.3% in December and below a high of 19.6% in October of 2022.

The expected inflation rate in twelve months of 5.2% compared to 5.3% in January. It remained below the 7.9% high in June 2022, but above the 4.4% low in January 2020.

A slightly higher 42.7% of respondents felt that interest rates would be higher in twelve months, down from 61.3% in February of last year. A lessened 23.3% thought they would be lower. A higher 42.2% of respondents believed that stock prices would be higher in twelve months, compared to 39.3% in January. A lessened 23.8% thought stock prices would be lower in twelve months versus a high of 44.7% in July of 2022. The share of respondents planning to buy a home within six months was little changed at 4.7% and remained below the October 2022 high of 7.4%. The percentage of respondents planning to buy a major appliance jumped m/m to 46.5%, but that remained below a high of 52.4% in October 2022.

The Consumer Confidence data are available in Haver's **CBDB** database. The total indexes, which are indexed to 1985=100, appear in **USECON**, and market expectations are in **AS1REPNA**.

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- Present situations reading reverses January rise.
- Expected conditions fall modestly.
- Inflation expectations remain lowest in four years.

U.S. Consumer Confidence Disappoints in February

Sandy Batten

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New orders for durable goods fell 6.1% m/m (-0.6% y/y) in January following a downwardly revised 0.3% m/m decline in December (previously unchanged). The Action Economics Forecast Survey had expected a 5.0% m/m decline in January. The sharp January decline was due entirely to a 58.9% m/m plunge in nondefense aircraft orders. Total aircraft orders fell 52.0% m/m. Orders excluding aircraft rose 0.6% m/m in January following a 0.4% m/m decline in December.

Transportation orders more generally plunged 16.2% m/m in January, their largest monthly decline since the pandemic. Orders for motor vehicles and parts slumped 0.4% m/m, their first decline in three months. By contrast, orders for defense aircraft and parts increased 2.6% m/m, their first monthly gain in three months. Orders for all defense goods jumped up 17.7% m/m in January, their first increase in three months.

While the plunge in aircraft orders was the major drag in January, orders across major sectors were generally anemic in January. Orders for primary metals fell 1.7% m/m, their first decline in three months. Orders for fabricated metal produce declined 0.9% m/m. Machinery orders were unchanged while “other” orders fell 0.5% m/m. Orders for communications equipment slumped 8.4% m/m. By contrast, orders for computers rose a solid 5.8% m/m and orders for electrical equipment and appliances increased 0.9% m/m.

Core capital goods orders (that is, nondefense capital goods orders excluding aircraft) edged up 0.1% m/m in January. However, the initially reported 0.2% m/m increase in December was revised to a 0.6% m/m decline. News on core capital goods shipments in January, a reliable coincident indicator of business spending on equipment in the national accounts, was more positive. Core capex shipments increased 0.8% m/m in January with a small upward revision to December (to +0.1% m/m from unchanged previously), thereby indicating a solid start for Q1.

Shipments of all manufactured goods fell 1.0% m/m (-1.6% y/y) in January on top of a 0.4% monthly decline in December. Shipments of durable goods fell 0.9% m/m in January, their fourth monthly decline in the past five months. Shipments of nondurable goods decreased 1.1% m/m in January, their fourth consecutive monthly decline. Shipments of transportation equipment declined 3.3% m/m in January. Shipments excluding transportation increased 0.3% m/m, led by a 2.1% monthly gain in shipments of electrical equipment and appliances and a 1.3% m/m increase in machinery shipments.

Unfilled orders for durable goods increased 0.2% m/m (+9.3% y/y) in January after a 1.3% m/m gain in December. Excluding transportation, unfilled orders fell 0.2% m/m, their third decline in the past four months. Manufacturing inventories fell 0.1% m/m (-0.5% y/y) in January, their first monthly decline in seven months. Inventories of durable goods increased 0.2% while inventories of nondurable goods fell 0.6% m/m, their fourth consecutive monthly decline.

Manufacturers’ orders and shipments of durable and nondurable goods, along with unfilled orders and inventories, are compiled by the U.S. Census Bureau. They are available in Haver’s **USECON** database. The Action Economics forecast data are in the **AS1REPNA** database.

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- Orders fell a larger-than-expected 6.1% m/m.
- Nondefense aircraft orders plunged 58.9% m/m.
- Orders excluding aircraft rose 0.6% m/m.
- Core capital goods shipments increased 0.8%, providing a good start for Q1.

U.S. Durable Goods Orders Dragged Down by Aircraft in January

Winnie Tapasanun

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U.S. house prices edged up 0.1% m/m in December after rises of 0.4% in November (+0.3% initially) and 0.3% in October (unrevised), according to the Federal Housing Finance Agency (FHFA) House Price Index. The December m/m reading was the smallest of 11 consecutive monthly increases. The HPI was at 417.85 in December, the highest index level on record, compared to a low of 281.98 in May 2020. The year-on-year rate of increase eased to 6.6% in December from a one-year-high 6.7% in November; thus, decelerating from 6.8% in December 2022 and a high of 18.9% in February 2022. In 2023, house prices rose 5.0% after having gained 13.8% in 2022 and 16.7% in 2021.

The FHFA also reported quarterly house price data today. House price appreciation showed signs of softening. In Q4'23, house prices grew 1.5% q/q, the fifth consecutive quarterly gain, slowing from a 2.1% Q3 increase. The y/y rate accelerated to 6.5% in Q4, the fastest since Q4'22, after rising to 5.6% in Q3.

The month-on-month increases in house prices were evident in December (vs. November) in four of the nine census divisions. These included South Atlantic (+0.7% vs. +0.4%), Mountain (+0.5% vs. +0.7%), Middle Atlantic (+0.3% vs. +0.4%), and East North Central (+0.1% vs. +0.4%). In contrast, house prices in the following three census divisions fell in December (vs. November): West North Central (-0.9% vs. +0.4%), New England (-0.6% vs. -0.1%), and Pacific (-0.2% vs. +0.4%). Meanwhile, house prices in East South Central were virtually unchanged m/m in December after 10 straight monthly rises and those in West South Central held steady m/m for the second successive month.

Year-on-year house prices continued to gain in December, with the pace of advance accelerating (vs. November) in five of the nine census divisions. These included New England (10.1% vs. 9.9%), Middle Atlantic (9.1% vs. 8.9%), South Atlantic (7.8% vs. 7.4%), Mountain (5.4% vs. 4.7%), and West South Central (3.3% vs. 3.1%). Meanwhile, house price growth decelerated y/y in December (vs. November) in East South Central (5.4% vs. 7.1%), West North Central (5.6% vs. 6.3%), and East North Central (8.4% vs. 9.1%). House prices in Pacific rose 4.5% y/y in both December and November.

The FHFA house price index is a weighted purchase-only index that measures average price changes in repeat sales of the same property. An associated quarterly index includes refinancing the same kind of properties. The indexes are based on transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on single-family properties are included.

The FHFA data are available in Haver’s **USECON** database.

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- FHFA HPI +0.1% (+6.6% y/y) in Dec., the smallest m/m gain in 11 months. 
- House prices rise m/m in four of nine census divisions but fall m/m in West North Central, New England, and Pacific.
- House prices gain y/y in all of the nine regions, w/ the highest rate in New England (10.1%).

U.S. FHFA House Prices Increase Marginally in December, Showing Signs of Softening

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Retail gasoline prices for all grades slipped to $3.37 per gallon (-2.7% y/y) in the week ended February 26, 2024 from $3.39 in the prior week. Prices remain above a low of $3.18 in the middle of January. The recent high stands at $4.00 per gallon in the third week of September, and the all-time high was $5.11 in the week ended June 13, 2022. Retail prices for on-highway diesel fuel fell to an average $4.06 per gallon (-5.5% y/y) last week from $4.11 per gallon in the prior week. These are higher than a recent low of $3.77 per gallon in the week ended July 3, 2023.

The average price of West Texas Intermediate crude oil of $77.93 per barrel (+3.3% y/y) in the week ended February 23 compared to an average $77.99 in the prior week. It remained increased from a low of $69.37 per barrel in the week of June 30, 2023 but remained below a high of $91.45 in the week of September 29, 2023. The all-time high was seen in the week of July 4, 2008 at $142.46 per barrel. Yesterday, the price of West Texas Intermediate crude oil was $77.58 per barrel. The price of European Brent crude oil rose to $85.02 per barrel (4.0% y/y) in the week ended February 23 from $84.44 in the prior week. The price of Brent has recently ranged from a low of $73.55 in the week ended June 30, 2023 to a high of $127.40 in the week ended June 10, 2022. Yesterday, the price was $84.01 per barrel.

Natural gas prices of an average of $1.56/mmbtu (-28.4% y/y) in the week ended February 23 compared to $1.59/mmbtu in the prior week. These were the lowest prices since June 2020. Thee prices compare to a recent high of $3.20 for the average of the October 13 week. Yesterday, the natural gas price was $1.65/mmbtu.

Gasoline demand declined 2.3% y/y in the four weeks ended February 16 after falling 1.0 y/y in the four weeks ended February 9. Demand for all petroleum products weakened 2.1% y/y after falling 0.3% y/y in the prior four-week period. Crude oil input to refineries declined 2.7% y/y in the four weeks ended February 16 after a 1.4% y/y drop in the previous period.

Gasoline inventories increased 2.9% y/y in the week of February 16 following a 2.2% y/y increase in the prior week. Inventories of residual fuel oil fell 3.9% y/y in the week of February 16 after declining 10.1% y/y in the previous week. Crude oil inventories, including the Strategic Petroleum Reserve, decreased 5.7% y/y in the week of February 16 following a 5.3% y/y decline one week earlier.

Measured in days’ supply, gasoline inventories were 29.7 days in the week of February 16 versus 30.3 days in the prior week. The recent low was 23.4 days in the week of June 30, 2023. Crude oil inventories were 30.1 days of supply in the week of February 16, up from 29.5 days in the prior week. These compare to a recent high of 31.9 days in the week of March 3, 2023 and a recent low of 25.0 days in the week of September 1, 2023.

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

- Gasoline prices back away from November high.
- Crude oil prices slip but remain above the June low.
- Natural gas prices ease and remain near 2020 low.

U.S. Energy Prices Ease in Latest Week

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

Inflation surprising to upside in the US; by contrast to the downside in the euro area

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Nonfarm payrolls increased 254,000 (1.5% y/y) in September after rising 159,000 in August, revised from 142,000, and 144,000 in July, revised from 89,000. Expectations had been for a 150,000 rise in the Action Economics Forecast Survey. The three-month average change of 186,000 is the strongest since May.

Average hourly earnings increased 0.4% last month following a gain of 0.5% in August, revised from 0.4%. The y/y earnings gain edged up to 4.0% from 3.9% in August and 3.6% in July, but remained below the 5.9% high in March 2022. A 0.3% September increase had been expected.

The unemployment rate, measured in the household survey, edged down to 4.1% in September from 4.2% in August. It reached a low of 3.4% in April of last year. An unchanged 4.2% had been expected. Household employment rose 430,000 after increasing 168,000 in July. The labor force increased 150,000 after a 120,000 July gain. The overall unemployment rate, including workers who were marginally attached & working part-time for economic reasons declined to 7.7% from 7.9%.

In the **payroll survey**, private-sector employment increased 223,000 (1.4% y/y) in September after rising 114,000 in August. Construction sector employment increased 25,000 (2.8% y/y) last month after rising 31,000 in August. Factory sector payrolls eased 7,000 (-0.2% y/y) after falling 27,000. Mining & logging sector jobs rose 3,000 (-0.6% y/y) during September after rising 1,000 in each of the prior two months.

Private service-producing employment strengthened 202,000 in September (1.5% y/y) after a 109,000 August rise. Increases varied greatly amongst service sector categories. Private education & health service jobs rose 81,000 (3.8% y/y) after rising 60,000 in August while leisure & hospitality employment rose 78,000 (2.0% y/y) after a 53,000 gain. Professional & business service jobs rose 17,000 (0.4% y/y) after easing 4,000 in both August and July. Within that category, the number of temporary jobs fell 13,800 (-6.0% y/y) and have fallen consistently since a March 2022 high. Trade, transportation & utilities employment gained 13,000 (0.6% y/y) after falling 5,000 while financial activities jobs rose 5,000 in September (0.4% y/y) after improving 10,000 in August. Information sector employment increased 4,000 in last month (-0.2% y/y) after falling 7,000 in August.

Government sector payrolls improved 31,000 in September (2.1% y/y) after increasing 45,000 in August. Local government jobs improved 16,000 (2.0% y/y) after rising 33,000 in August while state government employment rose 13,000 (2.5% y/y) after an 11,000 gain. The number of federal government jobs increased 2,000 (1.7% y/y) following a 1,000 rise.

The 0.4% September rise in private-sector average hourly earnings reflected a 0.5% gain (4.9% y/y) in the goods-producing sector which followed a 0.4% improvement in August. Earnings in construction improved 0.4% (4.6% y/y) while factory sector earnings rose 0.5% (5.1% y/y), following a 0.4% gain. In the private services-sector, earnings rose 0.3% last month (3.7% y/y) after a 0.5% gain. Professional & business service sector earnings strengthened 0.8% (5.0% y/y) after a 0.6% rise. Leisure & hospitality earnings improved 0.2% (4.3% y/y) after rising 0.3%. Financial sector earnings increased 0.2% (4.2% y/y) after a 0.5% gain. Private education & health services earnings improved 0.3% (3.1% y/y) for the fourth straight month. Trade, transportation and utilities pay edged 0.1% higher (2.8% y/y) in September after a 0.4% rise. Information sector earnings declined 0.4% (+3.6% y/y) after strengthening 1.1% in July.

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The length of the average workweek in the private sector eased to 34.2 hours in September after rising in August to 34.3 hours. The workweek in the goods-producing sector of 39.9 hours compared to 39.8 hours in August. The construction sector average workweek lengthened to 39.2 hours from 39.0. The factory sector workweek held steady at 40.0 hours while the average workweek in the private service sector slipped to 33.1 hours. The aggregate weekly hours index in the private sector, a key indicator of production and income, slipped 0.1% in September (+0.9% y/y) after rising 0.3%. The Q3 average increased 0.2% (AR) from Q2’24.

In the **household survey**, the jobless rate fell to 4.1% as employment rose 0.3% and the size of the labor force edged 0.1% higher. The labor force participation rate was 62.7% for the third straight month. The rate for teenagers rebounded to 37.2%, while for individuals aged 20-24, it was little-change at 70.6%. For rate for workers aged 25-54, the rate fell to 83.8% but for workers 55 and over, it held steady at 38.6 hours.

The employment/population ratio for all workers rose to 60.2% in September and has been moving sideways since early last year. It remained below its high of 61.1% in February 2020, just prior to the pandemic.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- Surprising job strength is narrowly based.
- Earnings increase is better-than-expected; August pay growth lifted.
- Jobless rate slips to three-month low.

U.S. Payroll Employment Accelerates in September and Wage Growth Firms; Jobless Rate Edges Lower

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French industrial output rose sharply in August, a gain of 1.6% after declining by 0.2% in July. Output in August was led by consumer goods; nondurable goods output increased 4.2% month-to-month in August while consumer durable goods output increased by 3% month-to-month. Output of capital goods was also strong during the month, with a 1.6% gain, although intermediate goods output continued to be weak, falling by 0.4% in August and dropping for the second month in a row.

Sequentially French output explodes over three months although it's relatively mild mannered over 12 months and over six months. The strength in French output is relatively recent. Manufacturing output gains 0.3% over 12 months; over six months it is falling at a 0.5% annual rate but that transforms into a 31.1% annual rate over three months as output sharply recovered in June and in August.

**Sequential growth for MFG components**
Components find consumer durable goods output falling by 6.3% over 12 months, gaining at a 4% annual rate over six months then rising at a strong 14.9% annual rate over three months showing steady acceleration. Consumer nondurable goods output rises by 5.9% over 12 months; output slows to gain at a 4.3% annual rate over six months then it expands sharply to grow at a 19% annual rate over three months. French capital goods output is up only 0.3% over 12 months, but it then expands at a 1.5% annual rate over six months and gains at a 14.2% annual rate over three months showing steadily accelerating growth on this time sequence. Intermediate goods output falls by 3.4% over 12 months, falls more sharply, at a 6.6% annual rate over six months, then cuts that weakness to only a 0.2% annual rate drop over three months.

**Quarter-to-date**
With two months into the third quarter, manufacturing output is rising at 1.6% annual rate, with consumer nondurable output up at a 7% annual rate and consumer durable goods output up at a 3.8% annual rate. Capital goods output is up at a 4.3% annual rate; intermediate goods output is falling at a 5% annual rate in the quarter-to-date.

During this period when output has been experiencing some mild increases, they have transformed into strong increases over three months. Yet, motor vehicle registrations have been consistently weak. That important big ticket consumer item has not taken off.

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**Manufacturing: IP vs. PMI**
The chart shows that manufacturing output as measured by the IP index has been relatively flat. But output as signaled by the S&P PMI survey has showed building weakness in French manufacturing. The PMI trend to weakness was being arrested early in 2024 but then the incipient rebound turned into more weakness. Just this month there has been some small rebound and stabilization in the MFG PMI.

It's here from the PMI, that data give much more of a sense of French output being weak than we get from looking at the industrial output report itself. French industrial output has been fairly flat, but with a small uptrend in place.

Smoothed year-on-year gains show that French output generally saw year-on-year expansion from early-2022 to May 2024. Since then, output has been more erratic with a deep decline logged in May IP. The sector has subsequently been digging itself back out. This month’s surge in output is continuing evidence of that recovery in progress. We do not get the same sense of weakness from looking at French IP data that we form looking at French PMI data.

France

French IP Ignites for a Month

Andrew Cates

**Policy rate expectations**
Blue Chip panellists continue to forecast that policy rates in most major economies will decline sharply in coming months. The ECB, for example, is expected to lower its key policy rates by around 105 basis points over the next 12 months while the BoE is expected to lower its Bank rate by 125 bps over the same time frame. These forecasts contrast with the US where policy rates are expected to be lowered by 125 basis point between now and this time next year. The BoJ in the meantime continues to remain an outlier in this generic global trend with Japan’s policy rate specifically expected to climb by 45bps over the next 12 months.

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**The US labour market**
Ahead of the payrolls data for September that are due later this week there have been some mixed messages on the state of the US labour market in recent days. September’s ADP report concerning private sector employment, for example, was a little stronger than expected. On the weaker side, the latest Job Openings and Labour Turnover (JOLTS) survey revealed a steep decline in the number of people in the US workforce that have been quitting their jobs, a strong signal that the labour market is loosening. As chart 2 below suggests, that ought to additionally imply weaker wages pressures in the period ahead as well.

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**Geopolitical risks and oil prices**
Soft landing narratives have been aided by evidence suggesting that labour markets are cooling, that wage pressures are ebbing and that broader inflationary pressures are fading. But, as noted above, the escalation of geopolitical turbulence in the Middle East is now challenging these views. A widely watched gauge of geopolitical risks has bolted sharply higher in recent days off the heels of this turbulence, as evidenced in chart 3 below. And energy markets – oil prices in particular – appear to now be responding to this instability as well.

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**The real consumer price of energy versus US productivity growth**
It goes without saying that energy prices exert a powerful influence over the world economy. Aside from headline inflation linkages, high real energy prices have arguably been a key factor that’s kept productivity growth in many major economies muted over the past few years. As chart 4 below indicates, longer-term upswings in US productivity growth have tended to be preceded by weaker real energy prices. Equally, longer-term downswings in productivity have typically followed periods when real energy prices have been rising.

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**Globalisation versus de-globalisation** 
A further disruption of supply chains is also a looming threat to the world economy if the instability in the Middle East were to intensify. In the background to this, and thanks to several additional factors that have undermined world trade in recent years, a de-globalisation of the world economy has been unfolding. That said, latest data from the World Bank suggest we should not get too carried with that de-globalisation narrative. The level of world trade in services, for example, reached a record high in 2023.

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**Indebtedness and interest rates**
There is no doubt that ongoing geopolitical instability, combined with other factors such as heightened protectionism, could accelerate a broader trend toward de-globalization in the coming period. This, along with other structural challenges such as high energy prices and ageing demographics, may be hindering long-term productivity growth. Offsetting factors do exist, most notably the productivity potential of Artificial Intelligence. However, until those offsets fully materialize, many policymakers are likely to again rely on monetary policy tools and other re-leveraging initiatives to boost economic growth to politically acceptable levels. The strong negative correlation between long-term US real interest rates and global indebtedness in chart 6 below highlights how these policy efforts have become central to maintaining economic stability, often at the expense of increasing financial vulnerabilities.

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In recent weeks, financial markets have generally aligned with expectations of a soft landing for the global economy, facilitated by more accommodative policies from central banks (see chart 1). This week’s dataflow have largely reinforced these views (see chart 2) as have the communications from many policymakers. However, the escalation of geopolitical turbulence in the Middle East in recent days is now challenging this narrative. By potentially choking supply chains and raising risk premiums in energy markets, there could be growth and inflation-related consequences for the world economy in the coming weeks (see charts 3). This also serves as a reminder that there are longer-term headwinds that are placing a brake on global growth at present, including high real energy prices (chart 4), de-globalization pressures (chart 5) and lingering debt-related imbalances (see chart 6). And many of these issues could be exacerbated if the turmoil in the Middle East were to intensify.

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Charts of the Week: Geopolitical Scarring

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The U.S. ISM Services PMI rose to 54.9 in September, the highest level since February 2023, after a 0.1-point uptick to 51.5 in August, according to today’s report by the Institute for Supply Management, indicating expansion in the services sector for the third straight month, in seven of nine months in 2024, and for the 49th time in 52 months. The September index was up from a four-year-low 48.8 in June, 53.4 in September 2023, and a low of 49.0 in December 2022; however, having remained down from a record-high 67.1 in November 2021. The 12-month average was 51.8, reflecting strong growth in the U.S. services sector. The Action Economics Forecast Survey had expected 51.7 for September.

Haver Analytics constructs a composite index combining the services index and the manufacturing reading. This index rose to 53.9 in September after a 0.2-point increase to 51.0 in August, showing expansion for fourth time in five months. The latest figure was higher than a four-year-low 48.8 in June, 52.8 in September 2023, and a low of 48.9 in December 2022; nevertheless, having remained well below a record-high 66.3 in November 2021. These series date back to July 1997.

In the latest services survey, the business activity index rebounded to 59.9 in September from 53.3 in August, indicating business activity expanded for the 51st time in 52 months and at the highest level since May. The index was up from its recent low of 49.6 in June and a low of 52.7 in December 2022 but below a record-high 69.5 in November 2021. An increased 30.1% of respondents (NSA) reported higher activity in September while a lessened 8.2% reported an activity decline. The new orders index advanced to 59.4 in September from 53.0 in August, indicating expansion in new orders for the 50th time in 52 months and at the fastest pace since February 2023. The index was up from its recent low of 47.3 in June and a low of 45.0 in December 2022 but down from a record-high 69.5 in October 2021. An increased 30.9% of respondents (NSA) reported higher orders in September while a lessened 10.4% reported a decline. Meanwhile, the supplier deliveries index (NSA) rose to 52.1 in September from 49.6 in August, indicating slower supplier delivery performance after two months in faster territory.

On the labor front, the employment index decreased to 48.1 in September on top of a 0.9-point decline to 50.2 in August, showing employment activity in the services sector contracted after two months of expansion. The latest reading, while above a low of 43.8 in December 2023, was below a high of 54.1 in August 2023 and a high of 58.3 in April 2021. A lessened 13.0% of respondents (NSA) indicated higher employment in September while 14.4% reported a decline.

On the inflation front, the prices index rose to 59.4 in September after a 0.3-point increase to 57.3 in August, indicating prices paid by services organizations for materials and services had risen (i.e., above 50) since June 2017 and at the fastest rate since January’s high of 64.0. The index was up versus its recent low of 53.4 in March and a low of 54.8 in June 2023; however, having remained significantly below a record-high 83.8 in March 2022. An increased 22.7% of respondents (NSA) reported price rises in September while a lessened 6.0% reported price declines.

Additionally, the new export orders index increased to 56.7 in September following a 7.6-point drop to 50.9 in August, indicating new export orders expanded for the 10th time in 11 months at a faster rate. The imports index rebounded to 52.7 in September from 50.3 in August, registering the third consecutive month of expansion after contracting in June and May. The inventories index advanced to 58.1 in September from 52.9 in August, indicating inventories expanded for the second successive month and at the fastest pace since May 2023. The inventory sentiment index fell to 54.0 in September after declining to 54.9 in August, showing continued expansion since May 2023 but at the slowest rising rate since June 2023. The backlog of orders index increased to 48.3 in September after dropping to 43.7 in August, posting the third contraction in four months. These series are not seasonally adjusted and not included in the ISM Services PMI total.

The ISM Services PMI is a composite index consisting of four equally weighted diffusion indexes (25% each): Business Activity, New Orders, Employment, and Supplier Deliveries. A reading above 50 indicates expansion in the services sector; below 50 suggests contraction. Supplier Deliveries is the only ISM index that is inversed; a reading above 50 indicates slower deliveries. The ISM figures are available in Haver's **USECON** database, with additional detail in the **SURVEYS** database. The expectations figure from Action Economics is in the **AS1REPNA** database.

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- 54.9 in September vs. 51.5 in August, higher than expected; 3.1 pts. above the 12-month avg. of 51.8.
- Business Activity (59.9, a four-month high), New Orders (59.4, the highest since Feb. ’23), Employment (48.1, the first contraction since June), and Supplier Deliveries (52.1 vs. 49.6).
- Prices Index rises 2.1 pts. to 59.4, the highest since January.

U.S. ISM Services PMI Jumps in September; Highest Level Since February ’23

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New orders for manufactured goods eased 0.2% (+0.9% y/y) during August, after strengthening 4.9% in July, revised from 5.0%, according to the Census Bureau. Orders declined 3.3% in June. The Action Economics Forecast Survey expected a 0.2% increase in total factory orders. Excluding the transportation sector, orders eased 0.1% (+0.5% y/y) after rising 0.3% in July.

New orders for durable goods were unchanged during August (+1.5% y/y), unrevised from the advance release, and followed a 9.8% July gain. The weakness in durable goods orders reflected a 0.8% easing (+2.5% y/y) in transportation sector orders. This followed a 34.6% jump in July, which was buoyed by higher civilian aircraft orders. Motor vehicle & parts orders eased 0.7% (-1.8% y/y) after a 1.0% decline. Orders for all factory products outside the transportation sector slipped 0.1% (+0.5% y/y) in August following a 0.3% July increase. Elsewhere, primary metals orders rose 0.2%, up 0.1% y/y. Machinery orders gained 0.4% (0.1% y/y), while computer & electronics rose 0.4% (2.8% y/y). Electrical equipment orders rose 2.4% (2.8% y/y), following a 0.8% decline.

Shipments by all manufacturing industries eased 0.5% in August (+1.0% y/y) after rising 0.8% in July. Durable goods shipments fell 0.6% (+1.7% y/y) after two months of roughly 1.1% gain. Transportation product shipments fell 2.0% (+5.0% y/y) after a 3.4% rise. Shipments excluding the transportation sector eased 0.2% (+0.2% y/y) after rising 0.3% in July. Machinery shipments rose 0.3% in August (-0.9% y/y) while computer & equipment shipments eased 0.2% (-0.1% y/y). Electrical equipment & appliance shipments rose 0.4% (+0.7% y/y). Nondurable goods shipments, which equal orders, fell 0.5% (+0.3% y/y) after increasing 0.6% in July. Food product shipments eased 0.1% (+1.3% y/y) while apparel shipments rose 0.4% (-2.4% y/y) after two months of decline. Textile product shipments weakened 1.7% both m/m and y/y after falling 0.3% in July. Paper product shipments rose 0.3% (2.1% y/y), following a 0.8% increase. Petroleum & coal product shipments declined 2.3% (-10.9% y/y) in August, after rising 0.5%. Basic chemical shipments rose 0.3% (5.8% y/y) after a 0.8% July increase.

There are no unfilled orders figures for nondurable goods industries. Unfilled orders for durable goods rose 0.4% (4.1% y/y) in August after a 0.2% rise. Transportation unfilled orders rose 0.5% (6.8% y/y) after increasing 0.3% in July. Excluding transportation, unfilled orders rose 0.2% (-0.4% y/y) after holding steady in July. Unfilled orders for durable goods less transportation have been trending sideways since 2022. Unfilled orders for machinery eased 0.1% (-3.7% y/y) while electrical equipment & appliance backlogs rose 0.4% (-0.0%) after a 0.2% decline.

Inventories of all manufactured products rose 0.1% in August (0.6% y/y) after holding steady in July. Durable goods inventories edged 0.1% higher (1.3% y/y) after holding steady in July. Transportation equipment inventories edged 0.1% higher (4.7% y/y) and inventories less transportation rose 0.2% (-0.4% y/y) after holding steady for five straight months. Nondurable goods inventories rose 0.2% (-0.5% y/y) after remaining unchanged for two months, though petroleum inventories rose 0.8% (-1.9% y/y) in August after easing 0.1% in July.

Manufacturers’ orders and shipments of durable and nondurable goods, along with unfilled orders and inventories, are compiled by the U.S. Census Bureau. They are available in Haver’s **USECON** database. The Action Economics forecast data are in the **AS1REPNA** database.

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- Improved y/y in orders momentum remains in place.
- Shipments weighed down by a decline in nondefense aircraft sales.
- Unfilled orders and inventories rise modestly.

Economy in Brief: February 2024

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