Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902f.jpg" width="353">
The value of construction put in place fell 0.6% during July and that reversed the 0.3% increases during the prior two months. The decline was as-expected.
Year-to-year, construction was down 4.8% but the level of activity so far this year continued roughly stable.
As in prior months, however, residential building activity continued to decline sharply, by 2.1% in July. Since it&#39;s peak it has fallen by just over one half. Single-family construction dropped an even larger 3.7% (-0.9% y/y) in July and that level is off by nearly two-thirds from its peak in early 2006. Building activity on multi-family units ticked up 0.2% (-1.7% y/y) while spending on improvements gave back the June gain and fell 1.0% (-5.5% y/y).
During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.
The value of nonresidential building activity fell 0.7% after increasing in each month of this year. Despite the latest dip, office construction continued firm and increased 1.7% (13.7% y/y). Lodging spending dipped, however, by 0.1% but it was up by more than one-third from last year&#39;s level. Spending on multi-retail building rose 3.1% (4.7% y/y) while spending on health care facilities dipped 0.2% (+6.7% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902g.jpg" width="353">
Public construction continued firm and rose by 1.4% (8.1% y/y). The value of construction spending on highways &amp; streets fell modestly for the third consecutive month but remained up 6.9% from last year. (The value of construction on highways &amp; streets is roughly one third of the value of total public construction spending.) Building activity of educational facilities surged 2.5% (7.4% y/y) during July.
The more detailed categories of construction represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.
The United States in the International Financial System: A Separate Reality? Resolving Two Puzzles in the International Accounts is yesterday&#39;s speech by Fed Governor Randall S. Kroszner and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/kroszner20080901a.htm">here</a>.
Regional Variation in the Potential Economic Effects of Climate Change from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-26.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/@E9/@E907/@E907.HTM">Construction</a> (%)</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.6</td>
<td>0.3</td>
<td>-4.8</td>
<td>-2.7</td>
<td>6.3</td>
<td>11.2</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-1.4</td>
<td>0.2</td>
<td>-9.2</td>
<td>-6.9</td>
<td>5.5</td>
<td>12.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-2.3</td>
<td>-1.4</td>
<td>-27.5</td>
<td>-19.8</td>
<td>1.0</td>
<td>14.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.7</td>
<td>1.7</td>
<td>16.0</td>
<td>19.6</td>
<td>16.2</td>
<td>7.8</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>1.4</td>
<td>0.4</td>
<td>8.1</td>
<td>12.3</td>
<td>9.3</td>
<td>6.2</td>
</tr>
</tbody>
</table>
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The value of construction put in place fell 0.6% during July and that reversed the 0.3% increases during the prior two months. The decline was as-expected. Year-to-year, construction was down 4.8% but the level of activity so far this [...]

U.S. Construction Spending Fell in July

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080903e.jpg" align="left" border="0" height="265" width="353">
Brazilian industrial production rose 1% in July from June and
was 7% above July, 2007. Capital goods production was up 20% over July
2007. Consumer durable goods production was up 7.5% and consumer
semidurable and nondurable goods production was up 3%. The first chart
shows these major categories of total industrial production over the
past few years.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080903f.jpg" align="right" border="0" height="265" width="353">
The quarterly year-to-year changes in industrial production
have proven to be good indicators of the quarterly changes in real GDP
as shown in the second chart where the correlation between the two
series is .87 and the R2 is .76. The industrial
production data precedes the GDP data by a month or more. The
year-to-year increase in the second quarter industrial production was
5.1% down from the 6.6% of the first quarter when the year-to-year
increase in GDP was 5.8%. If the correlation holds, we should expect a
year-to-year increase of 5% second quarter increase of around 5% over
the second quarter of 2007. The actual figure will be published
September 10.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">BRAZIL:&nbsp;Industrial
Production&nbsp; (2002=100)</th>
<th scope="col">Jul 08</th>
<th scope="col">Jun&nbsp; 08&nbsp;</th>
<th scope="col">Jul&nbsp;&nbsp;
07&nbsp;</th>
<th scope="col">M/M % chg&nbsp;</th>
<th scope="col">Y/Y % chg&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>130.63</td>
<td>129.28</td>
<td>121.63</td>
<td>1.04</td>
<td>7.40</td>
<td>121.29</td>
<td>114.98</td>
<td>111.79</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>188.86</td>
<td>186.65</td>
<td>157.07</td>
<td>1.18</td>
<td>20.24</td>
<td>159.48</td>
<td>133.97</td>
<td>126.78</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Durable Goods</td>
<td>176.22</td>
<td>185.81</td>
<td>163.93</td>
<td>-5.16</td>
<td>7.50</td>
<td>160.92</td>
<td>148.13</td>
<td>139.99</td>
</tr>
<tr>
<td class="firstcol">Consumer Semi and Non
Durable Goods</td>
<td>113.90</td>
<td>113.87</td>
<td>110.44</td>
<td>0.03</td>
<td>3.13</td>
<td>110.98</td>
<td>107.41</td>
<td>104.78</td>
</tr>
</tbody>
</table>
</body></html>

Brazilian industrial production rose 1% in July from June and was 7% above July, 2007. Capital goods production was up 20% over July 2007. Consumer durable goods production was up 7.5% and consumer semidurable and nondurable goods [...]

Brazil's Industrial Production Points to a 5% Y/Y Increase in GDP in Q2

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902c.jpg" width="353">
The Institute for Supply Management reported that it&#39;s Composite Index of Manufacturing Sector Activity was about unchanged from its July level at 49.9. It thus remained up slightly from the monthly lows near 48 this past winter. Consensus expectations had been for more of a decline to 49.1 in July.
Despite the very recent improvement, the index&#39;s average level so far this year of 49.5 was near its lowest since early-2003. The index level is consistent with a roughly unchanged level in industrial sector activity.
During the last twenty years there has been a 64% correlation between the level of the Composite Index and the three-month growth in factory sector industrial production.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902d.jpg" width="353">
It is appropriate to correlate the ISM index level with factory sector growth because the ISM index is a diffusion index. It measures growth by using all of the positive changes in activity added to one half of the zero change in activity measures.
The new orders index recovered most of its sharp drop in July. However, the two month average of the index at 46.6 was near this cycle&#39;s low. The new export orders sub-series recovered most of its July drop with a 3.0 point rise to 57.0. During the last ten years there has been a 53% correlation between the index and the q/q change in real exports of goods in the GDP accounts.
The employment index fell 2.2 points to 49.7 but that retraced just a piece of the July rise. During the last twenty years there has been a 67% correlation between the level of the ISM employment index and the three-month growth in factory sector employment.
The production index dipped to 52.1 and still indicated a rising level of output. The inventories series rose sharply to 49.3 and that recovered most of its July decline.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902e.jpg" width="353">
Order backlogs remained near the lowest level (43.5) this year as the index rose just slightly in August. It averaged 48.9 during all of 2007.
Prices paid fell sharply. The index fell 11.5 points to 77.0, its lowest level since February. That followed the recent decline in oil prices. During the last twenty years there has been a 79% correlation between the price index and the three-month change in the PPI for intermediate goods.
Oil and the U.S. macroeconomy: an update and a simple forecasting exercise from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/wp/2008/2008-009.pdf">here</a>.
The Menace of Inflation from the Center for Economic and Policy Research is available <a href="http://www.cepr.net/index.php/op-eds-&amp;-columns/op-eds-&amp;-columns/the-menace-of-inflation">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/SURVEYS/@S2/@S201/@S201.HTM">ISM Mfg</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>49.9</td>
<td>50.0</td>
<td>51.2</td>
<td>51.1</td>
<td>53.1</td>
<td>54.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>48.3</td>
<td>45.0</td>
<td>54.5</td>
<td>54.3</td>
<td>55.4</td>
<td>57.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>49.7</td>
<td>51.9</td>
<td>50.9</td>
<td>50.5</td>
<td>51.7</td>
<td>53.6</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>77.0</td>
<td>88.5</td>
<td>63.0</td>
<td>64.6</td>
<td>65.0</td>
<td>66.4</td>
</tr>
</tbody>
</table>
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The Institute for Supply Management reported that it's Composite Index of Manufacturing Sector Activity was about unchanged from its July level at 49.9. It thus remained up slightly from the monthly lows near 48 this past winter. [...]

ISM Index About Unchanged

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902b.jpg" align="left" border="0" height="265" width="353">
The July PPI in the e-zone jumped by 1.1% in July continuing
to spread inflation pressure in the e-zone. Ex energy the PPI rose by
0.5% after a 0.4% spurt in June. As a result even ex-energy inflation
is looking troublesome. Ex energy e-Zone inflation is running at 4.3%
Yr/Yr, at a 5.1% pace over six months and at a barely reduced 4.7% pace
over three months. While this is the PPI not the ECB&#8217;s favored HICP
measure, the strength in prices will not go down well at the ECB. Germany, Italy and the UK generally
show accelerating patterns of headline PPI inflation as well as
ex-energy inflation. Among those three only Italy does not show
inflation accelerating over the recent three months compared to six
months and 12-months for ex-energy inflation.
The e-zone headline inflation rate for the PPI is now up by 9%
Yr/Yr compared with ex-energy inflation at 4.7%. Capital goods
inflation remains subdued at 2% Yr/Yr. But consumer goods inflation is
up by 4.3%. Energy prices are up 24% Yr/Yr. Inflation trends in the
e-zone are like nothing the ECB would ever want to tolerate, but here
they are.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="7" scope="col">E-zone and
UK PPI Trends </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M</td>
<td colspan="4">Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area 15</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>3-Mo</td>
<td>6-MO</td>
<td>Yr/Yr</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr>
<td class="firstcol">TotalxConstruct</td>
<td>1.1%</td>
<td>1.0%</td>
<td>14.2%</td>
<td>11.8%</td>
<td>9.0%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Excl Energy</td>
<td>0.5%</td>
<td>0.4%</td>
<td>4.7%</td>
<td>5.1%</td>
<td>4.3%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">Capital Gds</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>2.5%</td>
<td>2.0%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Consumer Gds</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>2.9%</td>
<td>4.3%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Intermediate&amp;Cap Gds</td>
<td>0.6%</td>
<td>0.5%</td>
<td>5.9%</td>
<td>6.3%</td>
<td>4.2%</td>
<td>3.4%</td>
</tr>
<tr>
<td class="firstcol">Energy</td>
<td>2.8%</td>
<td>2.8%</td>
<td>46.3%</td>
<td>33.5%</td>
<td>24.5%</td>
<td>-1.8%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.6%</td>
<td>0.7%</td>
<td>10.9%</td>
<td>9.6%</td>
<td>7.2%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>2.0%</td>
<td>0.9%</td>
<td>16.7%</td>
<td>13.4%</td>
<td>8.9%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ExEnergy</td>
<td>0.7%</td>
<td>0.3%</td>
<td>5.4%</td>
<td>5.1%</td>
<td>3.6%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.5%</td>
<td>0.8%</td>
<td>11.4%</td>
<td>10.4%</td>
<td>8.3%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ExEnergy</td>
<td>0.1%</td>
<td>0.5%</td>
<td>3.4%</td>
<td>5.1%</td>
<td>4.1%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>0.2%</td>
<td>2.9%</td>
<td>25.3%</td>
<td>20.9%</td>
<td>20.0%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ExEnergy</td>
<td>0.5%</td>
<td>0.8%</td>
<td>11.6%</td>
<td>10.3%</td>
<td>7.6%</td>
<td>3.0%</td>
</tr>
<tr class="grey2">
<td colspan="7" class="firstcol">Euro Area 15
Harmonized PPI
excluding Construction.</td>
</tr>
<tr class="grey2">
<td colspan="7" class="firstcol">The EA 15
countries are Austria,
Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, Malta, Netherlands, Portugal, Slovenia and Spain.</td>
</tr>
</tbody>
</table>
</body></html>

The July PPI in the e-zone jumped by 1.1% in July continuing to spread inflation pressure in the e-zone. Ex energy the PPI rose by 0.5% after a 0.4% spurt in June. As a result even ex-energy inflation is looking troublesome. Ex energy [...]

Euro Area Overall PPI Jumps: Sector Trends Diverge

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902f.jpg" align="left" border="0" height="265" width="353">
The value of construction put in place fell 0.6% during July
and that reversed the 0.3% increases during the prior two months. The
decline was as-expected.
Year-to-year, construction was down 4.8% but the level of
activity so far this year continued roughly stable.
As in prior months, however, residential building activity
continued to decline sharply, by 2.1% in July. Since it's peak it has
fallen by just over one half. Single-family construction dropped an
even larger 3.7% (-0.9% y/y) in July and that level is off by nearly
two-thirds from its peak in early 2006. Building activity on
multi-family units ticked up 0.2% (-1.7% y/y) while spending on
improvements gave back the June gain and fell 1.0% (-5.5% y/y).
During the last twenty years there has been an 84% correlation
between the q/q change in the value of residential building and its
contribution to growth in real GDP.
The value of nonresidential building activity fell 0.7% after
increasing in each month of this year. Despite the latest dip, office
construction continued firm and increased 1.7% (13.7% y/y). Lodging
spending dipped, however, by 0.1% but it was up by more than one-third
from last year's level. Spending on multi-retail building rose 3.1%
(4.7% y/y) while spending on health care facilities dipped 0.2% (+6.7%
y/y).<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902g.jpg" align="right" border="0" height="265" width="353">
Public construction continued firm and rose by 1.4% (8.1%
y/y). The value of construction spending on highways &amp; streets
fell modestly for the third consecutive month but remained up 6.9% from
last year. (The value of construction on highways &amp; streets is
roughly one third of the value of total public construction spending.)
Building activity of educational facilities surged 2.5% (7.4% y/y)
during July.
The more detailed categories of construction represent the
Census Bureau&#8217;s reclassification of construction activity into end-use
groups. Finer detail is available for many of the categories; for
instance, commercial construction is shown for automotive sales and
parking facilities, drugstores, building supply stores, and both
commercial warehouses and mini-storage facilities. Note that start
dates vary for some seasonally adjusted line items in 2000 and 2002 and
that constant-dollar data are no longer computed.
The United States in the International Financial
System: A Separate Reality? Resolving Two Puzzles in the International
Accounts is yesterday's speech by Fed Governor Randall S.
Kroszner and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/kroszner20080901a.htm">here</a>.
Regional Variation in the Potential Economic
Effects of Climate Change from the Federal Reserve Bank
of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-26.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/@E9/@E907/@E907.HTM">Construction</a>
(%)</th>
<th scope="col">July</th>
<th scope="col">June</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.6</td>
<td>0.3</td>
<td>-4.8</td>
<td>-2.7</td>
<td>6.3</td>
<td>11.2</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>-1.4</td>
<td>0.2</td>
<td>-9.2</td>
<td>-6.9</td>
<td>5.5</td>
<td>12.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-2.3</td>
<td>-1.4</td>
<td>-27.5</td>
<td>-19.8</td>
<td>1.0</td>
<td>14.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Nonresidential</td>
<td>-0.7</td>
<td>1.7</td>
<td>16.0</td>
<td>19.6</td>
<td>16.2</td>
<td>7.8</td>
</tr>
<tr>
<td class="firstcol">Public</td>
<td>1.4</td>
<td>0.4</td>
<td>8.1</td>
<td>12.3</td>
<td>9.3</td>
<td>6.2</td>
</tr>
</tbody>
</table>
ISM Index About Unchanged 
by <a href="/comment/Moeller.html">Tom
Moeller</a> September 2, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902c.jpg" align="left" border="0" height="265" width="353">
The Institute for Supply Management reported that it's
Composite Index of Manufacturing Sector Activity was about unchanged
from its July level at 49.9. It thus remained up slightly from the
monthly lows near 48 this past winter. Consensus expectations had been
for more of a decline to 49.1 in July.
Despite the very recent improvement, the index's average level
so far this year of 49.5 was near its lowest since early-2003. The
index level is consistent with a roughly unchanged level in industrial
sector activity.
During the last twenty years there has been a 64% correlation
between the level of the Composite Index and the three-month growth in
factory sector industrial production.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902d.jpg" align="right" border="0" height="265" width="353">
It is appropriate to correlate the ISM index level
with factory sector growth because the ISM index
is a diffusion index. It measures growth by using all of the positive
changes in activity added to one half of the zero change in activity
measures.
The new orders index recovered most of its sharp drop in July.
However, the two month average of the index at 46.6 was near this
cycle's low. The new export orders sub-series recovered most of its
July drop with a 3.0 point rise to 57.0. During the last ten years
there has been a 53% correlation between the index and the q/q change
in real exports of goods in the GDP accounts.
The employment index fell 2.2 points to 49.7 but that retraced
just a piece of the July rise. During the last twenty years there has
been a 67% correlation between the level of the ISM employment index
and the three-month growth in factory sector employment.
The production index dipped to 52.1 and still indicated a
rising level of output. The inventories series rose sharply to 49.3 and
that recovered most of its July decline.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902e.jpg" align="left" border="0" height="265" width="353">
Order backlogs remained near the lowest level (43.5) this year
as the index rose just slightly in August. It averaged 48.9 during all
of 2007.
Prices paid fell sharply. The index fell 11.5 points to 77.0,
its lowest level since February. That followed the recent decline in
oil prices. During the last twenty years there has been a 79%
correlation between the price index and the three-month change in the
PPI for intermediate goods.
Oil and the U.S. macroeconomy: an update and a simple
forecasting exercise from the Federal Reserve Bank of St.
Louis can be found <a href="http://research.stlouisfed.org/wp/2008/2008-009.pdf">here</a>.
The Menace of Inflation from the Center
for Economic and Policy Research is available <a href="http://www.cepr.net/index.php/op-eds-&amp;-columns/op-eds-&amp;-columns/the-menace-of-inflation">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/SURVEYS/@S2/@S201/@S201.HTM">ISM
Mfg</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August '07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>49.9</td>
<td>50.0</td>
<td>51.2</td>
<td>51.1</td>
<td>53.1</td>
<td>54.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>48.3</td>
<td>45.0</td>
<td>54.5</td>
<td>54.3</td>
<td>55.4</td>
<td>57.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Employment Index</td>
<td>49.7</td>
<td>51.9</td>
<td>50.9</td>
<td>50.5</td>
<td>51.7</td>
<td>53.6</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>77.0</td>
<td>88.5</td>
<td>63.0</td>
<td>64.6</td>
<td>65.0</td>
<td>66.4</td>
</tr>
</tbody>
</table>
Euro Area Overall PPI Jumps:
Sector Trends Diverge 
by <a href="/comment/Brusca.html">Robert
Brusca</a> September 2, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902b.jpg" align="left" border="0" height="265" width="353">
The July PPI in the e-zone jumped by 1.1% in July continuing
to spread inflation pressure in the e-zone. Ex energy the PPI rose by
0.5% after a 0.4% spurt in June. As a result even ex-energy inflation
is looking troublesome. Ex energy e-Zone inflation is running at 4.3%
Yr/Yr, at a 5.1% pace over six months and at a barely reduced 4.7% pace
over three months. While this is the PPI not the ECB&#8217;s favored HICP
measure, the strength in prices will not go down well at the ECB. Germany, Italy and the UK generally
show accelerating patterns of headline PPI inflation as well as
ex-energy inflation. Among those three only Italy does not show
inflation accelerating over the recent three months compared to six
months and 12-months for ex-energy inflation.
The e-zone headline inflation rate for the PPI is now up by 9%
Yr/Yr compared with ex-energy inflation at 4.7%. Capital goods
inflation remains subdued at 2% Yr/Yr. But consumer goods inflation is
up by 4.3%. Energy prices are up 24% Yr/Yr. Inflation trends in the
e-zone are like nothing the ECB would ever want to tolerate, but here
they are.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup><thead><tr>
<th colspan="7" scope="col">E-zone and
UK PPI Trends </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="2">M/M</td>
<td colspan="4">Saar</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro Area 15</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>3-Mo</td>
<td>6-MO</td>
<td>Yr/Yr</td>
<td>Y/Y Yr Ago</td>
</tr>
<tr>
<td class="firstcol">TotalxConstruct</td>
<td>1.1%</td>
<td>1.0%</td>
<td>14.2%</td>
<td>11.8%</td>
<td>9.0%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Excl Energy</td>
<td>0.5%</td>
<td>0.4%</td>
<td>4.7%</td>
<td>5.1%</td>
<td>4.3%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">Capital Gds</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>2.5%</td>
<td>2.0%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Consumer Gds</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>2.9%</td>
<td>4.3%</td>
<td>1.9%</td>
</tr>
<tr>
<td class="firstcol">Intermediate&amp;Cap Gds</td>
<td>0.6%</td>
<td>0.5%</td>
<td>5.9%</td>
<td>6.3%</td>
<td>4.2%</td>
<td>3.4%</td>
</tr>
<tr>
<td class="firstcol">Energy</td>
<td>2.8%</td>
<td>2.8%</td>
<td>46.3%</td>
<td>33.5%</td>
<td>24.5%</td>
<td>-1.8%</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.6%</td>
<td>0.7%</td>
<td>10.9%</td>
<td>9.6%</td>
<td>7.2%</td>
<td>2.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>2.0%</td>
<td>0.9%</td>
<td>16.7%</td>
<td>13.4%</td>
<td>8.9%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ExEnergy</td>
<td>0.7%</td>
<td>0.3%</td>
<td>5.4%</td>
<td>5.1%</td>
<td>3.6%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>0.5%</td>
<td>0.8%</td>
<td>11.4%</td>
<td>10.4%</td>
<td>8.3%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ExEnergy</td>
<td>0.1%</td>
<td>0.5%</td>
<td>3.4%</td>
<td>5.1%</td>
<td>4.1%</td>
<td>3.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>0.2%</td>
<td>2.9%</td>
<td>25.3%</td>
<td>20.9%</td>
<td>20.0%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; ExEnergy</td>
<td>0.5%</td>
<td>0.8%</td>
<td>11.6%</td>
<td>10.3%</td>
<td>7.6%</td>
<td>3.0%</td>
</tr>
<tr class="grey2">
<td colspan="7" class="firstcol">Euro Area 15
Harmonized PPI
excluding Construction.</td>
</tr>
<tr class="grey2">
<td colspan="7" class="firstcol">The EA 15
countries are Austria,
Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, Malta, Netherlands, Portugal, Slovenia and Spain.</td>
</tr>
</tbody>
</table>
Brazil's Industrial
Production Points to&nbsp; a 5% Y/Y Increase in GDP in Q2 
by <a href="/comment/Curley.html">Louise
Curley</a> September 2, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080903e.jpg" align="left" border="0" height="265" width="353">
Brazilian industrial production rose 1% in July from June and
was 7% above July, 2007. Capital goods production was up 20% over July
2007. Consumer durable goods production was up 7.5% and consumer
semidurable and nondurable goods production was up 3%. The first chart
shows these major categories of total industrial production over the
past few years.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080903f.jpg" align="right" border="0" height="265" width="353">
The quarterly year-to-year changes in industrial production
have proven to be good indicators of the quarterly changes in real GDP
as shown in the second chart where the correlation between the two
series is .87 and the R2 is .76. The industrial
production data precedes the GDP data by a month or more. The
year-to-year increase in the second quarter industrial production was
5.1% down from the 6.6% of the first quarter when the year-to-year
increase in GDP was 5.8%. If the correlation holds, we should expect a
year-to-year increase of 5% second quarter increase of around 5% over
the second quarter of 2007. The actual figure will be published
September 10.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">BRAZIL:&nbsp;Industrial
Production&nbsp; (2002=100)</th>
<th scope="col">Jul 08</th>
<th scope="col">Jun&nbsp; 08&nbsp;</th>
<th scope="col">Jul&nbsp;&nbsp;
07&nbsp;</th>
<th scope="col">M/M % chg&nbsp;</th>
<th scope="col">Y/Y % chg&nbsp;</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>130.63</td>
<td>129.28</td>
<td>121.63</td>
<td>1.04</td>
<td>7.40</td>
<td>121.29</td>
<td>114.98</td>
<td>111.79</td>
</tr>
<tr>
<td class="firstcol">Capital Goods</td>
<td>188.86</td>
<td>186.65</td>
<td>157.07</td>
<td>1.18</td>
<td>20.24</td>
<td>159.48</td>
<td>133.97</td>
<td>126.78</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Durable Goods</td>
<td>176.22</td>
<td>185.81</td>
<td>163.93</td>
<td>-5.16</td>
<td>7.50</td>
<td>160.92</td>
<td>148.13</td>
<td>139.99</td>
</tr>
<tr>
<td class="firstcol">Consumer Semi and Non
Durable Goods</td>
<td>113.90</td>
<td>113.87</td>
<td>110.44</td>
<td>0.03</td>
<td>3.13</td>
<td>110.98</td>
<td>107.41</td>
<td>104.78</td>
</tr>
</tbody>
</table>
</body></html>

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<style>
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<body>
 



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902a.jpg" align="left" border="0" height="265" width="353">
German retail sales have now put in back-to-back declines,
each of substantial magnitude. Real and nominal sales are now lower
over 12 months. Over 6 months the rate of decline is more severe and
over 3 months the pace of decline is even more severe.
The loss in momentum is unmistakable.
For the current quarter, the results are very poor. It is
July, so we calculate the growth RATE in July centered over the average
for sales in Q2. There are
different ways to annualize things. We compound the growth rate and
present it as an actual rate from its current position compared to the
actual Q2 base. Since Q2 centers in May we take the resulting growth
rate to the 6th power to annualize it. That
leaves us with retail sales falling at a 4.3% pace in Q3 or at a -11.3%
pace in real terms (ex autos). However if we treat the level of sales
in July as the level for the whole quarter we compound by four instead
of six giving us a still weak growth rate of -7.7% for real ex-auto
sales. There is not much arguing with the notion that German retail
sales are falling sharply.


<table border="0" cellspacing="0" width="100%">
<colgroup><col></colgroup>
<thead><tr>
<th colspan="9" scope="col"> German Real and Nominal Retail Sales</th>
<th scope="col">QTR</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>May-08</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAgo</td>
<td colspan="2">Saar</td>
</tr>
<tr>
<td class="firstcol">Retaill Ex auto</td>
<td>-1.3%</td>
<td>-1.4%</td>
<td>1.7%</td>
<td>-4.1%</td>
<td>-3.0%</td>
<td>-0.2%</td>
<td>-0.7%</td>
<td colspan="2">-4.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food Bev &amp; Tobacco</td>
<td>-1.6%</td>
<td>-1.2%</td>
<td>0.1%</td>
<td>-10.4%</td>
<td>-5.0%</td>
<td>-1.2%</td>
<td>-4.3%</td>
<td colspan="2">-13.4%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>2.8%</td>
<td>-10.2%</td>
<td>15.1%</td>
<td>27.4%</td>
<td>1.3%</td>
<td>1.5%</td>
<td>2.1%</td>
<td colspan="2">0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="10">Real</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-1.5%</td>
<td>-1.4%</td>
<td>1.3%</td>
<td>-6.2%</td>
<td>-5.4%</td>
<td>-3.2%</td>
<td>-1.0%</td>
<td colspan="2">-11.3%</td>
</tr>
</tbody>
</table>
</body></html>

German retail sales have now put in back-to-back declines, each of substantial magnitude. Real and nominal sales are now lower over 12 months. Over 6 months the rate of decline is more severe and over 3 months the pace of decline is [...]

Germany Retail Sales Give Way…

<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html><head>
<style>
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<body>
 



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080902a.jpg" align="left" border="0" height="265" width="353">
German retail sales have now put in back-to-back declines,
each of substantial magnitude. Real and nominal sales are now lower
over 12 months. Over 6 months the rate of decline is more severe and
over 3 months the pace of decline is even more severe.
The loss in momentum is unmistakable.
For the current quarter, the results are very poor. It is
July, so we calculate the growth RATE in July centered over the average
for sales in Q2. There are
different ways to annualize things. We compound the growth rate and
present it as an actual rate from its current position compared to the
actual Q2 base. Since Q2 centers in May we take the resulting growth
rate to the 6th power to annualize it. That
leaves us with retail sales falling at a 4.3% pace in Q3 or at a -11.3%
pace in real terms (ex autos). However if we treat the level of sales
in July as the level for the whole quarter we compound by four instead
of six giving us a still weak growth rate of -7.7% for real ex-auto
sales. There is not much arguing with the notion that German retail
sales are falling sharply.

<table border="0" cellspacing="0" width="100%"> <colgroup><col></colgroup>
<thead><tr>
<th colspan="9" scope="col"> German
Real and Nominal Retail Sales</th>
<th scope="col">QTR</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Jul-08</td>
<td>Jun-08</td>
<td>May-08</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAgo</td>
<td colspan="2">Saar</td>
</tr>
<tr>
<td class="firstcol">Retaill Ex auto</td>
<td>-1.3%</td>
<td>-1.4%</td>
<td>1.7%</td>
<td>-4.1%</td>
<td>-3.0%</td>
<td>-0.2%</td>
<td>-0.7%</td>
<td colspan="2">-4.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Food Bev &amp; Tobacco</td>
<td>-1.6%</td>
<td>-1.2%</td>
<td>0.1%</td>
<td>-10.4%</td>
<td>-5.0%</td>
<td>-1.2%</td>
<td>-4.3%</td>
<td colspan="2">-13.4%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>2.8%</td>
<td>-10.2%</td>
<td>15.1%</td>
<td>27.4%</td>
<td>1.3%</td>
<td>1.5%</td>
<td>2.1%</td>
<td colspan="2">0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol" colspan="10">Real</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>-1.5%</td>
<td>-1.4%</td>
<td>1.3%</td>
<td>-6.2%</td>
<td>-5.4%</td>
<td>-3.2%</td>
<td>-1.0%</td>
<td colspan="2">-11.3%</td>
</tr>
</tbody>
</table>
</body></html>

Resilient US economy pushing up Blue Chip 2026 outlook

US and China big leaders in adoption of AI models

Robust US demand for advanced technology products

China's export growth rotating away from the US

More pronounced upward revisions in countries more exposed to AI investment

Stable job openings and hiring rates point to cautious hiring

Global freight costs are on the rise while supply chain pressures are contained

Accelerating positive economic surprises in the G10 are boosting the global economy

Considerably more monetary ease expected from US and UK as Japan tightens

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

Reaccelerating goods price inflation along with sticky services inflation clouds the outlook

Falling oil prices aren't pulling down inflation expectations, pointing to a boost from increased tariffs

Equity market exuberance outpacing macroeconomic data

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Michael J. Moran

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The Employment Cost Index rose at an annual rate of 3.0% in the final three months of 2025 (0.7% not annualized). The latest observation reinforced the deceleration that began in the latter part of 2022 and returned the change to the range in place before the pandemic - albeit the upper portion of that range.

Most of the deceleration occurred in the goods-producing sector, where the latest increase of 2.5% (annual rate) trailed the average of 3.9% in the prior three quarters. The service sector saw compensation growth of 3.1%, down from an average of 3.5% in the prior three quarters. The difference between the performances of goods and service is not surprising, as compensation growth in the goods-producing sector tends to be more volatile, and it has typically been softer in the past few years.

Fed Chair Jerome Powell has argued recently that labor costs are not a driving force behind above-target inflation, and recent results on the employment cost index support this view. While the increase in compensation of 3.0% in Q4 is a percentage point above the Fed’s target, businesses can maintain profits without passing along the full extent of the increase. Productivity growth, which has been strong recently (average growth of 2.3% in the past eight quarters), can effectively offset compensation growth and dampen the inflation impulse.

The chart on the upper right shows quarterly growth in total compensation less the 8-quarter increase in productivity (the 8-quarter average smooths the high degree of volatility in productivity growth). This metric, which gives insight into the likely path of inflation, has been below 2.0% for the past 6 quarters, with the latest increase totaling less than 1.0%. (the chart ends in 2025-Q3 because productivity statistics for Q4 are not available).

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Total compensation in the ECI includes both wages and benefits. In the third quarter, both components rose by the same amount (0.7% quarter-to-quarter, or 3.0% at an annual rate). This balance is a shift from the pattern of recent years, when wages typically posted firmer growth. The advantage to wages in the past few years, in turn, represents a break from the more common tendency for benefits to grow at a faster pace.

The employment cost index measures the change in the cost of labor, free from the influence of employment shifts across occupations and industries. It is provided by the Bureau of Labor Statistics and is available in Haver’s **USECON** database. Consensus estimates from the Action Economics Forecast Survey are in Haver’s **AS1REPNA** database.

- Vigorous growth during the pandemic-related recovery gives way to moderate advances recently.
- Labor costs seem in line with the Fed’s inflation target.

Employment Cost Index: Continued Deceleration

Winnie Tapasanun

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Total retail sales were essentially flat m/m in December, falling short of expectations, following a 0.6% increase in November (unrevised) and a 0.2% decline in October (-0.1% previously), data from the U.S. Census Bureau showed. A 0.5% m/m December increase had been expected in the Action Economics Forecast Survey. The year-on-year growth rate decelerated to 2.4% in December, the lowest since September 2024, from 3.3% in November; this compared with 4.6% in December 2024 and remained far below a high of 17.1% in February 2022 and a record-high 51.8% in April 2021. For all of 2025, retail sales increased 4.0% after gains of 2.6% in 2024 and 3.5% in 2023.

Excluding motor vehicles & parts, retail sales were virtually unchanged (3.3% y/y) in December after a 0.4% rise in November (+0.5% initially), which marked the sixth consecutive m/m gain. A 0.4% m/m December increase had been expected. Sales of motor vehicles & parts fell 0.2% (-1.1% y/y) following a 1.2% November rebound; this compared to a 2.8% rise (-4.2% y/y) in unit light vehicle sales after a 2.7% November increase.

Sales in the retail control group, which excludes autos, building materials, gasoline stations, and food services, eased 0.1% (+3.4% y/y) in December, the first m/m decline since September, after a 0.2% increase in November. These sales are used in the construction of personal consumption expenditures in NIPA accounts. Nonauto sales excluding gasoline & building materials dipped 0.1% (+3.6% y/y), also down for the first time since September, following a 0.3% November rise.

Sales by category showed mixed performance in December. To the downside, furniture & home furnishing store sales slid 0.9% (-5.6% y/y) in December, the fourth m/m slide in five months, after a 0.1% easing in November. Miscellaneous store sales fell 0.9% (+9.4% y/y), the first m/m fall since August, after a 1.3% November rise. Clothing & accessory store sales declined 0.7% (+5.1% y/y), the first m/m decrease in three months, reversing a 0.5% November increase. Electronics & appliance store sales fell 0.4% (+2.1% y/y) after rising 0.2% in November and October. General merchandise store sales slipped 0.1% (+1.2% y/y) for the second consecutive month in December; within this grouping, department store sales fell 0.7% (-0.3% y/y), the third m/m fall in four months, following a 3.1% November drop.

To the upside, building materials & garden equipment store sales climbed 1.2% (0.5% y/y) for the second successive month in December, the first m/m gain since August. Sporting goods, hobby, book & music store sales rose 0.4% (6.0% y/y), the fifth m/m rise in six months, after a 0.9% November increase. Gasoline station sales grew 0.3% (1.6% y/y), the sixth m/m gain in seven months, on top of a 1.7% November rebound. Nonstore retail sales were up 0.1% (5.3% y/y) in December after virtually unchanged in November.

In the nondiscretionary sales categories, health & personal care store sales fell 0.2% (+6.4% y/y) in December, down for the second time in three months, following a 0.3% increase in November. Food & beverage store sales rose 0.2% (1.1% y/y) after a 0.1% November dip.

Consumers appeared to dine out less frequently in December amid still-high inflation (December CPI +0.3% m/m, +2.7% y/y; core CPI +0.2% m/m, +2.6% y/y). Restaurant & drinking place sales eased 0.1% (+4.7% y/y) in December, the second m/m decline in three months, following an upwardly revised 0.7% rise in November (+0.6% initially).

Retail Sales data can be found in Haver's **USECON** database. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- December total retail sales -0.02%, below expectations; +2.4% y/y, lowest since Sept. ’24.
- Ex-auto sales +0.02% (+3.3% y/y) after six straight m/m rises; auto sales -0.2% (-1.1% y/y).
- Declines m/m: furniture stores (-0.9%), misc. stores (-0.9%), clothing stores (-0.7%).
- Gains m/m: bldg. materials (+1.2%), sporting goods (+0.4%), gasoline stations (+0.3%).

U.S. Retail Sales Hold Steady in December Following November’s Rebound

Sandy Batten

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The Bureau of Labor Statistics did not publish a report on export and import prices for October because of the government shutdown, and BLS was unable to construct statistics for October. Therefore, the charts here have a gap for October between the September and the November and December values.

Import prices rose 0.1% m/m (unchanged y/y) in December from November, in line with the expectations of the Action Economics Forecast Survey. Since there was no value for October value, a monthly change for November could not be calculated. Import prices fell 0.1% y/y in November. Export prices rose 0.3% m/m in December. Again, a monthly change for November could not be calculated. The Action Economics Forecast Survey expected a 0.1% monthly increase in December. The y/y reading fell to 3.1% in December from 3.2% in November.

Note that these indexes are not directly affected by tariffs because they measure the price of goods before taxes. Tariffs are considered taxes and thus are excluded from these calculations.

For imports, a 3.3% monthly decline in prices of imported petroleum and petroleum products restrained the rise in overall prices. Prices of nonpetroleum imports rose 0.4% m/m (1.0% y/y). Prices of imported food increased 0.5% m/m while prices of imported industrial supplies rose 0.4% m/m even with a 0.8% monthly decline in prices of fuels and lubricants. Prices of the remaining end-use categories were little changed in December. Given the recent weakness of the foreign exchange value of the dollar, there could be further upward pressure on nonpetroleum import prices in coming months.

For exports, prices of agricultural products 0.2% m/m (2.1% y/y) in December following a 0.9% m/m jump in November. Prices of nonagricultural exports increased 0.3% m/m in December. A monthly change could not be calculated for November. The y/y rate slowed to 3.1% in December from 3.3%. Exported food prices rose 0.4% m/m, down from a 1.1% monthly jump in November. Prices of exported industrial supplies also increased 0.4% m/m in December. Prices of exported consumer goods excluding autos jumped 0.8% m/m in December, their largest monthly increase since January 2023.

These import and export price series are not seasonally adjusted; they can be found in Haver’s **USECON** database. Detailed figures are available in the **USINT** database. The expectations figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Import prices rose 0.1% m/m in December, in line with expectations.
- The December increase reflected a 0.2% monthly gain in non-fuel import prices and a 0.8% m/m decline in fuel prices.
- Export prices rose 0.3% m/m against expectations of a 0.1% m/m increase. Both agricultural and nonagricultural prices rose in December.


U.S. Import and Export Prices Rise in December

Tian Yong Woon

In our Letter this week, we explore Asia in two parts. The first reviews key developments from the past week, focusing on snap election outcomes in Japan (chart 1) and Thailand (chart 2), both of which delivered victories for incumbent parties and helped reduce near-term political uncertainty.

The second, and larger, section builds on last week’s discussion of Asia and AI, shifting the focus to AI’s potential impact on the region from an end-user perspective. On the upside, Asia stands to benefit meaningfully from the eventual large-scale adoption of AI-powered robotics, reflecting the region’s relatively high share of manufacturing value added (chart 3). That said, important considerations remain, including the cost viability of transitioning towards humanoid robotics given the sizeable upfront capital expenditure involved. Beyond manufacturing, AI adoption could also deliver gains in healthcare, particularly as many Asian economies grapple with ageing populations—implying a growing care burden alongside a shrinking domestic caregiver base (chart 4). However, regulatory, ethical, and implementation challenges persist. 

At the same time, the AI transition will likely displace certain jobs, making this a race not only of adoption but of adaptability, where education—while an imperfect proxy—offers some insight into which economies may be better positioned to adjust (chart 5). Finally, bureaucratic frictions also matter (chart 6), although even traditionally more bureaucratic economies have begun introducing fast-track frameworks to avoid falling behind in what could prove to be a pivotal transition reshaping the regional, and potentially global, economic landscape.

**Japan’s snap election**
Following a snap election held on Sunday, Japanese Prime Minister Takaichi’s Liberal Democratic Party (LDP) secured a historic landslide victory, winning a more than two-thirds majority in Japan’s 456-seat Lower House. The LDP’s coalition partner, the Japan Innovation Party, also expanded its presence to 36 seats. The outcome suggests that Takaichi’s political gamble to capitalise on strong opinion polling has paid off. While the election result has removed a key source of near-term political uncertainty for Japan, attention now turns to the policy agenda enabled by the government’s newly strengthened mandate. Among the first expected moves, Takaichi appears set to proceed with a temporary food tax pause, reducing the 8% consumption tax on food to 0% for two years. This proposal reinforces the perception that her policy stance is fiscally accommodative, even as critics raise concerns around fiscal discipline and long-term sustainability. As for the market reaction, Japanese equities rallied on stimulus expectations, bond yields rose on prospects of increased issuance to fund higher spending, while the yen recorded only muted net moves (chart 1)—prompting some speculation that some intervention may have taken place.

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**Thailand’s snap election**
Thailand also held snap elections last Sunday, which saw the incumbent deliver a strong showing at the polls. Unlike Japan’s election outcome, however, the scale of the increase in the incumbent Bhumjaithai (BJT) Party’s parliamentary footprint came as a surprise to many observers. That said, despite these sizable gains, the BJT Party fell short of an outright majority, securing 193 of the 500 seats in parliament, implying that a coalition government will likely still be required to pass legislation smoothly. Thai equities and the baht nevertheless rallied on the election results (chart 2). Attention now turns to whether—and how—Prime Minister Anutin will follow through on key campaign promises, including the revival of a popular shopping subsidy programme. While such measures would provide a near-term boost to consumption, they would also raise concerns around fiscal sustainability. Beyond the parliamentary vote, Thai voters also approved a proposal to replace the constitution. If pursued, this could pave the way for deeper structural reforms to Thailand’s economy.

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**AI’s (potential) impact on Asia**
We now turn to the longer, second part of this week’s letter, where we examine AI’s potential impact on Asia. In contrast to last week’s discussion, the focus here is on Asia’s role as an end-user of AI, rather than its position within the global AI supply chain. While AI broadly promises substantial productivity gains if deeply embedded across economies, one sector where Asia may benefit disproportionately is manufacturing. This reflects the relatively high share of manufacturing value added in GDP across many Asian economies compared with the global average (chart 3). In particular, Asia stands to reap significant productivity gains through the widespread adoption of AI-powered robotics. Cost, however, remains a key consideration: relative to the overall cost of human labour, AI-enabled robots have yet to become unequivocally competitive once high upfront capital outlays are taken into account. That said, recent advances in humanoid, AI-enabled robots have demonstrated increasingly broad and sophisticated capabilities in replicating human tasks, including delicate and precision operations. Over time, this could meaningfully alleviate a persistent structural challenge facing many advanced Asian economies—ageing populations and the associated labour constraints.

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Digging deeper into the ageing population challenge faced by many Asian economies, another area where AI and robotics could play a meaningful role is healthcare. Ageing societies face a twin burden: a rising number of elderly individuals requiring care alongside a shrinking pool of working-age caregivers, absent offsetting labour inflows. One proxy for this imbalance is the old-age dependency, which, as shown in chart 4, is already relatively high in several Asian economies, including China, Japan, and South Korea. That said, adoption remains at a very early stage. Significant barriers to widespread deployment persist, including regulatory and ethical considerations, high implementation costs, and questions around the consistency, reliability, and safety of AI-enabled systems in delivering healthcare-related tasks.

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**Asia’s challenges in AI adoption**
That said, the outlook is not entirely positive for Asia in the context of widespread AI adoption. As with previous waves of transformative technology, AI will inevitably render some jobs—at least in their current form—obsolete, even as it creates new roles and reshapes others. This implies that many Asian economies will need to navigate a significant structural adjustment in their labour markets, as certain types of work are displaced while demand for new skill sets emerges. How effectively Asia manages this transition will be critical in determining whether its economies move ahead of—or fall behind—the global shift towards AI. At present, and using education quality as a rough proxy, some Asian economies appear better positioned to manage this adjustment than others. As illustrated in chart 5, economies such as China, Singapore, Japan, and South Korea seem relatively well placed to absorb and adapt to the coming changes. That said, education quality is only an imperfect indicator. Other factors will also matter, including the capacity to rapidly retool and reskill the workforce, as well as the inclusiveness of the transition. Ensuring that lower-skilled and more vulnerable segments of society are not left behind will be an important determinant of the long-term economic and social outcomes of AI adoption across the region.

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Another potential hurdle relates to bureaucratic costs, which—when elevated—can act as a meaningful source of friction in the adoption of new AI-driven technologies. On this front, some Asian economies stand out for having comparatively low bureaucratic burdens, notably Singapore, Taiwan, and South Korea, while others, such as Vietnam, the Philippines, and China, tend to lag (chart 6). That said, as with many broad-based indicators, this picture masks important nuances. Several of these economies have introduced industry-specific—particularly AI-focused—fast-tracking initiatives aimed at accelerating development within targeted domestic sectors. Even so, in an increasingly competitive and intensifying global race to adopt AI and capture its economic upside, we may see a growing tendency toward an “adopt first, regulate later” approach in the years ahead. This is likely to persist unless and until major incidents or heightened concerns emerge that materially slow the pace of AI adoption.

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Asia

Economic Letter from Asia: Of Ballots and Bots

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Japan's economy watchers index has flattened out and backed off slightly for the current and future outlooks depending on the time horizon that you seek. However, what's clear is that the index reached the low point around the middle of last year, has been rebounding and now the rebound has either run out of gas or slowed after the index has rebuilt itself considerably.  

It is certainly too early to get pessimistic on Japan's economy, with Prime Minister Sanae Takaichi having just won a significant - essentially a landslide - snap election that she called after recently having been elected. The LDP would appear to be back in the driver's seat, and she has her sights set on more fiscal stimulus and expanded military spending. She is apparently much more on the same wavelength as Donald Trump in the United States. Mr. Trump was an Abe supporter, and Ms. Takaichi is a disciple of Mr. Abe.

At the moment, Japan would seem to have a groundswell of support behind the government and that government is set to try to rekindle some growth which could potentially put the Bank of Japan in a more decisively defensive track as far as setting rates and potentially raising rates.

**Economy watchers index is trending**
In January, the economy watchers index backed off for the second month in a row. However, it still has a percentile standing in its 51-percentile, slightly above its median standing since early-2005. The headline and all the components have standings above their respective 50th percentiles on this timeline, with the exception of housing, services, and employment; three readings that are extremely important to consumers. Housing has a 26.1 percentile standing, services (the employment sector) have a 45.8 percentile standing, while employment has a 22.9 percentile standing. Despite the otherwise solid and strong set of readings, there are these three significant flies in the ointment. Corporate Japan is doing extremely well with corporations having a 66.8 percentile standing; manufacturers and nonmanufacturers, separately, each come in with readings in their mid-to-upper 60th percentiles.

**The future index**
The future readings from the economy watchers index show continued but slight increases over the last few months. Only two future readings weaken month-to-month: housing and employment—once again two key readings as far as consumers are concerned. However, in terms of current monthly diffusion readings, the assessment of households, retailing, housing, and employment all have current diffusion values below 50, indicating net declines rather than increases. The percentile standing is for the future index are, like those for the current index, generally upbeat - and generally stronger than for the current indexes - with the future headline posting a 66.4 percentile standing in January. However, like the current index, the standing for housing is at its 21.3 percentile and the standing for employment is at its 30th percentile, both well below the neutral level that would place the ranking at the 50th percentile. Corporations show high readings, higher for the future indexes than for the current index standings. There also are high readings and standings for eating and drinking places as well as services. It's good to see services come up with a strong rating since it creates hope for the future for employment because services are the core employment sector. It will be interesting to see how this value changes in the coming months as Takaichi’s new policies are implemented and take hold.

**Summing up**
On balance, the economy watchers index has been firm to strong. There is some slight give-back in the current index in terms of trend. But beyond the index, there's more immediate reason to be more positive because Japan has just executed a very decisive and pro-growth snap election that is going to put the new Prime Minister Takaichi and strong control of the economy at a time where she seeks to cement economic strength. These elections were just completed over the weekend, and we will see the results reflected in data in the weeks and months to come.

Economy in Brief

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