Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081112a.jpg" width="353">
Weakening economic growth in the U.S. as well as in other industrial countries has sapped what had been, until early this past summer, pronounced strength in commodity prices. Since then, copper prices, corn prices, crude oil and wheat prices all are down roughly fifty percent from their highs. Showing a more moderate decline has been the price of beef which is off seven percent.
The implication of these declines will clearly be to moderate future gains in consumer prices. However, not so much of a moderation should be expected. Overall, commodity prices make up roughly twenty five percent of the price of finished goods prices; more for foods but less for industrial metals. The remaining input pressures on consumer prices stem from labor and processing costs.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081112b.jpg" width="353">
After rising to $142.46 per barrel this past July, WTI crude has since fallen 50% to roughly $70 per barrel. Prices have been most sensitive to the weakening in global economic growth. That weakness has been fostered by fewer miles driven in the U.S. where gasoline consumption is down 4% during the last year. Weaker oil demand is also the result of lower industrial production, off 4.5% y/y. Elsewhere, German factory production is down 0.5% y/y after 6.0% growth during 2007 and 2006; Japanese production is off 4.7% y/y after 3% to 4% gains the past two years; and French output is off 2.0% after rising 1% during the last two years.
Then there&#39;s the price of gold, reflecting global inflationary pressures. Near $700 per ounce, the price is down 30% after having momentarily touched $1,000 this past March and the price is off 6.7% y/y.
Industrial metals have weakened sharply with the weakness in industrial economies around the world. The table below indicates that aluminum prices are down 15% from their year ago level and they are off by nearly one-third from their high this past Spring. Stainless steel scrap prices also are off 11% during the last twelve months and they&#39;ve halved their 2007 high. Prices for high grade copper round out the story of price weakness. They are down by more than one-half from their high this past Spring.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081112c.jpg" width="353">
Food prices have shown a similar pattern of reversing past strength, helped in part by a return of favorable growing weather. Wheat prices are down by roughly one half from their year ago level and the latest is off by two-thirds from this year&#39;s high. Milk prices similarly have cratered, off by nearly one-half y/y. Egg prices (+11.2% y/y) similarly are down by one-half from their highs earlier this year. Even beef prices, which are receiving a lift from a thinning of herds in recent years, are up 5% y/y but the price is off 9% from the high this past July.All this weakness has yet to show up. however, in consumer prices for food. They have been rising at a 6.0% y/y rate after last year&#39;s increase of 4.0%. In contrast to the lower commodity prices noted above, the price consumers paid for milk &amp; dairy products was up 4.9% y/y in September and meat prices were up 5.9%. Processing and distribution costs of food account for most of the price consumers pay -- and they have not fallen, only their rate of growth has slowed.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081112d.jpg" width="353">
How does all this shake out for the U.S. economy as a whole? The Federal Reserve can take comfort from lower product prices as it eases monetary policy. Inflationary pressures generally are under control. The core CPI rose at a 2.5% year-to-date through September, roughly its growth rate over the last two years. Moreover, oil prices have more than halved their highs early their summer.
Inflationary psychology, however, is a different story. One measure of that psychology is the difference between the yield on long term U.S. treasury notes and the Federal funds rate. That difference has risen sharply over the last year. The markets are indicating a worry about future inflation. Growth in M2 recently rose to 6% y/y from its low of less than 4% during 2005. The monetary base has surged. Both have occurred as the Fed has provided liquidity to deal with the current crisis in the financial markets. Will this provision justify the concern about the potential for higher inflation? The monetary theorist would say &quot;probably not,&quot; because the demand for money is collapsing. In fact, another direct measure of the market&#39;s inflation psychology is the implied forward inflation rate suggested in the market for Treasury Inflation-Indexed Securities (TIPS). It has dropped to 2.2% from 2.5% during 2006. Will a steep yield curve anticipating higher inflation eventually be reconciled with the decline in the forward rate in TIPS? Yes, but the direction of inflation will depend on how long the Fed keeps money easy after the current financial crisis is resolved.
The commodity price series in the table below can be found in Haver&#39;s WEEKLY database. The monetary and inflation figures cited above are available in USECON.
Creative Destruction and Aggregate Productivity Growth from the Federal Reserve Bank of Philadelphia can be found <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2008/q3/brq308_creative-destruction.pdf"> here</a>.
Oil Prices and Inflation from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-31.pdf"> here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Commodity Prices</a></th>
<th scope="col">Latest Week</th>
<th scope="col">Y/Y</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Oct. &#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">&nbsp;Industrial Metals</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Aluminum ($/Metric Ton)</td>
<td>0.89</td>
<td>-22.2%</td>
<td>0.99</td>
<td>1.16</td>
<td>1.10</td>
<td>1.18</td>
<td>1.18</td>
<td>0.89</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Stainless Steel Scrap ($/Ton)</td>
<td>2,121</td>
<td>-11.3%</td>
<td>2,121</td>
<td>2,538</td>
<td>2,221</td>
<td>2,786</td>
<td>2,918</td>
<td>1,268</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; High Grade Copper ($/lb)</td>
<td>1.64</td>
<td>-47.1%</td>
<td>2.20</td>
<td>3.12</td>
<td>3.58</td>
<td>3.06</td>
<td>3.04</td>
<td>2.28</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Foods</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Milk (Cents/lb.)</td>
<td>94</td>
<td>-49.2%</td>
<td>100</td>
<td>123</td>
<td>193</td>
<td>172</td>
<td>145</td>
<td>98</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Beef Carcass (Index Value)</td>
<td>143.3</td>
<td>5.3%</td>
<td>137.2</td>
<td>147.4</td>
<td>137.7</td>
<td>139.3</td>
<td>134.1</td>
<td>150.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Corn, No. 2 Yellow ($/bushel)</td>
<td>3.41</td>
<td>-5.1%</td>
<td>3.66</td>
<td>4.92</td>
<td>3.27</td>
<td>4.14</td>
<td>3.46</td>
<td>2.00</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Wheat, Soft Red ($/bushel)</td>
<td>4.01</td>
<td>-45.7%</td>
<td>3.87</td>
<td>5.11</td>
<td>8.06</td>
<td>8.64</td>
<td>4.77</td>
<td>3.34</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Light Sweet Crude Oil, WTI ($/bbl.)</td>
<td>64.31</td>
<td>-32.5%</td>
<td>78.40</td>
<td>104.66</td>
<td>85.00</td>
<td>72.25</td>
<td>66.12</td>
<td>56.60</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Gold, Handy &amp; Harmon ($/oz.)</td>
<td>733.75</td>
<td>-8.8%</td>
<td>802.9</td>
<td>828.7</td>
<td>753.10</td>
<td>810.5</td>
<td>628.7</td>
<td>507.4</td>
</tr>
</tbody>
</table>
</body>
</html>

Weakening economic growth in the U.S. as well as in other industrial countries has sapped what had been, until early this past summer, pronounced strength in commodity prices. Since then, copper prices, corn prices, crude oil and [...]

Commodity Prices, Inflation and Expectations

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081112a.jpg" align="left" border="0" height="265" width="353">
Weakening economic growth in the U.S. as well as in other
industrial countries has sapped what had been, until early this past
summer, pronounced strength in commodity prices. Since then, copper
prices, corn prices, crude oil and wheat prices all are down roughly
fifty percent from their highs. Showing a more moderate decline has
been the price of beef which is off seven percent.
The implication of these declines will clearly be to moderate
future gains in consumer prices. However, not so much of a moderation
should be expected. Overall, commodity prices make up roughly twenty
five percent of the price of finished goods prices; more for foods but
less for industrial metals. The remaining input pressures on consumer
prices stem from labor and processing costs.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081112b.jpg" align="right" border="0" height="265" width="353">
After rising to $142.46 per barrel this past July, WTI crude
has since fallen 50% to roughly $70 per barrel. Prices have been most
sensitive to the weakening in global economic growth. That weakness has
been fostered by fewer miles driven in the U.S. where gasoline
consumption is down 4% during the last year. Weaker oil demand is also
the result of lower industrial production, off 4.5% y/y. Elsewhere,
German factory production is down 0.5% y/y after 6.0% growth during
2007 and 2006; Japanese production is off 4.7% y/y after 3% to 4% gains
the past two years; and French output is off 2.0% after rising 1%
during the last two years.
Then there's the price of gold, reflecting global inflationary
pressures. Near $700 per ounce, the price is down 30% after having
momentarily touched $1,000 this past March and the price is off 6.7%
y/y.
Industrial metals have weakened sharply with the weakness in
industrial economies around the world. The table below indicates that
aluminum prices are down 15% from their year ago level and they are off
by nearly one-third from their high this past Spring. Stainless steel
scrap prices also are off 11% during the last twelve months and they've
halved their 2007 high. Prices for high grade copper round out the
story of price weakness. They are down by more than one-half from their
high this past Spring.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081112c.jpg" align="left" border="0" height="265" width="353">
Food prices have shown a similar pattern of reversing past
strength, helped in part by a return of favorable growing weather.
Wheat prices are down by roughly one half from their year ago level and
the latest is off by two-thirds from this year's high. Milk prices
similarly have cratered, off by nearly one-half y/y. Egg prices (+11.2%
y/y) similarly are down by one-half from their highs earlier this year.
Even beef prices, which are receiving a lift from a thinning of herds
in recent years, are up 5% y/y but the price is off 9% from the high
this past July.All this weakness has yet to show up. however, in
consumer prices for food. They have been rising at a 6.0% y/y rate
after last year's increase of 4.0%. In contrast to the lower commodity
prices noted above, the price consumers paid for milk &amp; dairy
products was up 4.9% y/y in September and meat prices were up 5.9%.
Processing and distribution costs of food account for most of the price
consumers pay -- and they have not fallen, only their rate of growth
has slowed.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081112d.jpg" align="right" border="0" height="265" width="353">
How does all this shake out for the U.S. economy as a whole?
The Federal Reserve can take comfort from lower product prices as it
eases monetary policy. Inflationary pressures generally are under
control. The core CPI rose at a 2.5% year-to-date through September,
roughly its growth rate over the last two years. Moreover, oil prices
have more than halved their highs early their summer.
Inflationary psychology, however, is a different story. One
measure of that psychology is the difference between the yield on long
term U.S. treasury notes and the Federal funds rate. That difference
has risen sharply over the last year. The markets are indicating a
worry about future inflation. Growth in M2 recently rose to 6% y/y from
its low of less than 4% during 2005. The monetary base has surged. Both
have occurred as the Fed has provided liquidity to deal with the
current crisis in the financial markets. Will this provision justify
the concern about the potential for higher inflation? The monetary
theorist would say "probably not," because the demand for money is
collapsing. In fact, another direct measure of the market's inflation
psychology is the implied forward inflation rate suggested in the
market for Treasury Inflation-Indexed Securities (TIPS). It has dropped
to 2.2% from 2.5% during 2006. Will a steep yield curve anticipating
higher inflation eventually be reconciled with the decline in the
forward rate in TIPS? Yes, but the direction of inflation will depend
on how long the Fed keeps money easy after the current financial crisis
is resolved.
The commodity price series in the table below can be found in
Haver's WEEKLY database. The monetary and inflation
figures cited above are available in USECON.
Creative Destruction and Aggregate Productivity
Growth from the Federal Reserve Bank of Philadelphia can be
found <a href="http://www.philadelphiafed.org/research-and-data/publications/business-review/2008/q3/brq308_creative-destruction.pdf">
here</a>.
Oil Prices and Inflation from the Federal
Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2008/el2008-31.pdf">
here</a>. 


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S503/@S503.HTM">Commodity
Prices</a></th>
<th scope="col">Latest Week</th>
<th scope="col">Y/Y</th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Oct. '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">&nbsp;Industrial
Metals</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Aluminum
($/Metric Ton)</td>
<td>0.89</td>
<td>-22.2%</td>
<td>0.99</td>
<td>1.16</td>
<td>1.10</td>
<td>1.18</td>
<td>1.18</td>
<td>0.89</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Stainless
Steel Scrap ($/Ton)</td>
<td>2,121</td>
<td>-11.3%</td>
<td>2,121</td>
<td>2,538</td>
<td>2,221</td>
<td>2,786</td>
<td>2,918</td>
<td>1,268</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; High Grade
Copper ($/lb)</td>
<td>1.64</td>
<td>-47.1%</td>
<td>2.20</td>
<td>3.12</td>
<td>3.58</td>
<td>3.06</td>
<td>3.04</td>
<td>2.28</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Foods</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Milk
(Cents/lb.)</td>
<td>94</td>
<td>-49.2%</td>
<td>100</td>
<td>123</td>
<td>193</td>
<td>172</td>
<td>145</td>
<td>98</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Beef
Carcass (Index Value)</td>
<td>143.3</td>
<td>5.3%</td>
<td>137.2</td>
<td>147.4</td>
<td>137.7</td>
<td>139.3</td>
<td>134.1</td>
<td>150.3</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Corn, No.
2 Yellow ($/bushel)</td>
<td>3.41</td>
<td>-5.1%</td>
<td>3.66</td>
<td>4.92</td>
<td>3.27</td>
<td>4.14</td>
<td>3.46</td>
<td>2.00</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Wheat,
Soft Red ($/bushel)</td>
<td>4.01</td>
<td>-45.7%</td>
<td>3.87</td>
<td>5.11</td>
<td>8.06</td>
<td>8.64</td>
<td>4.77</td>
<td>3.34</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Light Sweet
Crude Oil, WTI ($/bbl.)</td>
<td>64.31</td>
<td>-32.5%</td>
<td>78.40</td>
<td>104.66</td>
<td>85.00</td>
<td>72.25</td>
<td>66.12</td>
<td>56.60</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Gold, Handy
&amp; Harmon ($/oz.)</td>
<td>733.75</td>
<td>-8.8%</td>
<td>802.9</td>
<td>828.7</td>
<td>753.10</td>
<td>810.5</td>
<td>628.7</td>
<td>507.4</td>
</tr>
</tbody>
</table>
Euro Area Production Tanks inSeptember 
by <a href="/comment/Brusca.html">Robert
Brusca</a> November 12, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081112e.jpg" align="left" border="0" height="265" width="353">
Euro Area industrial output (IP) fell sharply in October
dropping by its largest amount in over five years. In Sept MFG IP is
dropping across all major product groupings just as it did in August
and nearly did so in July. In the EMU the drop in IP has become
intense, widespread and persistent. Across the largest EU/EMU countries
IP also fell in Sept with the exception of Spain where numbers are more
volatile than resilient. Spain in fact has the deepest decline in IP
for Q3 at a -14% annual rate. Indeed, Germany, France, Italy and the UK
all have drops in IP in Q3 as well. It is pretty clear that with
declines of this magnitude (apart from Spain&#8217;s larger drop) ranging
from -2.7% to -5% these economies are in recession or heading there
soon. 
 

In Germany the wise men issued a statement urging more public
spending to boost the economy and urged the ECB to cut rates as much as
it could see its way to do. They predict a recession in German for
2009, based on a wide variety of metrics. . 
 

Similarly the Bank of England in a statement issued on the day
said that the UK economy has probably entered recession in the second
half of 2008. It does not see GDP growing until the second half of
2009. It sees inflation falling relatively rapidly. 
 

Assessments of the economy in Europe are being cut rapidly.
Evidence on the economy is that growth is fading fast. In this
environment oil prices are sliding on the weakness in global demand
even with some OPEC output cuts having been announced and with China
having unveiled a better-than one-half of one trillion dollar stimulus
plan. China further announced that as part of that plan it would
implement export tax rebates and cut taxes on some export items. In
July the government had implemented some export tax breaks for the
garment industry. While China portrays some of these as factors to
&#8216;stimulate domestic demand&#8217; it seems that these really are efforts to
keep getting a chunk of foreign demand at a time that the size of that
pie is shrinking or at least growing more slowly. China&#8217;s &#8216;stimulus&#8217;
may not be as helpful to the rest of the world as it thinks. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="11" scope="col"> Euro
Area MFG IP</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar except m/m</td>
<td colspan="3">Mo/Mo</td>
<td colspan="2">3-Mo</td>
<td colspan="2">6-mo</td>
<td colspan="2">12-mo</td>
<td>&nbsp;</td>
</tr>
<tr class="even">
<td class="firstcol">Euro Area Detail</td>
<td>Sep 
08</td>
<td>Aug 
08</td>
<td>Ju 
08</td>
<td>Sep 
08</td>
<td>Aug 
08</td>
<td>Sep 
08</td>
<td>Aug 
08</td>
<td>Sep 
08</td>
<td>Aug 
08</td>
<td>Q-3</td>
</tr>
<tr class="odd">
<td class="firstcol">MFG</td>
<td>-1.7%</td>
<td>0.8%</td>
<td>-0.2%</td>
<td>-4.5%</td>
<td>1.9%</td>
<td>-4.5%</td>
<td>-2.5%</td>
<td>-2.3%</td>
<td>-1.1%</td>
<td>-3.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Goods</td>
<td>-0.4%</td>
<td>-0.5%</td>
<td>0.0%</td>
<td>-3.5%</td>
<td>0.5%</td>
<td>-2.7%</td>
<td>-3.9%</td>
<td>-2.6%</td>
<td>-3.7%</td>
<td>-2.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Durables Goods</td>
<td>-2.5%</td>
<td>1.2%</td>
<td>-1.0%</td>
<td>-8.9%</td>
<td>3.1%</td>
<td>-6.2%</td>
<td>-5.2%</td>
<td>-6.2%</td>
<td>-6.7%</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Nondurables Goods</td>
<td>-0.4%</td>
<td>-0.3%</td>
<td>-0.1%</td>
<td>-3.5%</td>
<td>0.9%</td>
<td>-2.8%</td>
<td>-3.2%</td>
<td>-2.3%</td>
<td>-3.0%</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">Intermediate Goods</td>
<td>-2.6%</td>
<td>1.4%</td>
<td>-0.3%</td>
<td>-5.9%</td>
<td>3.7%</td>
<td>-5.3%</td>
<td>-1.6%</td>
<td>-3.0%</td>
<td>-0.5%</td>
<td>-3.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Goods</td>
<td>-1.8%</td>
<td>1.4%</td>
<td>-0.4%</td>
<td>-2.8%</td>
<td>3.1%</td>
<td>-2.1%</td>
<td>-2.1%</td>
<td>-0.6%</td>
<td>0.6%</td>
<td>-3.8%</td>
</tr>
<tr>
<td colspan="11" class="firstcol">Main
Euro Area Countries
and UK IP in MFG</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Mo/Mo</td>
<td colspan="2">3-Mo</td>
<td colspan="2">6-mo</td>
<td colspan="2">12-mo</td>
<td>&nbsp;</td>
</tr>
<tr class="grey3">
<td class="firstcol">MFG Only</td>
<td>Sep 
08</td>
<td>Aug 
08</td>
<td>Jul 
08</td>
<td>Sep 
08</td>
<td>Aug 
08</td>
<td>Sep 
08</td>
<td>Aug 
08</td>
<td>Sep 
08</td>
<td>Aug 
08</td>
<td>Q-2 
Date</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany:</td>
<td>-3.8%</td>
<td>3.3%</td>
<td>-1.8%</td>
<td>-9.4%</td>
<td>8.4%</td>
<td>-7.1%</td>
<td>0.2%</td>
<td>-2.0%</td>
<td>2.0%</td>
<td>-4.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">France: IP excl Construction</td>
<td>-0.5%</td>
<td>-0.4%</td>
<td>1.3%</td>
<td>1.6%</td>
<td>0.4%</td>
<td>-4.2%</td>
<td>-5.4%</td>
<td>-1.9%</td>
<td>-2.6%</td>
<td>-2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>-2.3%</td>
<td>0.4%</td>
<td>-1.3%</td>
<td>-12.1%</td>
<td>-2.1%</td>
<td>-8.0%</td>
<td>-4.1%</td>
<td>-5.7%</td>
<td>-4.3%</td>
<td>-8.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>3.1%</td>
<td>-10.1%</td>
<td>12.1%</td>
<td>16.7%</td>
<td>-16.2%</td>
<td>14.8%</td>
<td>-25.4%</td>
<td>-4.4%</td>
<td>-11.2%</td>
<td>-14.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK</td>
<td>-0.8%</td>
<td>-0.6%</td>
<td>-0.2%</td>
<td>-6.0%</td>
<td>-4.9%</td>
<td>-5.1%</td>
<td>-4.7%</td>
<td>-2.2%</td>
<td>-2.0%</td>
<td>-5.0%</td>
</tr>
</tbody>
</table>
</body></html>

Louise Curley

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111f.jpg" align="left" border="0" height="265" width="353">
Investors in Germany appear to be encouraged by the steps the
central bank and the government have taken in recent weeks to deal with
the economic slowdown. The European Central Bank reduced it key rate by
50 basis points on October 8 and is expected to reduce it by another 50
basis points on November 12 binging it to 3.25%. In addition, the
German government passed a $64 billion stimulus package on November
4.In the latest ZEW survey, the excess of pessimists over optimists
regarding future conditions declined to 53.5% in November from 63.0% in
October. This still a far cry from the historical average of an excess
of optimists of 27.1%.In appraising the current situation, German
investors have become more and more pessimistic--or perhaps more
realistic. From an excess of optimists over pessimists of 17% in July,
there is now an excess of pessimists over optimists of 50.4% viewing
the current situation. The ZEW indicators for current and expected
conditions, together with recession shadings for Germany, are shown in
the first chart.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111g.jpg" align="right" border="0" height="265" width="353">
In Japan, the merchants who make up the Economy Watchers
Diffusion Index have reported worsening conditions for both for the
present and for the future outlooks in almost every month since mid
2007, when the sub prime problem in the U. S. first surfaced.
Currently, these indexes are at all time lows as can be seen in the
second chart, which plots the history of the diffusion indexes and the
recession shading for Japan. The Bank of Japan recently cut its key
interest rate to 0.3% from 0.5%, but little has been done in the way of
fiscal stimulus.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Nov 08</th>
<th scope="col">Oct&nbsp; 08&nbsp;</th>
<th scope="col">Sep&nbsp; 07&nbsp;</th>
<th scope="col">Aug 08&nbsp; &nbsp;</th>
<th scope="col">Jul&nbsp;
08&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Germany ZEW (% balance)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Current
Situation</td>
<td>-50.4</td>
<td>-35.9</td>
<td>-1.0</td>
<td>-9.2</td>
<td>17.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Future
Conditions</td>
<td>-53.5</td>
<td>-63.0</td>
<td>-41.1</td>
<td>-55.5</td>
<td>-63.9</td>
</tr>
<tr>
<td class="firstcol">Japan Economy Watchers
Survey (Dif. Index)&nbsp;&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Current
Conditions</td>
<td>n.a.</td>
<td>22.6</td>
<td>28.0</td>
<td>28.3</td>
<td>29.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Future
Conditions</td>
<td>n.a.</td>
<td>25.2</td>
<td>32.1</td>
<td>32.0</td>
<td>30.8</td>
</tr>
</tbody>
</table>
</body></html>

Investors in Germany appear to be encouraged by the steps the central bank and the government have taken in recent weeks to deal with the economic slowdown. The European Central Bank reduced it key rate by 50 basis points on October 8 [...]

German Investors A Bit Less Pessimistic About The Outlook Merchants In Japan More Pessimistic Than Ever

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111e.jpg" width="353">
According to the International Council of Shopping Centers-Goldman Sachs Index, chain store sales dropped 1.0% last week from the last week in October. That wasn&#39;t the first sign of severe weakness in sales. There was one weekly decline last month and sales were down during each week of September, but the decline did lower the starting level of sales this month 0.7% below the October average. During all of October sales fell 1.0% from September following that month&#39;s 1.9% drop.
The level of sales during the latest week remained near the lowest since December of last year.
During the last ten years there has been a 59% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-Goldman Sachs retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
Portending further weakness in consumer spending was a 0.3% dip in the weekly leading indicator of chain store sales from ICSC-Goldman Sachs. The index level was, however, 6.1% below the year ago level at the lowest level since 1996.
The chain store sales figures are available in Haver&#39;s SURVEYW database.

<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/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">11/08/08</th>
<th scope="col">10/31/08</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>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>477.2</td>
<td>482.0</td>
<td>0.4%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>


</html>

According to the International Council of Shopping Centers-Goldman Sachs Index, chain store sales dropped 1.0% last week from the last week in October. That wasn't the first sign of severe weakness in sales. There was one weekly [...]

U.S. Chain Store Sales Dropped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111c.jpg" width="353">
The retail price for a gallon of regular gasoline fell by another eighteen cents last week after the twenty six cent drop during the prior week, according to the U.S. Department of Energy survey. The price of $2.22 was the lowest since February 2007. Prices have now fallen $1.89 per gallon, or by nearly one-half, since their peak early this past July. The latest decline was accompanied by a drop in the average price for all grades of gasoline to $2.28 per gallon.
Yesterday, the spot market price for a gallon of regular gasoline fell eight cents from last week&#39;s average to $1.40. In futures trading the November contract closed down further at $1.37 per gallon.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111d.jpg" width="353">
Weekly gasoline prices can be found in Haver&#39;s WEEKLY database. Daily prices are in the DAILY database.
The demand for gasoline fell by 3.3% y/y, according to the U.S. Department of Energy. The rate of decline has bottomed out recently but the decline is still the fastest since late-1995 (the latest four weeks versus the same four weeks last year). The demand for all petroleum products also has softened, falling 7.0% y/y.
These DOE figures are available in Haver&#39;s OILWKLY database.
The price for a barrel of West Texas Intermediate crude oil fell further last week to an average $64.31 per barrel, down 56% since the peak in July of $145.66. In futures trading yesterday, the two-month price for crude oil was even lower at $63.27 per barrel.
Last week, prices for natural gas ticked up w/w to $6.74 per mmbtu (-3.3% y/y) as seasonal factors began to lift the price. The average price this month was nearly one-half below the high for natural gas prices in early-July of $13.19/mmbtu.
If Exchange Rates Are Random Walks, Then Almost Everything We Say About Monetary Policy Is Wrong from the Federal Reserve Bank of Minneapolis can be found <a href="http://www.minneapolisfed.org/research/QR/QR3211.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/WEEKLY/@W4/@W4.HTM">Weekly Prices</a></th>
<th scope="col">11/10/08</th>
<th scope="col">11/03/08</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>
<td class="firstcol">Retail Regular Gasoline ($ per Gallon)</td>
<td>2.22</td>
<td>2.40</td>
<td>-28.5%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil, WTI&nbsp; ($ per bbl.)</td>
<td>64.31</td>
<td>65.68</td>
<td>-32.5%</td>
<td>72.25</td>
<td>66.12</td>
<td>56.60</td>
</tr>
</tbody>
</table>
</body>
</html>

The retail price for a gallon of regular gasoline fell by another eighteen cents last week after the twenty six cent drop during the prior week, according to the U.S. Department of Energy survey. The price of $2.22 was the lowest [...]

U.S. Gasoline Prices Lowest Since February 2007. Demand Fell Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111a.jpg" width="353">
According to the National Federation of Independent Business (NFIB), small business optimism collapsed last month. The 5.8% m/m decline to an index level of 87.5 reversed all of the gains during the prior two months and dropped the level of optimism to its lowest level since early 1975.
During the last ten years there has been a 50% correlation between the level of the NFIB index and the two-quarter change in real GDP.
Plans for capital expenditures collapsed with the recent weakness if corporate profits. During the next 3-6 months, plans for spending fell to their lowest level since 1975.
The percent expecting credit conditions to ease fell to its lowest level since 1980 while the percent expecting higher real sales in six months dropped also to its lowest since 1980. Only five percent of firms thought that now was a good time to expend the business, near the lowest since 1982.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111b.jpg" width="353">
The percentage planning to raise employment fell to zero. The percentage of respondents with one or more job openings improved to 14%, the least since 1992. During the last ten years there has been a 71% correlation between the NFIB employment percentage and the y/y change in nonfarm payrolls.
The largest, single most important problems seen by business were poor sales (23%), inflation (11%), insurance cost and availability (11%) and taxes (18%). The latter, however, still was reduced from 27% in early 2007.
The percentage of firms actually raising prices fell to 15%, the lowest level since February. During the last ten years there has been a 69% correlation between the y/y change in the producer price index and the level of the NFIB price index. The percentage of firms planning to raise prices also fell further to 18% which was the least since 2003
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.
The NFIB figures can be found in Haver&#39;s SURVEYS database.
Toward A Durable Recovery is last week&#39;s speech by Atlanta Fed Bank President Dennis P. Lockhart and it available <a href="http://www.frbatlanta.org/invoke.cfm?objectid=77A47FE2-5056-9F12-12AFBD6ADE42D36E&amp;method=display">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">October</th>
<th scope="col">September</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>
<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>87.5</td>
<td>92.9</td>
<td>-9.0%</td>
<td>96.7</td>
<td>98.9</td>
<td>101.6</td>
</tr>
</tbody>
</table>
</body>
</html>

According to the National Federation of Independent Business (NFIB), small business optimism collapsed last month. The 5.8% m/m decline to an index level of 87.5 reversed all of the gains during the prior two months and dropped the [...]

U.S. Small Business Optimism Lowest Since 1975

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111a.jpg" align="left" border="0" height="265" width="353">
According to the National Federation of Independent Business
(NFIB), small business optimism collapsed last month. The 5.8% m/m
decline to an index level of 87.5 reversed all of the gains during the
prior two months and dropped the level of optimism to its lowest level
since early 1975.
During the last ten years there has been a 50% correlation
between the level of the NFIB index and the two-quarter change in real
GDP.
Plans for capital expenditures collapsed with the recent
weakness if corporate profits. During the next 3-6 months, plans for
spending fell to their lowest level since 1975.
The percent expecting credit conditions to ease fell to its
lowest level since 1980 while the percent expecting higher real sales
in six months dropped also to its lowest since 1980. Only five percent
of firms thought that now was a good time to expend the business, near
the lowest since 1982.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111b.jpg" align="right" border="0">
The percentage planning to raise employment fell to zero. The
percentage of respondents with one or more job openings improved to
14%, the least since 1992. During the last ten years there has been a
71% correlation between the NFIB employment percentage and the y/y
change in nonfarm payrolls.
The largest, single most important problems seen by business
were poor sales (23%), inflation (11%), insurance cost and availability
(11%) and taxes (18%). The latter, however, still was reduced from 27%
in early 2007.
The percentage of firms actually raising
prices fell to 15%, the lowest level since February. During the last
ten years there has been a 69% correlation between the y/y change in
the producer price index and the level of the NFIB price index. The
percentage of firms planning to raise prices also
fell further to 18% which was the least since 2003
About 24 million businesses exist in the United States. Small
business creates 80% of all new jobs in America.
The NFIB figures can be found in Haver's SURVEYS
database.
Toward A Durable Recovery is last week's
speech by Atlanta Fed Bank President Dennis P. Lockhart and it
available <a href="http://www.frbatlanta.org/invoke.cfm?objectid=77A47FE2-5056-9F12-12AFBD6ADE42D36E&amp;method=display">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/@S7/@S7.HTM">Nat'l
Federation of Independent Business</a></th>
<th scope="col">October</th>
<th scope="col">September</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>
<td class="firstcol">Small Business Optimism Index
(1986=100)</td>
<td>87.5</td>
<td>92.9</td>
<td>-9.0%</td>
<td>96.7</td>
<td>98.9</td>
<td>101.6</td>
</tr>
</tbody>
</table>
U.S. Gasoline Prices Lowest Since
February 2007. Demand Fell Further 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 11, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111c.jpg" align="left" border="0" height="265" width="353">
The retail price for a gallon of regular gasoline fell
by another eighteen cents last week after the twenty six cent drop
during the prior week, according to the U.S. Department of Energy
survey. The price of $2.22 was the lowest since February 2007. Prices
have now fallen $1.89 per gallon, or by nearly one-half, since their
peak early this past July. The latest decline was accompanied by a drop
in the average price for all grades of gasoline to $2.28 per gallon.
Yesterday, the spot market price for a gallon of regular
gasoline fell eight cents from last week's average to $1.40. In futures
trading the November contract closed down further at $1.37 per gallon.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111d.jpg" align="right" border="0" height="265" width="353">
Weekly gasoline prices can be found in Haver's WEEKLY
database. Daily prices are in the DAILY
database.
The demand for gasoline fell by 3.3% y/y,
according to the U.S. Department of Energy. The rate of decline has
bottomed out recently but the decline is still the fastest since
late-1995 (the latest four weeks versus the same four weeks last year).
The demand for all petroleum products also has softened, falling 7.0%
y/y.
These DOE figures are available in Haver's OILWKLY
database.
The price for a barrel of West Texas Intermediate crude oil
fell further last week to an average $64.31 per barrel, down 56% since
the peak in July of $145.66. In futures trading yesterday, the
two-month price for crude oil was even lower at $63.27 per barrel.
Last week, prices for natural gas ticked up w/w to $6.74 per
mmbtu (-3.3% y/y) as seasonal factors began to lift the price. The
average price this month was nearly one-half below the high for natural
gas prices in early-July of $13.19/mmbtu.
If Exchange Rates Are Random Walks, Then Almost
Everything We Say About Monetary Policy Is Wrong from
the Federal Reserve Bank of Minneapolis can be found <a href="http://www.minneapolisfed.org/research/QR/QR3211.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/WEEKLY/@W4/@W4.HTM">Weekly
Prices</a></th>
<th scope="col">11/10/08</th>
<th scope="col">11/03/08</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>
<td class="firstcol">Retail Regular Gasoline ($ per
Gallon)</td>
<td>2.22</td>
<td>2.40</td>
<td>-28.5%</td>
<td>2.80</td>
<td>2.57</td>
<td>2.27</td>
</tr>
<tr>
<td class="firstcol">Light Sweet Crude Oil,
WTI&nbsp; ($ per bbl.)</td>
<td>64.31</td>
<td>65.68</td>
<td>-32.5%</td>
<td>72.25</td>
<td>66.12</td>
<td>56.60</td>
</tr>
</tbody>
</table>
U.S. Chain Store Sales Dropped 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 11, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111e.jpg" align="left" border="0" height="265" width="353">
According to the International Council of Shopping
Centers-Goldman Sachs Index, chain store sales dropped 1.0% last week
from the last week in October. That wasn't the first sign of severe
weakness in sales. There was one weekly decline last month and sales
were down during each week of September, but the decline did lower the
starting level of sales this month 0.7% below the October average.
During all of October sales fell 1.0% from September following that
month's 1.9% drop.

The level of sales during the latest week remained near
the lowest since December of last year.


During the last ten years there has been a 59% correlation
between the y/y change in chain store sales and the change in nonauto
retail sales less gasoline.

The ICSC-Goldman
Sachs retail chain-store sales index is constructed using the
same-store sales (stores open for one year) reported by 78 stores of
seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney,
Sears and Wal-Mart.


Portending further weakness in consumer spending was a 0.3%
dip in the weekly leading indicator of chain store sales from
ICSC-Goldman Sachs. The index level was, however, 6.1% below the year
ago level at the lowest level since 1996.
The chain store sales figures are available in Haver's SURVEYW
database.
<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/surveyw/@S2/@S2.HTM">ICSC-UBS
(SA, 1977=100)</a></th>
<th scope="col">11/08/08</th>
<th scope="col">10/31/08</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>
<td class="firstcol">Total Weekly Chain
Store Sales</td>
<td>477.2</td>
<td>482.0</td>
<td>0.4%</td>
<td>2.8%</td>
<td>3.3%</td>
<td>3.6%</td>
</tr>
</tbody>
</table>
German Investors A Bit Less
Pessimistic About The Outlook Merchants In Japan More
Pessimistic Than Ever 
by <a href="/comment/Curley.html">
Louise Curley</a> November 11, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111f.jpg" align="left" border="0" height="265" width="353">
Investors in Germany appear to be encouraged by the steps the
central bank and the government have taken in recent weeks to deal with
the economic slowdown. The European Central Bank reduced it key rate by
50 basis points on October 8 and is expected to reduce it by another 50
basis points on November 12 binging it to 3.25%. In addition, the
German government passed a $64 billion stimulus package on November
4.In the latest ZEW survey, the excess of pessimists over optimists
regarding future conditions declined to 53.5% in November from 63.0% in
October. This still a far cry from the historical average of an excess
of optimists of 27.1%.In appraising the current situation, German
investors have become more and more pessimistic--or perhaps more
realistic. From an excess of optimists over pessimists of 17% in July,
there is now an excess of pessimists over optimists of 50.4% viewing
the current situation. The ZEW indicators for current and expected
conditions, together with recession shadings for Germany, are shown in
the first chart.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081111g.jpg" align="right" border="0" height="265" width="353">
In Japan, the merchants who make up the Economy Watchers
Diffusion Index have reported worsening conditions for both for the
present and for the future outlooks in almost every month since mid
2007, when the sub prime problem in the U. S. first surfaced.
Currently, these indexes are at all time lows as can be seen in the
second chart, which plots the history of the diffusion indexes and the
recession shading for Japan. The Bank of Japan recently cut its key
interest rate to 0.3% from 0.5%, but little has been done in the way of
fiscal stimulus.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"></th>
<th scope="col">Nov 08</th>
<th scope="col">Oct&nbsp; 08&nbsp;</th>
<th scope="col">Sep&nbsp; 07&nbsp;</th>
<th scope="col">Aug 08&nbsp; &nbsp;</th>
<th scope="col">Jul&nbsp;
08&nbsp;&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Germany ZEW (% balance)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Current
Situation</td>
<td>-50.4</td>
<td>-35.9</td>
<td>-1.0</td>
<td>-9.2</td>
<td>17.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Future
Conditions</td>
<td>-53.5</td>
<td>-63.0</td>
<td>-41.1</td>
<td>-55.5</td>
<td>-63.9</td>
</tr>
<tr>
<td class="firstcol">Japan Economy Watchers
Survey (Dif. Index)&nbsp;&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Current
Conditions</td>
<td>n.a.</td>
<td>22.6</td>
<td>28.0</td>
<td>28.3</td>
<td>29.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Future
Conditions</td>
<td>n.a.</td>
<td>25.2</td>
<td>32.1</td>
<td>32.0</td>
<td>30.8</td>
</tr>
</tbody>
</table>
</body></html>

<html>
<head>
<style>
.odd{
 background-color:#edf5ff;
}
.even{
 background-color:#dde5ef;
}
.grey1{
	background-color:#f0f0f0;
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.grey2{
	background-color:#e2e2e2;
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<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081110e.jpg" width="353">
Inflation is beginning to take a back seat in the deliberations of Central Bankers. The financial crisis, rising unemployment and declining production are overshadowing inflation fears at the same time that these fears are lessening. No matter the actual level of inflation, incoming data are showing that inflation rates are declining worldwide.
Today Egypt, Greece, Latvia and the Czech Republic reported their Consumer Price Indexes for October. The inflation rate as measured by the year-to-year increase in the CPI has recently been declining at varying degrees of speed in each country. Egypt, with inflation over 20%, has seen its inflation rate decline in the last two months from 23.8% in August to 20.1% in October. Another high inflation rate country, Latvia, has experienced declines in its inflation rate in the last five months, from 17.7% in June to 13.8% in October. Greece and the Czech Republic with relatively low inflation rates have nevertheless also witnessed declines in their inflation rates. Inflation in Greece has come down to 3.9% in October from 4.8% in June, and to 6.0% from 6.7%, respectively, in the Czech republic. The &quot;core&quot; inflation rate in the Czech Republic has declined to 1.65 % in October from 2.64 % in June. Inflation rates for the four countries are shown in the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081110f.jpg" width="353">
Dramatic declines in commodity prices over the past year are responsible for much of the improved inflation outlook worldwide. The second chart shows the prices of wheat, copper and oil over the past year.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">INFLATION RATES&nbsp;</th>
<th scope="col">Oct 08</th>
<th scope="col">Sep&nbsp;&nbsp; 08&nbsp;</th>
<th scope="col">Aug 08&nbsp;</th>
<th scope="col">Jul&nbsp; 08&nbsp;</th>
<th scope="col">Jun 08&nbsp;</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Czech Republic: Total</td>
<td>6.0</td>
<td>6.6</td>
<td>6.5</td>
<td>6.9</td>
<td>6.7</td>
</tr>
<tr>
<td class="firstcol">Czech Republic: Core</td>
<td>1.65</td>
<td>2.54</td>
<td>2.54</td>
<td>2.64</td>
<td>2.64</td>
</tr>
<tr class="odd">
<td class="firstcol">Greece: Total</td>
<td>3.90</td>
<td>4.58</td>
<td>4.68</td>
<td>4.83</td>
<td>4.89</td>
</tr>
<tr>
<td class="firstcol">Egypt: Total</td>
<td>20.13</td>
<td>21.52</td>
<td>23.79</td>
<td>22.15</td>
<td>20.22</td>
</tr>
<tr class="odd">
<td class="firstcol">Latvia: Total</td>
<td>13.73</td>
<td>14.88</td>
<td>15.72</td>
<td>16.61</td>
<td>17.74</td>
</tr>
</tbody>
</table>
</body>
</html>

Inflation is beginning to take a back seat in the deliberations of Central Bankers. The financial crisis, rising unemployment and declining production are overshadowing inflation fears at the same time that these fears are lessening. [...]

Declines in Commodity Prices Leading to Lower Inflation Rates Worldwide

Next year's inflation forecasts are on the rise and above target

Disrupted global supply chains placing upward pressure on US goods prices

Construction of data centers has overtaken transportation construction in US

Elevated energy prices putting intense upward pressure on input prices around the globe

US is big leader in global surge in private AI investment

Larger-than-usual income tax refunds this year are supporting consumer spending

Sharply rising share of AI-related jobs

Inflationary impact of surge in oil prices larger in Europe than in the US

Futures market thinks the price of oil will recede significantly over the next six months

Recent pickup in US defense orders could help support overall growth ahead

Cost of transporting crude oil has soared to series high

Market-based inflation expectations have not yet reflected recent surge in oil prices

Global equity markets are fearing a major economic disruption from soaring oil prices

Is recent drop in sentiment signaling softer growth ahead?

With the Iran conflict, geopolitical risk has soared to alarming levels

Soaring AI-related investment in US underpinning strong contribution of business spending to overall growth

AI-related outperformance of IP in Advanced Asia ex Japan

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

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Winnie Tapasanun

260624F59.jpg

260624G59.jpg

New single-family home sales unexpectedly fell 7.3% m/m (-6.8% y/y) to a seasonally adjusted annual rate of 580,000 units in May following an upwardly revised 5.7% decline to 626,000 in April (initially -6.2%, 622,000) and an upwardly revised 5.4% increase to 664,000 in March (previously +3.4%, 663,000), according to data from the U.S. Census Bureau. The Action Economics Forecast Survey had expected May sales of 640,000. May marked the lowest level since January, down 23.4% from a high of 757,000 in November 2025 but up 8.4% from a low of 535,000 in July 2022. The May decline coincided with a rise in the average 30-year fixed mortgage rate to 6.44%, the highest since August 2025, from 6.33% in April, according to Freddie Mac.

Regionally, May new home sales showed a mixed performance. Sales in the West plummeted 26.9% (-17.0% y/y) to 117,000 in May, a seven-month low, reversing a 19.4% rebound to 160,000 in April. Sales in the South fell 4.1% (-5.4% y/y) to 350,000, the lowest level since January, on top of an 11.4% April drop to 365,000. In contrast, sales in the Midwest recovered 16.2% (-3.7% y/y) to 79,000, the third m/m gain in four months, after a 20.0% April plunge to 68,000. Sales in the Northeast increased 3.0% (17.2% y/y) to 34,000, the highest level since December, following a flat reading in April and a 73.7% surge in March. Notably, the South remained the dominant region, accounting for 60.3% of total U.S. new home sales.

The median sales price of a new home rose 2.0% (0.0% y/y) to $424,900 in May, the highest since December, following a 6.0% rise to $416,500 in April and three consecutive m/m decreases. The median sales price was 6.9% above a low of $397,600 in November 2024 but 7.7% below its record high of $460,300 in October 2022. The average sales price of a new home climbed 7.8% (5.0% y/y) to $540,600, the first m/m increase in three months and the highest level since July 2022, following a 1.3% April decline to $501,400. The average price was 13.7% above a low of $475,600 in August 2024 and just 0.1% below a peak of $541,200 in July 2022. These sales price data are not seasonally adjusted.

The number of unsold new homes on the market grew 2.3% (-1.4% y/y) to 496,000 in May, the third m/m rise in four months and the highest level since July 2025, after a 0.8% rebound to 485,000 in April. The latest figure was 17.0% above a low of 424,000 in May 2023. The seasonally adjusted months' supply of new homes for sale rose to 10.3 months in May from 9.3 months in April, remaining above a low of 6.9 months in May 2023 and matching a high last seen in July 2022.

The median number of months a new home stayed on the market increased to 3.7 months in May, the highest since July 2021, from 3.6 months in April. The latest reading was above its record low of 1.5 months in September and October 2022 but well below a peak of 5.1 months in March 2021. These figures date back to January 1975.

New home sales are recorded when the sales contract is signed. New home sales activity and prices are available in Haver's **USECON** database. The consensus expectation figure from Action Economics is available in the **AS1REPNA** database.

260624H59.jpg

260624I59.jpg

- Sales -7.3% m/m (-6.8% y/y) to 580,000 in May; down 23.4% from a November high.
- Sales m/m down in the West (-26.9%) and South (-4.1%); up in the Midwest (+16.2%) and Northeast (+3.0%).
- Sales y/y down in all regions except the Northeast (+17.2%).
- Median sales price +2.0% m/m to $424,900, a 5-month high; avg. price +7.8% m/m to $540,600, highest since July ’22.
- Months' supply up to 10.3 mths., highest since July ’22.

U.S. New Home Sales Unexpectedly Hit a Four-Month Low in May

Michael J. Moran

260624A.jpg

260624B.jpg

The US current account balance, which consists of international trade and income flows, deteriorated slightly in the first quarter, moving to a deficit of $226.8 billion versus a shortfall of $221.1 billion in the fourth quarter of last year (chart, upper left). Trade flows moved slightly in favor of the US, as the deficit narrowed by $11.6 billion to $165.8 billion, with trade in both goods and services contributing to the improvement. The latest reading on the trade deficit was among the best of the post-pandemic period (chart, upper right).

The improvement in trade was more than offset by softening in both primary income and secondary income. Primary income consists of net receipts of both investment income and employee compensation, with net flows defined as receipts of US residents from abroad less US payments to residents in foreign countries. Net investment income is by far the larger of the two components of primary income, and it accounted for nearly all the slippage in primary income, dropping $17.0 billion to -$7.8 billion. The shift pushed net investment income back into negative territory after a quarter in the plus column (chart, lower left). Employee compensation moved in favor of the US by 4.0%, but given the small size of employee compensation, the improvement represented an insignificant offset to the slippage in investment income.

Secondary income consists of transfer payments (payments made without receiving something of economic value in return); examples include personal remittances (foreign workers sending funds to families in their home countries), charitable donations, taxes, fines, and penalties. Payments made by US residents have always exceeded payments received, leaving a regular deficit in secondary income. This component of the current account slipped 1.3% in Q1, but it remained within the range of observations over the past year.

Annual revisions to the current account were notable, as both the trade balance and the balance on primary income were revised to show deeper deficits. The quarterly average trade deficit for 2025 now totals $233.0 billion versus a previous estimate of $227.9 billion. Primary income now shows a quarterly average deficit of $11.9 billion for 2025 versus a surplus of $3.2 billion.

The shift to a deficit position in primary income in 2025 is not shocking, as previously estimated positive readings on average in 2025 (and prior years) were surprising in light of the international investment position of the US. Foreign investors hold far larger amounts of US assets than US investors hold of foreign assets (chart, lower right). That is, the US has a deficit in investment holdings. However, despite the differential in asset holdings, US investors typically earned higher rates of return on their foreign investments than foreigners earned on their US investments. Although the gap in asset holdings has been large, the higher returns earned by US investors left net investment income positive. Revised data now suggest that the net international investment position of the US has slipped to such a degree that higher rates of return will no longer offset the differential in asset holdings. Positive quarterly readings on net investment income might be apparent at times (such as 2025-Q4), but net investment income (and primary income in total) will probably be negative in most coming quarters.

Balance of Payments data are in Haver’s **USINT** database, with summaries available in **USECON**. The expectations figure is in the **AS1REPNA** database.

260624C.jpg

260624D.jpg

- Improvement in the trade balance offset by weaker net investment income.
- Annual revision showed wider deficit in 2025.


Q1 Current Account: Modest Slippage in Early 2026

Robert Brusca

260623E.jpg

**PMIs in June mark some progress**
The PMI report from S&P shows modest firming in conditions in June, even with the Middle East situation unresolved.

**Monthly:** The median reading for the 8 reporting countries or regions rose to 50.8 in June from 50.1 in May. Manufacturing improved to 52.7 from 52.4, while the services reading rose to 50.3 from 49.6, leaving a month of mild contraction behind.

**Most show June improvement:** Most countries or regions improved in June; the exceptions were Germany, the United Kingdom, and India, which were weaker. India was dragged down by a weaker service sector reading in June; the U.K. and Germany showed weakening conditions across the board for the composite index, the manufacturing sector, and services. On the other side of the coin, France, Japan, Australia, and the U.S. all showed improvement in each of three sectors: the composite, manufacturing, and services, in June compared to May.

**Sequentially still mixed:** The broader sequential readings show ongoing weakness, but these are derived from hard data and lag the monthly observations in the table that include preliminary flash estimates. All the composite readings weakened based on three-month averages except for India. However, seven of eight reporting areas showed improvement in manufacturing over three months compared to six months; the exception was Australia. Over six months, conditions are mixed, with four composite readings weaker compared to 12 months and with four stronger. However, over six months, all eight manufacturing sectors improved compared to 12 months. The 12-month readings are consistently stronger than their readings of 12 months ago. The only composite that's weaker is the U.S., while the services sectors in the monetary union, Germany, France, and the U.S. are weaker than they were 12 months ago.

**Standings are weak:** The queue percentile standings evaluate the current diffusion index in June compared to where it has been since January 2022, a period of about 4½ years. The queue standings show weakness up and down the line, with the exception of the manufacturing sector; that has the standing above its historic median in the monetary union, Germany, France, the U.K., the U.S., and Japan. Only Australia and India show manufacturing sectors whose current monthly standings are below their medians of the last 4½ years. In addition, Japan has a strong composite reading at its 81st percentile. Overall, the services sectors are weak and below their 50% standing every place, and below that mark by a large margin, except for Japan, where the services sector has a 47th percentile standing, only a few ticks below its median.

260623.jpg

**Summing up: A glimmer of hope but still a lot of weakness**
Manufacturing is stronger sequentially over three months, six months, and 12 months for every reporter except for Australia over three months. The rest of the report is not very impressive. There is some rebound in June, but here we're talking about volatile monthly data. The services sectors still show sequential weakness over 12 months, six months, and three months in the European Monetary Union, Germany, France, and the U.S. The U.K. and Japan showed three-month and six-month weakness as well. That’s too much weakness in the key job creation sector to think that this report is a positive signal.

S&P PMIs in June Firm

260622E.jpg

Danish consumer confidence rose to -14 in June from -19.8 in May, a small pickup for a still-negative net reading. In June, the reading has a standing at its 7.9 percentile on data back to 1995. So, this confidence headline still has a lower 8% reading overall.

On the month, all seven component readings improved compared to May, although the environmental assessments were little changed across four components. As for the environment, the most changed reading is the improved favorability of the time to save, a metric that is not always a positive category.

As for the seven categories, the readings on the financial situation, general economy and the unemployment rate all improved month-to-month, while the inflation metrics both backed down sharply.

These changes show the financial situation and general economy gauges all at rankings in the lower 20th percentiles, with the outlook for the next 12 months having a standing in their lower 10th percentiles and lower for both the financial situation and the general economy.

Consumer prices, despite a strong monthly step-back, have a 90.2 percentile standing for prices over the past 12 months and a 94.3 percentile standing for the CPI over the next 12 months. Despite some let-up in concerns about unemployment, the unemployment gauge has an 85.1 percentile standing, still substantially elevated.

The environmental readings are less negative, starting with the ‘favorability of the time to purchase,’ a bit weaker month-to-month but improved on balance over two months. The June reading is slightly better than its 12-month average but still has a ranking only in its 21st percentile. The favorability of the time to purchase over the next 12 months is a tick weaker month-to-month and about a point worse than its 12-month average. Its June ranking is in its lower 10th percentile of its historic queue. The favorability of the time to save has a stronger ranking, but this is a more equivocal category. It is improved month-to-month and only slightly stronger over two months The June reading is stronger than its 12-month average, with a ranking in its 47.6 percentile—improved compared to previous categories but still worse than its historic median since 1995 (the median occurs at a ranking of 50%). The ‘general financial situation of households now’ ticked lower in June from May but is stronger on balance over two months. The June reading is above its 12-month average and has a 59.2 percentile standing—above its median.

On balance, Denmark shows improving confidence, progressing slowly but on the right path. There is a sharp downward adjustment in inflation, especially over the next 12 months, despite global conditions. Still, the ranking of the confidence metrics are uniformly weak.

260622.jpg

Denmark

Danish Confidence Improves As Inflation Expectations Pull Back Sharply

Andrew Cates

**US Outperformance Holds; Europe and China Continue to Disappoint**
One of the most persistent features of the global macro landscape in 2026 has been the widening divergence between growth outcomes in the United States and those in Europe and China. Citigroup’s global growth surprise indices—which measure the gap between actual economic releases and consensus expectations—capture this divergence with unusual clarity. US data have continued to surprise on the upside, supported by resilient consumer spending, a stronger-than-expected labour market and the ongoing AI-driven capital spending boom. The picture elsewhere is less encouraging. Growth surprises have turned negative across the euro area, reflecting the cumulative toll of elevated energy costs, weak industrial activity and subdued business confidence. And China's growth surprise index has also fallen sharply in recent weeks, with weaker-than-expected retail sales and fixed asset investment data for May this week reinforcing concerns that domestic demand remains fragile and that policy support is yet to gain meaningful traction.

260618Z1.jpg

**The Oil Risk Premium in the UK Has Been Fading**
One of the more notable features of UK markets this year has been the close relationship between oil prices and two-year gilt yields. The link is not mechanical, but in an economy heavily exposed to imported energy, swings in oil prices can materially alter the inflation outlook and, by extension, expectations for Bank of England policy. That relationship was on display again this week. A softer-than-expected UK CPI reading for May—helped in part by easing energy price pressures—led investors to scale back expectations that inflation would remain persistently above target, pushing two-year gilt yields to their lowest level in six weeks. The question now is whether this marks the start of a more sustained easing in inflation pressures or merely a temporary reprieve. Much will depend on whether the recent decline in oil prices following the US-Iran ceasefire agreement proves durable.

260618Z2.jpg

**The AI Investment Boom Is Rewriting the Rule Book for the Chip Industry**
If the divergence in global growth surprises noted above tells a story of a world economy under strain, the semiconductor sales data tell a very different one — of a technology-driven investment cycle that is accelerating almost regardless of the broader macro environment. Global semiconductor sales have surged to record levels over the past twelve months, driven primarily by insatiable demand for the chips that underpin AI infrastructure: graphics processing units, high-bandwidth memory, and advanced logic chips. Data centre capital expenditure from the hyperscalers continues to exceed even the most optimistic forecasts from a year ago, and the investment pipeline shows no sign of moderating. The gains are concentrated in AI-adjacent products; legacy chips for consumer electronics and industrial applications remain relatively soft.

260618Z3.jpg

**Copper Holds Firm As Oil Retreats**
The commodity markets are telling two quite different stories this week, and the contrast is instructive. Oil has moved sharply lower on the US-Iran MoU news as investors trim the conflict risk premium that has been embedded in energy markets since March — a welcome development for inflation and central bank optionality alike. But the three commodities shown in this chart tell a different story. Copper, one of the most reliable proxies for global electricity infrastructure investment, remains near multi-year highs, reflecting the extraordinary volume of data centre construction, grid expansion and electrification spending flowing through the global economy. Aluminium — energy-intensive to produce and increasingly in demand for the structural components of both data centres and electric vehicles — has, until quite recently, held its ground. Lithium hydroxide, the battery-grade refining product that sits at the heart of the energy storage supply chain, has seen some cyclical softness but remains structurally underpinned by the scale of demand being projected for grid-scale storage and electric mobility over the next decade.

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**Is Energy Availability a Binding Constraint on Growth?**
This next chart is a scatter plot that maps electricity generation per capita against GDP growth per capita across a broad sample of countries over the past five years. The positive relationship is striking. Economies with higher electricity generation per capita, including the United States, have generally delivered stronger GDP growth, while those with more constrained electricity systems have tended to lag. The obvious objection is reverse causality: richer economies generate more electricity because they have more to power. That is partly true. But the broader evidence is difficult to dismiss. The US shale revolution delivered an abundance of cheap energy that supported a sustained period of industrial outperformance relative to many advanced economies. Mainstream commentary often attributed this advantage to factors such as labour market flexibility or technological innovation, but energy costs were arguably at least as important.

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**Corporate America Is Investing from a Position of Unusual Financial Strength**
The surge in US corporate investment—particularly in AI infrastructure, data centres and semiconductors—has inevitably drawn comparisons with the late-1990s dot-com boom. Yet the financial balance data suggest an important difference. During the dot-com era, US non-financial corporates moved into a financial deficit approaching 4% of GDP, relying heavily on external financing to fund investment. Today, despite another ambitious investment cycle, the sector remains in surplus, currently around 1.8% of GDP. Corporate America is investing aggressively, but it is still generating more cash than it is spending. The boom is being financed largely through profits rather than debt. Risks remain—not least the growing fiscal burden on the federal government—but the balance-sheet fragilities that turned previous investment booms into systemic crises appear far less pronounced. If a major constraint emerges in the years ahead, it may be energy and resources rather than leverage.

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The signing of a Memorandum of Understanding (MoU) between the United States and Iran earlier this week has offered financial markets their most significant moment of geopolitical relief since the Middle East conflict escalated in early March. Oil prices fell sharply on the news, short-dated bond yields moved lower across several major economies, and risk assets recovered ground. But relief, as investors have learnt repeatedly over the past three months, is arguably not the same as resolution. The MoU sets a framework for negotiations rather than a final settlement, and the history of US-Iran diplomacy is not one that encourages complacency. Meanwhile, the Federal Reserve — concluding its June meeting yesterday under new chair Kevin Warsh — held rates steady but delivered a distinctly hawkish dot plot that shifted the median year-end projection from a cut to a hike, a reminder that the easing cycle the market had been pricing is no longer the base case. Against this backdrop, this week's charts take stock of where the global economy presently stands — and what the underlying data, beneath the geopolitical noise, are telling us. The picture that emerges is one of divergence. The United States continues to outperform consensus growth expectations while Europe and China disappoint (chart 1). UK short-dated yields have tracked oil prices with unusual consistency this year, and today's softer-than-expected CPI print for May — arriving just as the MoU has knocked crude lower — potentially changes the policy calculus for the Bank of England (chart 2). Global semiconductor sales, meanwhile, are storming ahead regardless of the geopolitical noise, powered by AI infrastructure spending that shows no sign of fatigue (chart 3). A cross-section of commodity prices tells two stories simultaneously: the geopolitical risk premium is draining out of oil, but the metals and materials the AI economy actually needs — copper, uranium, critical minerals — are holding firm (chart 4). Meanwhile a cross-country scatter of electricity generation and GDP growth over the past five years raises a question that deserves more attention than it typically gets: is energy availability a constraint on growth, or merely a consequence of it? The evidence, we would argue, points firmly in one direction (chart 5). And finally, for all the comparisons being drawn between the current investment boom and the late 1990s, the financial balance of the US corporate sector tells a rather different story — one that matters for how any correction might unfold (chart 6).

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Economy in Brief

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Commodity Prices, Inflation and Expectations

Commodity Prices, Inflation and Expectations

German Investors A Bit Less Pessimistic About The Outlook Merchants In Japan More Pessimistic Than Ever

U.S. Chain Store Sales Dropped

U.S. Gasoline Prices Lowest Since February 2007. Demand Fell Further

U.S. Small Business Optimism Lowest Since 1975

U.S. Small Business Optimism Lowest Since 1975

Declines in Commodity Prices Leading to Lower Inflation Rates Worldwide