Tom Moeller

Coincident with the recent turmoil in the financial market, last week the Philadelphia Federal Reserve Bank reported that its October Index of General Business conditions in the manufacturing sector fell to -37.5 its lowest level [...]

Philadelphia Fed Index Lowest Since 2001

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081017f.jpg" align="left" border="0" height="265" width="353">
Italian orders have fallen in August after several months of
gains. Foreign orders are much weaker than domestic orders in Italy.
Foreign orders have dropped in six of the past seven months. Domestic
orders are down in just two of those seven months.
Still, over that period, starting in February of 2008
overall orders are lower. The international sector is dragging Italy&#8217;s
industrial sector into decline. Over this period industrial sales have
fallen by 4%, not even annualized.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="7" scope="col">Italy Orders </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar exept m/m</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>Jun08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.3%</td>
<td>2.7%</td>
<td>0.7%</td>
<td>13.2%</td>
<td>-1.4%</td>
<td>1.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>-3.4%</td>
<td>-0.7%</td>
<td>1.2%</td>
<td>-11.3%</td>
<td>-14.3%</td>
<td>-7.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic</td>
<td>1.2%</td>
<td>4.6%</td>
<td>0.5%</td>
<td>28.2%</td>
<td>5.9%</td>
<td>5.9%</td>
</tr>
<tr>
<td class="firstcol">Memo</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales</td>
<td>-3.0%</td>
<td>-2.7%</td>
<td>3.1%</td>
<td>-10.4%</td>
<td>-7.9%</td>
<td>-7.1%</td>
</tr>
</tbody>
</table>
</body></html>

Italian orders have fallen in August after several months of gains. Foreign orders are much weaker than domestic orders in Italy. Foreign orders have dropped in six of the past seven months. Domestic orders are down in just two of [...]

Italy New Orders

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081017e.jpg" align="left" border="0" height="265" width="353">
The tertiary index fell in August after two months of
stability. The Yr/Yr percentage change in the index is hovering in
negative territory and has just taken a weaker position with this
report.
The index is still in the top 10% of its range but then the
service index usually does rise. Setbacks to it are uncommon. The
weakness in the tertiary index is another red flag for the slowing in
the Japanese economy.
The declines in the tertiary index in this period already
rival the drops in the previous recession period from 2000-2003.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="10" scope="col"> Up to
date Japan Industry Survey</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr class="grey3">
<td class="firstcol"></td>
<td>Aug-2008</td>
<td>Jul-2008</td>
<td>Jun-2008</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr>
<td class="firstcol">Tertiary</td>
<td>109.1</td>
<td>110.6</td>
<td>109.3</td>
<td>109.7</td>
<td>109.8</td>
<td>109.9</td>
<td>110.9</td>
<td>92.0</td>
<td>90.5%</td>
</tr>
<tr class="grey1">
<td colspan="10" class="firstcol">Ranges,
Max, Min since 1993</td>
</tr>
</tbody>
</table>
</body></html>

The tertiary index fell in August after two months of stability. The Yr/Yr percentage change in the index is hovering in negative territory and has just taken a weaker position with this report. The index is still in the top 10% of [...]

Japan’s Service Sector Index Gets Erratic

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081017c.jpg" width="353">
We got our first glimpse of consumer&#39;s reaction to the unfolding crises in the credit markets. The University of Michigan&#39;s mid-October reading of consumer sentiment collapsed by 18.2% from the September level, to 57.5. The latest level was the lowest for the series since June which in turn was the lowest since early 1980. The drop was a record m/m decline for the index which dates back to the late 1970s. Consensus had expected a lesser decline to 65.0.
During the last ten years there has been a 47% correlation between the level of sentiment and the three-month change in real consumer spending.
The current conditions index led the collapse with 21.5% decline. The view of current personal finances gave back all of a September improvement and fell 26.7% while index of buying conditions for large household goods fell 17.8% m/m, down 38.0% y/y.
The expectations component of consumer sentiment aided the m/m decline in the total with a 15.6% drop. Expectations for business conditions during the next year collapsed by 26.2%. Expectations for conditions during the next five years fell 13.3%.The expected change in personal finances also fell 12.5%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081017d.jpg" width="353">
The mean expected rate of inflation during the next year held steady at 4.6% with lower oil prices. It was as high as 7.0% in May. The expected inflation rate during the next five years fell to 2.9%, the lowest level since 2003.
The opinion of government policy, which apparently influences economic expectations, fell sharply from September (-41.5% y/y). Only five percent of respondents thought that a good job was being done by government, the least since 5%.
The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver&#39;s USECON database, with details in the proprietary UMSCA 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/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University of Michigan</a></th>
<th scope="col">Mid-October</th>
<th scope="col">September</th>
<th scope="col">October 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">Consumer Sentiment</td>
<td>57.5</td>
<td>70.3</td>
<td>-28.9%</td>
<td>85.6</td>
<td>87.3</td>
<td>88.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>58.9</td>
<td>75.0</td>
<td>-39.7</td>
<td>101.2</td>
<td>105.1</td>
<td>105.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>56.7</td>
<td>67.2</td>
<td>-19.1</td>
<td>75.6</td>
<td>75.9</td>
<td>77.4</td>
</tr>
</tbody>
</table>
</body>
</html>

We got our first glimpse of consumer's reaction to the unfolding crises in the credit markets. The University of Michigan's mid-October reading of consumer sentiment collapsed by 18.2% from the September level, to 57.5. The latest [...]

Mid-October Michigan Consumer Sentiment Tanks With Stock Market

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081017a.jpg" width="353">
Housing starts fell 6.3% m/m last month to 817,000 units (SAAR). That followed an 8.1% decline during August which was deeper than reported initially. The latest level was the lowest since 921,000 starts during January 1991. Consensus expectations had been for 874,000 starts.
During September, starts of single-family homes fell by 12.0% to 544,000 units, their lowest level since late-1981. Since their peak in early 2006, single-family starts are down by roughly two-thirds. Permits to build these single family homes also fell 3.8% (-38.9% y/y) to 532,000, their lowest since the recession during 1982.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081017b.jpg" width="353">
Starts during 2Q fell by 7.2% from 1Q and that decline was accompanied by a 0.5 percentage point subtraction from real GDP growth. In 3Q, single-family starts fell 10.9% from the 2Q average. These new figures suggest that housing this quarter will even more of drag on GDP. During the last ten years there has been an 84% correlation between the q/q change in single-family starts and the contribution to quarterly GDP growth.
Multi-family starts in September recouped just a bit of their earlier declines with a 7.5% increase. Nonetheless, 3Q starts fell 20.7% from 2Q after that period&#39;s 7.5%.
By region, August starts of single-family units in the Northeast fell 4.8% (-23.4% y/y) to a new low. In the Midwest starts fell an even harder 24.1% (-43.3% y/y). In the South single family starts fell 6.3% (-42.3% y/y) while in the West starts dropped 17.7% (-45.5% y/y) and erased all of the prior months&#39; gains.
Housing Busts and Household Mobility from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/staff_reports/sr350.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Housing Starts (000s, SAAR)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">July</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>817</td>
<td>872</td>
<td>949</td>
<td>-31.1%</td>
<td>1,341</td>
<td>1,812</td>
<td>2,073</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>544</td>
<td>618</td>
<td>644</td>
<td>-41.9</td>
<td>1,034</td>
<td>1,474</td>
<td>1,719</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>273</td>
<td>254</td>
<td>305</td>
<td>9.6</td>
<td>307</td>
<td>338</td>
<td>354</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>786</td>
<td>857</td>
<td>937</td>
<td>-38.4</td>
<td>1,389</td>
<td>1,844</td>
<td>2,160</td>
</tr>
</tbody>
</table>
</body>
</html>

Housing starts fell 6.3% m/m last month to 817,000 units (SAAR). That followed an 8.1% decline during August which was deeper than reported initially. The latest level was the lowest since 921,000 starts during January 1991. Consensus [...]

U.S. Housing Starts Fell Further in September

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081017a.jpg" align="left" border="0" height="265" width="353">
Housing starts fell 6.3% m/m last month to 817,000 units
(SAAR). That followed an 8.1% decline during August which was deeper
than reported initially. The latest level was the lowest since 921,000
starts during January 1991. Consensus expectations had been
for 874,000 starts.
During September, starts of single-family homes fell by 12.0%
to 544,000 units, their lowest level since late-1981. Since their peak
in early 2006, single-family starts are down by roughly two-thirds.
Permits to build these single family homes also fell 3.8% (-38.9% y/y)
to 532,000, their lowest since the recession during 1982.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081017b.jpg" align="right" border="0" height="265" width="353">
Starts during 2Q fell by 7.2% from 1Q and that
decline was accompanied by a 0.5 percentage point subtraction from real
GDP growth. In 3Q, single-family starts fell 10.9% from the 2Q average.
These new figures suggest that housing this quarter will even more of
drag on GDP. During the last ten years there has been an 84%
correlation between the q/q change in single-family starts and the
contribution to quarterly GDP growth.
Multi-family starts in September recouped just a bit of their
earlier declines with a 7.5% increase. Nonetheless, 3Q starts fell
20.7% from 2Q after that period's 7.5%.
By region, August starts of single-family units in the
Northeast fell 4.8% (-23.4% y/y) to a new low. In the Midwest starts
fell an even harder 24.1% (-43.3% y/y). In the South single family
starts fell 6.3% (-42.3% y/y) while in the West starts dropped 17.7%
(-45.5% y/y) and erased all of the prior months' gains.
Housing Busts and Household Mobility from
the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/staff_reports/sr350.pdf">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">Housing
Starts (000s, SAAR)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">July</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>817</td>
<td>872</td>
<td>949</td>
<td>-31.1%</td>
<td>1,341</td>
<td>1,812</td>
<td>2,073</td>
</tr>
<tr>
<td class="firstcol">Single-Family</td>
<td>544</td>
<td>618</td>
<td>644</td>
<td>-41.9</td>
<td>1,034</td>
<td>1,474</td>
<td>1,719</td>
</tr>
<tr>
<td class="firstcol">Multi-Family</td>
<td>273</td>
<td>254</td>
<td>305</td>
<td>9.6</td>
<td>307</td>
<td>338</td>
<td>354</td>
</tr>
<tr class="odd">
<td class="firstcol">Building Permits</td>
<td>786</td>
<td>857</td>
<td>937</td>
<td>-38.4</td>
<td>1,389</td>
<td>1,844</td>
<td>2,160</td>
</tr>
</tbody>
</table>
Mid-October Michigan Consumer
Sentiment Tanks With Stock Market 
by <a href="/comment/Moeller.html">Tom
Moeller</a> October 17, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081017c.jpg" align="left" border="0" height="265" width="353">
We got our first glimpse of consumer's reaction to the
unfolding crises in the credit markets. The University of Michigan's
mid-October reading of consumer sentiment collapsed by 18.2% from the
September level, to 57.5. The latest level was the lowest for the
series since June which in turn was the lowest since early 1980. The
drop was a record m/m decline for the index which dates back to the
late 1970s. Consensus had expected a lesser decline to 65.0.
During the last ten years there has been a 47% correlation
between the level of sentiment and the three-month change in real
consumer spending.
The current conditions index led the collapse with 21.5%
decline. The view of current personal finances gave back all of a
September improvement and fell 26.7% while index of buying conditions
for large household goods fell 17.8% m/m, down 38.0% y/y.
The expectations component of consumer sentiment aided the m/m
decline in the total with a 15.6% drop. Expectations for business
conditions during the next year collapsed by 26.2%. Expectations for
conditions during the next five years fell 13.3%.The expected change in
personal finances also fell 12.5%.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081017d.jpg" align="right" border="0" height="265" width="353">
The mean expected rate of inflation during the next year held
steady at 4.6% with lower oil prices. It was as high as 7.0% in May.
The expected inflation rate during the next five years fell to 2.9%,
the lowest level since 2003.
The opinion of government policy, which apparently influences
economic expectations, fell sharply from September (-41.5% y/y). Only
five percent of respondents thought that a good job was being done by
government, the least since 5%.
The University of Michigan survey is not seasonally
adjusted.The reading is based on telephone interviews with about 500
households at month-end; the mid-month results are based on about 300
interviews. The summary indexes are in Haver's USECON database,
with details in the proprietary UMSCA 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/USECON/@EF/@EF14/@EF1402/@EF1402.HTM">University
of Michigan</a></th>
<th scope="col">Mid-October</th>
<th scope="col">September</th>
<th scope="col">October 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">Consumer Sentiment</td>
<td>57.5</td>
<td>70.3</td>
<td>-28.9%</td>
<td>85.6</td>
<td>87.3</td>
<td>88.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Current Conditions</td>
<td>58.9</td>
<td>75.0</td>
<td>-39.7</td>
<td>101.2</td>
<td>105.1</td>
<td>105.9</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Expectations</td>
<td>56.7</td>
<td>67.2</td>
<td>-19.1</td>
<td>75.6</td>
<td>75.9</td>
<td>77.4</td>
</tr>
</tbody>
</table>
Japan's Service Sector Index Gets
Erratic 
by <a href="/comment/Brusca.html">Robert
Brusca</a> October 17, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081017e.jpg" align="left" border="0" height="265" width="353">
The tertiary index fell in August after two months of
stability. The Yr/Yr percentage change in the index is hovering in
negative territory and has just taken a weaker position with this
report.
The index is still in the top 10% of its range but then the
service index usually does rise. Setbacks to it are uncommon. The
weakness in the tertiary index is another red flag for the slowing in
the Japanese economy.
The declines in the tertiary index in this period already
rival the drops in the previous recession period from 2000-2003.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup><thead><tr>
<th colspan="10" scope="col"> Up to
date Japan Industry Survey</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes; Range</td>
</tr>
<tr class="grey3">
<td class="firstcol"></td>
<td>Aug-2008</td>
<td>Jul-2008</td>
<td>Jun-2008</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr>
<td class="firstcol">Tertiary</td>
<td>109.1</td>
<td>110.6</td>
<td>109.3</td>
<td>109.7</td>
<td>109.8</td>
<td>109.9</td>
<td>110.9</td>
<td>92.0</td>
<td>90.5%</td>
</tr>
<tr class="grey1">
<td colspan="10" class="firstcol">Ranges,
Max, Min since 1993</td>
</tr>
</tbody>
</table>
Italy New Orders 
by <a href="/comment/Brusca.html">Robert
Brusca</a> October 17, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081017f.jpg" align="left" border="0" height="265" width="353">
Italian orders have fallen in August after several months of
gains. Foreign orders are much weaker than domestic orders in Italy.
Foreign orders have dropped in six of the past seven months. Domestic
orders are down in just two of those seven months.
Still, over that period, starting in February of 2008
overall orders are lower. The international sector is dragging Italy&#8217;s
industrial sector into decline. Over this period industrial sales have
fallen by 4%, not even annualized.


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr> <th colspan="7" scope="col">Italy
Orders </th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar exept m/m</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>Jun08</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr class="odd">
<td class="firstcol">Total</td>
<td>-0.3%</td>
<td>2.7%</td>
<td>0.7%</td>
<td>13.2%</td>
<td>-1.4%</td>
<td>1.1%</td>
</tr>
<tr class="odd">
<td class="firstcol">Foreign</td>
<td>-3.4%</td>
<td>-0.7%</td>
<td>1.2%</td>
<td>-11.3%</td>
<td>-14.3%</td>
<td>-7.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Domestic</td>
<td>1.2%</td>
<td>4.6%</td>
<td>0.5%</td>
<td>28.2%</td>
<td>5.9%</td>
<td>5.9%</td>
</tr>
<tr>
<td class="firstcol">Memo</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales</td>
<td>-3.0%</td>
<td>-2.7%</td>
<td>3.1%</td>
<td>-10.4%</td>
<td>-7.9%</td>
<td>-7.1%</td>
</tr>
</tbody>
</table>
</body></html>

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081016g.jpg" align="left" border="0" height="265" width="353">
The German Chamber of Industry and Commerce survey (DIHK)
shows a steady if not rapid deterioration in the current assessment and
in the expectations for the period ahead. Economic
conditions slipped from a reading of +24 in Q2 to +17 in Q4 dropping
their standing to the 69th percentile from the 80th
percentile previously. Business
expectations dropped from +6 to -9 as the percentile standing fell to
the 41st percentile from the 76th
percentile, a sharp drop off and a move away from a nice position above
the range midpoint to substantially below it.
Investment intentions have also crossed into negative
territory, dropping from +6 to -2. But in terms of the percentile
standing, the drop off is not as severe as the percentile fall from the
78th to the 60th
percentile still leaves a firm reading in place not one that is below
average. A modest negative
number is still above the mid-point response for German firms&#8217; capital
spending intentions. Hiring intentions also fell to a negative reading
from +6 in Q2 2008 to -3 in Q4 2008. Similarly the percentile ranking
fell from the 86th to the 66th
percentile for hiring plans.
The survey was conducted in late September and early October
so some of the worst of the recent financial markets events were
probably not taken into consideration in the survey. However in mid and
late September the stock market was extremely choppy and volatile. It
is unclear how much of this affected respondent expectations and
assessments.
In the survey German firms also expressed more concerns about
foreign growth and with that diminished expectations for German exports.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col">DIHK-Balance
of Economic Opinion </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Net Balance Readings</td>
<td colspan="3">Change</td>
<td>Range Q4'91</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Q4-08</td>
<td>Q2-08</td>
<td>Q1-08</td>
<td>Yr Ago</td>
<td>2-Yr</td>
<td>3-Yr</td>
<td>Q4-08</td>
<td>Q2-08</td>
</tr>
<tr>
<td class="firstcol">Economic Conditions</td>
<td>17</td>
<td>24</td>
<td>30</td>
<td>-14</td>
<td>-7</td>
<td>17</td>
<td>69.4</td>
<td>80.6</td>
</tr>
<tr class="grey1">
<td class="firstcol">Business Expectations</td>
<td>-9</td>
<td>6</td>
<td>10</td>
<td>-24</td>
<td>-18</td>
<td>-12</td>
<td>41.1</td>
<td>67.9</td>
</tr>
<tr>
<td class="firstcol">Export Expectations</td>
<td>14</td>
<td>26</td>
<td>36</td>
<td>-25</td>
<td>-21</td>
<td>-18</td>
<td>54.8</td>
<td>74.2</td>
</tr>
<tr class="grey1">
<td class="firstcol">Investment Intentions</td>
<td>-2</td>
<td>6</td>
<td>9</td>
<td>-15</td>
<td>-9</td>
<td>4</td>
<td>60.9</td>
<td>78.3</td>
</tr>
<tr>
<td class="firstcol">Hiring Intentions</td>
<td>-3</td>
<td>6</td>
<td>7</td>
<td>-12</td>
<td>-3</td>
<td>11</td>
<td>66.7</td>
<td>86.7</td>
</tr>
</tbody>
</table>
</body></html>

The German Chamber of Industry and Commerce survey (DIHK) shows a steady if not rapid deterioration in the current assessment and in the expectations for the period ahead. Economic conditions slipped from a reading of +24 in Q2 to +17 [...]

German Firms Cut Back Their Assessment and Expectations

Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081016e.jpg" width="313">
Initial claims for unemployment insurance fell 16,000 in the week ended last Saturday to 461,000 from the prior week&#39;s 477,000.The four-week moving average barely changed from 482,500 to 483,250 (+50.2% y/y). The Labor Department estimates that 12,000 claims in the latest week were due to Hurricane Ike in Texas, less than the hurricane effects the two weeks before of 17,000 (10/4) and 45,000 (9/27).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081016f.jpg" width="313">
Continuing claims for unemployment insurance during the October 4 week rose 40,000 following an upwardly revised 68,000 increase during the prior period. The four-week average of claims rose to 3,632,000, the highest level since July 2003. Continuing claims provide some indication of workers&#39; ability to find employment and they lag the initial claims figures by one week.
Claims under the new &quot;EUC&quot; program, Emergency Unemployment Compensation, enacted during the summer, reached 1,345,375 in the September 27 week, up 278,298 from September 20. These people have exhausted all regular benefits and are granted an additional 13 weeks while they continue to job-hunt.
The insured rate of unemployment edged up to 2.8% in the October 4 week, a cycle high and the highest since exactly the same week in 2003. The high in that recessionary period was 3.0%, reached in late June 2003.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">10/11/08</th>
<th scope="col">10/04/08</th>
<th scope="col">09/27/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>461</td>
<td>&nbsp;477</td>
<td>499</td>
<td>36.4%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,711</td>
<td>3,671</td>
<td>45.6</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
</body>
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Initial claims for unemployment insurance fell 16,000 in the week ended last Saturday to 461,000 from the prior week's 477,000.The four-week moving average barely changed from 482,500 to 483,250 (+50.2% y/y). The Labor Department [...]

U.S. Weekly Initial Jobless Insurance Claims Fell But Still Near Cycle High

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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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.

260618Z4.jpg

**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.

260618Z5.jpg

**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.

260618Z6.jpg

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).

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/7rw2v1Ri8gUVHbFrZfgANL?utm_source=generator&si=75d98727e9524d75" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

Charts of the Week: Between Relief and Reality

Winnie Tapasanun

260618N12.jpg

260618O12.jpg

The current general activity diffusion index rebounded to a slightly stronger-than-expected 10.3 in June following a 27.1-point drop to -0.4 in May, the latest Manufacturing Business Outlook Survey (MBOS) from the Federal Reserve Bank of Philadelphia showed, indicating a return to expansion in manufacturing activity in the Third Federal Reserve District this month. A reading of 10.0 for June had been expected by the Action Economics Forecast Survey. June marked the fifth m/m increase in six months, showing a sharp improvement from -1.4 in June 2025. In June, 32.1% of firms reported increases in current general activity (up from 22.5% in May), while 21.9% reported decreases (down from 22.9%); 45.4% reported no change (down from 54.6%). Survey responses were collected from June 8 to June 15.

Haver Analytics calculates an ISM-adjusted current activity diffusion index from five key components using the methodology along the lines of the national ISM index. The index rose to 53.1 in June after a 4.8-point decline to a contraction-level 49.7 in May, indicating manufacturing activity expanded for the third time in four months; it was slightly above 51.0 in June 2025.

In the latest survey, the new orders index surged to 27.3 in June following a 34.7-point plunge to -1.7 in May, signaling new orders expanded for the sixth time in seven months. The shipments index rebounded to 14.9 this month from 4.9 in May, registering the seventh consecutive expansion. The unfilled orders index advanced to 10.5 from -2.5, indicating expansion for the first time since July 2025 and the highest level since January 2025. In contrast, the inventories index dropped to -8.5 in June from 6.6 in May, showing inventories contracted for the second time in three months and at the lowest level since July 2024. Meanwhile, the delivery times index increased to -2.6 this month from -10.4 in May (the lowest reading since March 2024).

On the labor front, the number of employees index climbed to 7.9 in June from -2.8 in May, indicating employment expanded for the first time in three months and at the highest level since January. In June, a higher 17.0% of respondents reported increases in employment, while 9.2% reported declines; 73.8% reported no change in employment levels. The average employee workweek index fell to -6.5 this month, the first negative reading and lowest since February, from 1.2 in May.

Inflation indicators were mixed in June. The prices paid index rose to 53.2 this month following an 11.4-point drop to 47.9 in May. A higher 53.5% of respondents reported increases in input prices in June, while only 0.4% reported decreases. The prices received index fell to 20.3, a four-month low, after a 7.2-point May decline to 26.3. In June, 20.3% of respondents reported increases in prices received, while 0.0% reported decreases.

The future indexes remained in positive territory, signaling continued overall growth over the next six months, with most future indicators rising. The future general activity diffusion index edged down to 50.2 in June from 53.2 in May, staying positive since February 2024. Future indexes for new orders (60.8 vs. 53.5) and shipments (60.3 vs. 45.7) increased in June (vs. May) and remained positive. Notably, the future capital expenditures index rose to 41.2 this month, the highest level since June 2021, from 30.9 in May. The following future indexes slipped in June (vs. May) but stayed in positive territory: employment (30.8 vs. 31.7), unfilled orders (17.3 vs. 19.2), and inventories (10.0 vs. 11.8). Prices continued to increase, with the future prices paid index easing to a still-elevated 63.2 in June from 70.0 in May and the future prices received index rising to 67.2, the highest level since August 2021, from 60.5.

The Manufacturing Business Outlook Survey (MBOS), conducted by the Federal Reserve Bank of Philadelphia, is a monthly survey of manufacturers in the Third Federal Reserve District. Participants indicate the direction of change in overall business activity and in the various measures of activity at their plants. The diffusion indexes in the MBOS represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. The indexes range from -100 to +100 with positive values indicating an increase in activity. The series from the survey dating back to May 1968 can be found in Haver’s **SURVEYS** database. The expectations forecast figures are from the Action Economics Forecast Survey in **AS1REPNA**.

260618P12.jpg

260618Q12.jpg

- Current General Activity Index up 10.7 pts. to 10.3 in June; fifth rise in six months.
- New Orders (27.3), sixth expansion in seven mths.; Shipments (14.9), seventh straight expansion; Unfilled Orders (10.5), first expansion since July ’25.
- Employment (7.9), a five-month high after two mths. of contraction.
- Inflation indicators: Prices Paid up (53.2); Prices Received down (20.3, a four-month low).
- Future General Activity Index down to a still-expansion-level 50.2; most subindexes up and positive; future price indexes remaining above long-run avgs.

U.S. Philadelphia Fed Index Returns to Positive Territory in June

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Unemployment in the European Monetary Union stayed at 6.3% in April, just a tick above its all-time low. In the more inclusive EU, the unemployment rate hovered at 6%, just two tenths of a percentage point above its all-time low. Unemployment conditions in the monetary union remain low without many signs of acceleration.

The unemployment rate in April fell in Italy, Ireland, Greece, Portugal, and the Netherlands. The unemployment rate increased month-to-month in Finland.

In March, the unemployment rate declined in Austria, Belgium, Germany, Finland, Italy, and the Netherlands. It rose month-to-month in Greece and Luxembourg.

Over three months, the unemployment rate in these 12-early reporting monetary union members fell in five countries: Belgium, Germany, Italy, Ireland, and the Netherlands. In contrast, unemployment rose in five countries: Portugal, Greece, France, Finland, and Austria.

Over six months, unemployment rates fell in six countries: the Netherlands, Portugal, Italy, Germany, Belgium, and Austria. This was against increases in six countries: Greece, Finland, France, Luxembourg, Spain, and Ireland.

Year over year, the degree of inflation progress is much thinner, with the unemployment rates falling in only three countries Italy, Spain, and Portugal with increases in unemployment for all the other countries in the table.

Unemployment rates continue to rank low in the monetary union, with only three monetary union countries having their unemployment rates ranked above 50%, putting them above their respective medians on data back to the year 2000. Those three countries are Luxembourg, Finland, and Austria. For the remaining countries, the rankings of their unemployment rates over this period are not even as high as their 30th percentiles. Italy, at present, is experiencing its lowest unemployment rate of the period.

Unemployment conditions in the monetary union remain solid. The past two weeks were significant for monetary policy and global economics, with the ECB raising rates, Japan raising rates, and the United States keeping rates unchanged but moving away from an easing bias in policy that had been in effect for quite a number of months. Today the Bank of England, after experiencing some significant inflation progress, decided to keep its policy on hold for another session. An agreement between the U.S. and Iran securing an opening of the Strait of Hormuz was signed, paving the way for potentially improved oil flows, lower inflation, and less uncertainty in the period ahead.

Economy in Brief

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