Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109g.jpg" width="353">
Initial claims for unemployment insurance reversed the prior week&#39;s jump and fell 20,000 last week to 308,000. Consensus expectations had been for a lesser decline to 315,000 claims.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims was nearly unchanged at 311,250 (-4.2% y/y).
With a 43,000 increase, continuing claims for unemployment insurance reversed a deepened decline the prior week.
The insured rate of unemployment backed up to 1.9%.
Construction Slowdown from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/region_focus/weekly_update/archive/2006/20060920.cfm"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">11/04/06</th>
<th scope="col">10/28/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">Initial Claims</td>
<td>308</td>
<td>328</td>
<td>-2.5%</td>
<td>332</td>
<td>343</td>
<td>403</td>
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<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,448</td>
<td>-10.3%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
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Initial claims for unemployment insurance reversed the prior week's jump and fell 20,000 last week to 308,000. Consensus expectations had been for a lesser decline to 315,000 claims. During the last ten years there has been a [...]

Initial Claims for Jobless Insurance Back Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109f.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment during November slipped 1.4% from October to 92.3 after that month&#39;s 9.6% jump. The decline slightly exceeded Consensus expectations for a decline to 93.3.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
Expectations for the economy retraced 1.9% of the prior month&#39;s 8.4% m/m surge due to a lessened expected change in personal finances which retraced all of October&#39;s gain (+5.2% y/y). Expected business conditions next year added slightly (38.6% y/y) to the sharp gains of the prior two months and over the next five years also rose a firm 1.0% (22.5% y/y) to the highest since July 2005. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109e.jpg" width="353">
The reading of current economic conditions slipped 0.7% as the current read of personal finances fell 0.8% (+13.6% y/y) and perceived buying conditions for large household goods fell 0.6% (+1.3% y/y.
Expected inflation during the next year fell to 3.4%, the lowest since early 2005. Since 1980 there has been an inverse 63% correlation between the level of sentiment and expected inflation during the next year. The five to ten year expected rate of inflation also fell m/m to 3.3%.
Consumers&#39; opinion about gov&#39;t economic policy improved 2.3% (7.2% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

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<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">November (Prelim.)</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">Consumer Sentiment</td>
<td>92.3</td>
<td>93.6</td>
<td>13.1%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
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<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.5</td>
<td>107.3</td>
<td>6.3%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
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<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>83.2</td>
<td>84.8</td>
<td>19.5%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
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The University of Michigan's preliminary reading of consumer sentiment during November slipped 1.4% from October to 92.3 after that month's 9.6% jump. The decline slightly exceeded Consensus expectations for a decline to 93.3. During [...]

U.S. Consumer Sentiment Slipped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109c.jpg" width="353">
In October, total import prices repeated the prior month&#39;s 2.0% decline and doubled Consensus expectations for a 1.0% drop. 
Prices of petroleum imports plunged another 8.3% after the 9.7% September drop but in November the price of Brent crude oil is up from the $57.70 per bbl. averaged in October.
Less petroleum import prices fell 0.6%, the largest monthly decline since February. During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109d.jpg" width="353">
Capital goods prices slipped 0.1% (-0.1% y/y) but excluding computers, capital good prices rose 0.2% (2.0% y/y). Prices for nonauto consumer goods rose 0.1% (1.0% y/y) for the third month while prices for nonoil industrial supplies &amp; materials fell 2.7% (-0.7% y/y) due to lower selected building materials prices (-6.1% y/y).
Have U.S. Import Prices Become Less Responsive to Changes in the Dollar? from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci12-6.pdf">here</a>.
Export prices fell 0.4% for the second month as nonagricultural commodities prices dropped 0.5% (+2.6% y/y) but agricultural export prices rose 1.1% (5.4% y/y).

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">Import - All Commodities</td>
<td>-2.0%</td>
<td>-2.0%</td>
<td>-0.2%</td>
<td>7.5%</td>
<td>5.6%</td>
<td>2.9%</td>
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<td class="firstcol">&nbsp; Petroleum</td>
<td>-8.3%</td>
<td>-9.7%</td>
<td>-2.9%</td>
<td>37.6%</td>
<td>30.5%</td>
<td>21.0%</td>
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<td class="firstcol">&nbsp; Non-petroleum</td>
<td>-0.6%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>1.1%</td>
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<td class="firstcol">Export- All Commodities</td>
<td>-0.4%</td>
<td>-0.4%</td>
<td>2.8%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>1.6%</td>
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In October, total import prices repeated the prior month's 2.0% decline and doubled Consensus expectations for a 1.0% drop. Prices of petroleum imports plunged another 8.3% after the 9.7% September drop but in November the price of [...]

U.S. Import Prices Down: Oil & Other Prices Off

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109a.jpg" width="353">
Lower oil prices in September caused the U.S. foreign trade to reverse the prior month&#39;s run up and fall to $64.3B. The record August deficit was revised shallower to $69.0B. The latest figure also was shallower than Consensus expectations for a deficit of $66.0B.
Imports of petroleum products fell 10.5% (+10.4% y/y) as the per barrel price of crude oil fell 5.4% to $62.52 and the quantity of crude imported per day fell 4.8% (+14.0% y/y). The price of oil in October fell another five dollars per barrel. 
Overall September imports of goods &amp; services fell 2.1% m/m and fully reversed the August gain. Imports of nonpetroleum products, however, fell only 0.7% (+9.6% y/y) after a 2.5% August rise. Imports of capital goods fell just 1.5% (10.9% y/y) after two months of gain exceeding 2% and nonauto consumer goods imports rose 1.5% (11.2% y/y), the same as during August. Automotive imports fell 1.9% (+4.1% y/y) while imports of crude materials less fuels fell 8.1% (NSA, +12.1% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109b.jpg" width="353">
Total exports added 0.5% to the firm 2.4% August gain as capital goods exports jumped another 2.0% (22.1% y/y). Exports of civilian aircraft surged by more than one third (308.2% y/y) but computer exports fell (+6.5% y/y). Exports of telecommunications equipment rose 2.3% (15.5% y/y) while exports of nonauto consumer goods fell 3.2% (+9.0% y/y) after several months of strong gain.
Service exports slipped 0.1% (+6.5% y/y) as travel exports fell 0.9% (+2.5% y/y) and passenger fares dipped 0.5% (-2.3% y/y). Imports of services ticked up 0.2% (7.9% y/y) though passenger fares fell 1.3% (-0.9% y/y).
The U.S. trade deficit in goods with China deepened to another record $23.0B in September ($201.5B in 2005) as exports fell 2.7% (+44.5% y/y) but imports rose 3.3% (18.5% y/y). With the newly industrialized Asian countries, the balance of goods trade narrowed sharply m/m to a deficit of $0.7B (-$15.8B in 2005) as exports rose 3.8% (+22.5% y/y) and imports fell 6.8% (+8.2% y/y).
Twin Deficits, Twenty Years Later from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci12-7.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">Foreign Trade&nbsp;</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">U.S. Trade Deficit</td>
<td>$64.3B</td>
<td>$69.0B</td>
<td>$65.0B (9/05)</td>
<td>$716.7B</td>
<td>$611.3B</td>
<td>$494.9B</td>
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<tr>
<td class="firstcol">Exports - Goods &amp; Services</td>
<td>0.5%</td>
<td>2.4%</td>
<td>15.8%</td>
<td>10.7%</td>
<td>13.4%</td>
<td>4.2%</td>
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<td class="firstcol">Imports - Goods &amp; Services</td>
<td>-2.1%</td>
<td>2.0%</td>
<td>9.4%</td>
<td>13.0%</td>
<td>16.7%</td>
<td>8.3%</td>
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Lower oil prices in September caused the U.S. foreign trade to reverse the prior month's run up and fall to $64.3B. The record August deficit was revised shallower to $69.0B. The latest figure also was shallower than Consensus [...]

U.S. Trade Deficit Narrowed Sharply

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109a.jpg" width="353">
Lower oil prices in September caused the U.S. foreign trade to reverse the prior month&#39;s run up and fall to $64.3B. The record August deficit was revised shallower to $69.0B. The latest figure also was shallower than Consensus expectations for a deficit of $66.0B.
Imports of petroleum products fell 10.5% (+10.4% y/y) as the per barrel price of crude oil fell 5.4% to $62.52 and the quantity of crude imported per day fell 4.8% (+14.0% y/y). The price of oil in October fell another five dollars per barrel. 
Overall September imports of goods &amp; services fell 2.1% m/m and fully reversed the August gain. Imports of nonpetroleum products, however, fell only 0.7% (+9.6% y/y) after a 2.5% August rise. Imports of capital goods fell just 1.5% (10.9% y/y) after two months of gain exceeding 2% and nonauto consumer goods imports rose 1.5% (11.2% y/y), the same as during August. Automotive imports fell 1.9% (+4.1% y/y) while imports of crude materials less fuels fell 8.1% (NSA, +12.1% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109b.jpg" width="353">
Total exports added 0.5% to the firm 2.4% August gain as capital goods exports jumped another 2.0% (22.1% y/y). Exports of civilian aircraft surged by more than one third (308.2% y/y) but computer exports fell (+6.5% y/y). Exports of telecommunications equipment rose 2.3% (15.5% y/y) while exports of nonauto consumer goods fell 3.2% (+9.0% y/y) after several months of strong gain.
Service exports slipped 0.1% (+6.5% y/y) as travel exports fell 0.9% (+2.5% y/y) and passenger fares dipped 0.5% (-2.3% y/y). Imports of services ticked up 0.2% (7.9% y/y) though passenger fares fell 1.3% (-0.9% y/y).
The U.S. trade deficit in goods with China deepened to another record $23.0B in September ($201.5B in 2005) as exports fell 2.7% (+44.5% y/y) but imports rose 3.3% (18.5% y/y). With the newly industrialized Asian countries, the balance of goods trade narrowed sharply m/m to a deficit of $0.7B (-$15.8B in 2005) as exports rose 3.8% (+22.5% y/y) and imports fell 6.8% (+8.2% y/y).
Twin Deficits, Twenty Years Later from the Federal Reserve Bank of New York is available <a href="http://www.newyorkfed.org/research/current_issues/ci12-7.pdf"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM">Foreign Trade&nbsp;</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
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<td class="firstcol">U.S. Trade Deficit</td>
<td>$64.3B</td>
<td>$69.0B</td>
<td>$65.0B (9/05)</td>
<td>$716.7B</td>
<td>$611.3B</td>
<td>$494.9B</td>
</tr>
<tr>
<td class="firstcol">Exports - Goods &amp; Services</td>
<td>0.5%</td>
<td>2.4%</td>
<td>15.8%</td>
<td>10.7%</td>
<td>13.4%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports - Goods &amp; Services</td>
<td>-2.1%</td>
<td>2.0%</td>
<td>9.4%</td>
<td>13.0%</td>
<td>16.7%</td>
<td>8.3%</td>
</tr>
</tbody>
</table>
U.S. Import Prices Down: Oil & Other Prices Off 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 9, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109c.jpg" width="353">
In October, total import prices repeated the prior month&#39;s 2.0% decline and doubled Consensus expectations for a 1.0% drop. 
Prices of petroleum imports plunged another 8.3% after the 9.7% September drop but in November the price of Brent crude oil is up from the $57.70 per bbl. averaged in October.
Less petroleum import prices fell 0.6%, the largest monthly decline since February. During the last ten years there has been a 66% (negative) correlation between the nominal trade-weighted exchange value of the US dollar vs. major currencies and the y/y change in non oil import prices. The correlation is a lower 47% against a broader basket of currencies.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109d.jpg" width="353">
Capital goods prices slipped 0.1% (-0.1% y/y) but excluding computers, capital good prices rose 0.2% (2.0% y/y). Prices for nonauto consumer goods rose 0.1% (1.0% y/y) for the third month while prices for nonoil industrial supplies &amp; materials fell 2.7% (-0.7% y/y) due to lower selected building materials prices (-6.1% y/y).
Have U.S. Import Prices Become Less Responsive to Changes in the Dollar? from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/current_issues/ci12-6.pdf">here</a>.
Export prices fell 0.4% for the second month as nonagricultural commodities prices dropped 0.5% (+2.6% y/y) but agricultural export prices rose 1.1% (5.4% y/y).

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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E8/@E807/@E807.HTM">Import/Export Prices (NSA)</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Import - All Commodities</td>
<td>-2.0%</td>
<td>-2.0%</td>
<td>-0.2%</td>
<td>7.5%</td>
<td>5.6%</td>
<td>2.9%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Petroleum</td>
<td>-8.3%</td>
<td>-9.7%</td>
<td>-2.9%</td>
<td>37.6%</td>
<td>30.5%</td>
<td>21.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Non-petroleum</td>
<td>-0.6%</td>
<td>0.2%</td>
<td>0.5%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol">Export- All Commodities</td>
<td>-0.4%</td>
<td>-0.4%</td>
<td>2.8%</td>
<td>3.2%</td>
<td>3.9%</td>
<td>1.6%</td>
</tr>
</tbody>
</table>
U.S. Consumer Sentiment Slipped 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 9, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109f.jpg" width="353">
The University of Michigan&#39;s preliminary reading of consumer sentiment during November slipped 1.4% from October to 92.3 after that month&#39;s 9.6% jump. The decline slightly exceeded Consensus expectations for a decline to 93.3.
During the last ten years there has been a 76% correlation between the level of consumer sentiment and the y/y change in real consumer spending and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.
Expectations for the economy retraced 1.9% of the prior month&#39;s 8.4% m/m surge due to a lessened expected change in personal finances which retraced all of October&#39;s gain (+5.2% y/y). Expected business conditions next year added slightly (38.6% y/y) to the sharp gains of the prior two months and over the next five years also rose a firm 1.0% (22.5% y/y) to the highest since July 2005. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109e.jpg" width="353">
The reading of current economic conditions slipped 0.7% as the current read of personal finances fell 0.8% (+13.6% y/y) and perceived buying conditions for large household goods fell 0.6% (+1.3% y/y.
Expected inflation during the next year fell to 3.4%, the lowest since early 2005. Since 1980 there has been an inverse 63% correlation between the level of sentiment and expected inflation during the next year. The five to ten year expected rate of inflation also fell m/m to 3.3%.
Consumers&#39; opinion about gov&#39;t economic policy improved 2.3% (7.2% y/y).
The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

<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">November (Prelim.)</th>
<th scope="col">October</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Consumer Sentiment</td>
<td>92.3</td>
<td>93.6</td>
<td>13.1%</td>
<td>88.6</td>
<td>95.2</td>
<td>87.6</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Current Conditions</td>
<td>106.5</td>
<td>107.3</td>
<td>6.3%</td>
<td>105.9</td>
<td>105.6</td>
<td>97.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Expectations</td>
<td>83.2</td>
<td>84.8</td>
<td>19.5%</td>
<td>77.4</td>
<td>88.5</td>
<td>81.4</td>
</tr>
</tbody>
</table>
Initial Claims for Jobless Insurance Back Down 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 9, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109g.jpg" width="353">
Initial claims for unemployment insurance reversed the prior week&#39;s jump and fell 20,000 last week to 308,000. Consensus expectations had been for a lesser decline to 315,000 claims.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims was nearly unchanged at 311,250 (-4.2% y/y).
With a 43,000 increase, continuing claims for unemployment insurance reversed a deepened decline the prior week.
The insured rate of unemployment backed up to 1.9%.
Construction Slowdown from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/region_focus/weekly_update/archive/2006/20060920.cfm"> 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/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">11/04/06</th>
<th scope="col">10/28/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>308</td>
<td>328</td>
<td>-2.5%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,448</td>
<td>-10.3%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
UK Trade Deficit Also Eases with Oil Prices; Heightened Law Enforcement Reduces "MTIC Fraud Trade" 
by <a href="/comment/Stone.html">Carol Stone</a> November 9, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109h.jpg" width="353">
Easing oil prices also helped ease the trade deficit in the UK. It fell to &pound;4.1 billion in September from &pound;4.5 billion in August. The deficit on goods alone was &pound;6.6 billion, down from &pound;6.9 billion. Total exports of goods and services stood at &pound;29.2 billion, actually down a bit from &pound;29.3 billion in August. Imports fell more, to &pound;33.3 billion from &pound;33.8 billion. Excluding oil the balance was basically unchanged from August to September at -&pound;6.1 billion. Thus, for now, erosion in the trade accounts due to the surging value of oil imports has been stopped.
However, the interesting story to us in this month&#39;s UK trade data is the report for the first time of the amount of VAT-evasion fraud in the data. The VAT rate in the UK is 17.5% on most goods. Some unscrupulous business people want to avoid paying this amount to Her Majesty&#39;s Treasury. Using the trading system and the VAT collection system itself, they not only avoid paying the tax, but also in some cases actually pocket the revenues for themselves. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109i.jpg" width="353">
These practices first came to light about six years ago and their impact on trade data started to get notice in 2003. Last year and now again this month, Her Majesty&#39;s Revenue and Customs (HMRC) have enhanced their enforcement efforts and identified larger quantities of misrouted trade. Initially, the practice was confined to EU trade, where cross-border transactions are largely unsupervised. Now, as HMRC has picked up the fraud more there, the perpetrators have moved to other countries, specifically Dubai and Switzerland, according to the ONS press release. Cell phones and computer components are apparently the most frequent items involved in these practices.
Traders import merchandise and then sell it on, either domestically or abroad. Then they &quot;disappear&quot; without making the required VAT payments. Thus, this scheme is called &quot;Missing Trader Intra-Community [EU] fraud, known as MTIC. The &quot;customers&quot; may sometimes be their own business associates, who sell the goods again in order to pocket the VAT again. Then it is called a &quot;carousel cycle&quot;. For most of the time since 1999, this has been small: at most &pound;1 billion per month and usually &pound;200-300 million. But over the last year, it has grown much more significantly, as seen in the table below. In Q1 and Q2 particularly, it amounted to &pound;9.8 billion and &pound;12.9 billion, respectively, accounting for nearly 16% and just over 19% of reported UK exports. The decline in exports in Q3 is almost totally absorbed by a reduction in the illegal MTIC trade, which was &quot;only&quot; &pound;3.6 billion. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061109j.jpg" width="353">
Probably data users who are well acquainted with the UK are aware of this issue, but others need to know. Most recently, it has greatly distorted both exports and imports and complicates interpretation of the data on them. For instance, the sharp drop in trade in Q3 could signal less rigor in the UK economy, but instead, evidently, it signals more rigorous law enforcement. The ONS is so concerned about the mixed signals in this information that its initial brief announcement of the September data consisted in more text about data reliability than about the figures themselves, much as this comment does. Note that we have highlighted the export side in our discussion, but imports are involved just as much.ONS introduced today quarterly data on the MTIC &quot;fraud trade&quot;, along with current price and chained price series of exports and imports net of this phantom activity. Haver&#39;s database managers are preparing to enter these series in the UK database. Clients can watch Data News in the Client Area of Haver.com and in HaverSelect.com for their availability.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U8/@U8.HTM">UK</a><a href="http://www.haverselect.com/dlx/UK/@U8/@U8.HTM">, Seas Adjusted</a></th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</th>
<th scope="col">July 2006</th>
<th scope="col">Year Ago</th>
Monthly Averages
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Million &pound;Trade Balance: Goods &amp; Services</td>
<td>-4,087</td>
<td>-4,544</td>
<td>-4,699</td>
<td>-4,205</td>
<td>-3,775</td>
<td>-2,915</td>
<td>-2,454</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Goods</td>
<td>-6,560</td>
<td>-6,856</td>
<td>-7,055</td>
<td>-6,033</td>
<td>-5,723</td>
<td>-5,074</td>
<td>-4,051</td>
</tr>
<tr>
<td class="firstcol">Exports of Goods</td>
<td>19,182</td>
<td>19,396</td>
<td>18,846</td>
<td>18,596</td>
<td>17,641</td>
<td>15,906</td>
<td>15,693</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports of Goods</td>
<td>25,742</td>
<td>26,252</td>
<td>25,901</td>
<td>24,629</td>
<td>23,364</td>
<td>20,981</td>
<td>19,744</td>
</tr>
<tr>
<td class="firstcol">Goods Bal ex Oil</td>
<td>-6,101</td>
<td>-6,134</td>
<td>-6,725</td>
<td>-5,315</td>
<td>-5,541</td>
<td>-5,149</td>
<td>-4,332</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Q3 2006</td>
<td>Q2 2006</td>
<td>Q1 2006</td>
<td>Q4 2005</td>
<td colspan="3">Quarterly Averages</td>
</tr>
<tr>
<td class="firstcol">Billion &pound;Reported Exports</td>
<td>57.4</td>
<td>67.1</td>
<td>62.7</td>
<td>56.4</td>
<td>52.9</td>
<td>47.7</td>
<td>47.1</td>
</tr>
<tr class="odd">
<td class="firstcol">MTIC Fraud</td>
<td>3.6</td>
<td>12.9</td>
<td>9.8</td>
<td>4.4</td>
<td>2.8</td>
<td>0.6</td>
<td>1.1</td>
</tr>
<tr>
<td class="firstcol">Exports Net of Fraud</td>
<td>53.8</td>
<td>54.1</td>
<td>52.9</td>
<td>52.0</td>
<td>50.1</td>
<td>47.0</td>
<td>46.0</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061108b.jpg" width="353">
The total number of mortgage applications recovered 8.8% last week and more than made up the several sharp w/w declines during October, according to the Mortgage Bankers Association. The level of total applications started November 5.9% above the October average which fell 0.6% from September.
Applications to refinance jumped 11.0% to the highest level since late September. They began this month 6.7% above the October average which rose 3.5% from September.
Purchase applications in addition rose strongly, by 7.1%. The gain also was to the highest level since late September and pulled the opening level this month 5.4% ahead of the October average level. Purchase applications fell 3.6% last month from September on average.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061108a.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage was unchanged w/w at 6.46%. The peak for 30 year financing was 7.08% late in June. The rate for 15-year financing ticked up to 6.20%. The peak for 15 year financing was 6.75% during June. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.
Partisan Impacts on the Economy: Evidence from Prediction Markets and Close Elections from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/papers/2006/wp06-08bk.pdf"> here</a>.
Alternative Mortgages: Managed Risk or Gamble? from the Federal Reserve Bank of Boston can be found <a href="http://www.bos.frb.org/commdev/c&amp;b/2006/spring/alternative.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/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">11/03/06</th>
<th scope="col">10/27/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>620.9</td>
<td>570.8</td>
<td>-6.1%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>402.2</td>
<td>375.6</td>
<td>-13.6%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,897.9</td>
<td>1,709.2</td>
<td>5.5%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
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The total number of mortgage applications recovered 8.8% last week and more than made up the several sharp w/w declines during October, according to the Mortgage Bankers Association. The level of total applications started November [...]

Mortgage Applications Recovery Big

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107e.jpg" width="353">
By the many measures of family living expenditures the Ministry of Internal Affairs and Communications publishes, Japanese families have been reducing their living expenditures. The index of living expenditures for all households in Japan declined 2.8% in September. Those of worker households declined 3.35%. On seasonally adjusted bases, all households reduced spending on average in September by 1.97% in real terms and 2.16% in nominal terms.Comparable declines for the worker households were 2.42% and 2.32%. The September declines have, in most cases followed declines in August and July. The first chart showing the seasonally adjusted real living expenditure by all households is illustrative of declines in the various measures of household living expenditures over the recent quarter. In addition to the various indexes, data in yen are also available.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107g.jpg" width="353">
The seasonally unadjusted data give details of the composition of expenditures. For example, in September, expenditures on food, fuel, light and water charges, medical care, education and culture all rose while expenditures on housing, furniture and household utensils, clothing and foot ware, transportation and communication and miscellaneous all declined. The second chart shows expenditures on medical care and transportation,<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107h.jpg" width="353">
In addition to the seasonally adjusted data on expenditures, data are also available on income, disposable income and the propensity to consume. The propensity to consume for all households increased in August and September, in spite of the decline in expenditures since the decline in disposable income was greater than the decline in living expenditures. Even with the rise, the propensity to consume is still at a historically low level as can be seen in the third chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107f.jpg" width="353">
One would think that the living expenditure series might be a good indicator of consumer spending in the national accounts. The relationship, however, appears tenuous as can be seen in the fourth chart that compares the seasonally adjusted real living expenditures of all households with final consumption expenditures in GDP. Nevertheless, the recent trend in the real living expenditures looks ominous. (To compare the two series, we aggregated the monthly data of the living expenditure series on a quarterly basis and we put the Consumption data on an index with the same basis--(2005=100)--as the living expenditure series.

<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/JAPAN/@J8/@J808/@J808.HTM">Japan:&nbsp; Family Living Expenditures (2005=100)</a></th>
<th scope="col">Sep 06</th>
<th scope="col">Aug 06</th>
<th scope="col">Sep 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">All Households NSA </td>
<td>94.0</td>
<td>96.7</td>
<td>100.3</td>
<td>-2.79</td>
<td>-6.28</td>
<td>100.0</td>
<td>100.1</td>
<td>99.6</td>
</tr>
<tr>
<td class="firstcol">Worker Households&nbsp;NSA</td>
<td>92.3</td>
<td>95.5</td>
<td>99.2</td>
<td>-3.35</td>
<td>-6.96</td>
<td>100.0</td>
<td>99.8</td>
<td>98.5</td>
</tr>
<tr class="odd">
<td class="firstcol"> All Household SA </td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Real</td>
<td>94.5</td>
<td>96.4</td>
<td>100.5</td>
<td>-1.97</td>
<td>-5.97</td>
<td>100.0</td>
<td>100.5</td>
<td>100.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Nominal</td>
<td>95.2</td>
<td>97.3</td>
<td>100.5</td>
<td>-2.16</td>
<td>-5.27</td>
<td>100.0</td>
<td>100.8</td>
<td>100.4</td>
</tr>
<tr>
<td class="firstcol"> Worker Household SA </td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Real</td>
<td>92.7</td>
<td>94.9</td>
<td>99.3</td>
<td>-2.32</td>
<td>-6.65</td>
<td>100.0</td>
<td>100.3</td>
<td>98.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Nominal</td>
<td>93.2</td>
<td>95.5</td>
<td>99.1</td>
<td>-2.41</td>
<td>-5.95</td>
<td>100.0</td>
<td>100.7</td>
<td>99.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Propensity to Consume All HH (Nominal SA)(%)</td>
<td>70.3</td>
<td>69.8</td>
<td>74.7</td>
<td>0.5*</td>
<td>-4.4*</td>
<td>74.5</td>
<td>74.1</td>
<td>74.0</td>
</tr>
</tbody>
</table>
</body>
</html>

By the many measures of family living expenditures the Ministry of Internal Affairs and Communications publishes, Japanese families have been reducing their living expenditures. The index of living expenditures for all households in [...]

Japanese Household Living Expenditures Decline Sharply: Implications for 3rd Q GDP?

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

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

Equity market exuberance outpacing macroeconomic data

Apart from Japan, Blue Chip forecasters expect further sizable monetary easing

US production rebounded in Q2, but demand continued to slow

US leader, Germany trailer for real GDP growth over past 3 years

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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The **PCE chain price index** increased 0.2% (2.6% y/y) after rising an unrevised 0.3% in June and an unrevised 0.2% in May. The y/y gain steadied at 2.6%. It was increased from 2.2% y/y in April. Energy prices fell 1.1% (-2.7% y/y) after rising 0.9%, while food & beverage prices eased 0.1% (+1.9% y/y) following a 0.3% rise. The price index excluding food & energy rose a steady 0.3%, after two straight 0.2% increases. The y/y gain edged up to 2.9% last month from 2.8% in June. It was increased from a low of 2.6% in April.

Durable goods prices eased 0.1% (+1.1% y/y) in July, after rising 0.5% in June. Home furnishings & appliance prices edged 0.1% higher (2.5% y/y), after increasing 1.3%. Recreational goods & vehicle costs declined 0.9% (-0.3% y/y) and reversed the 0.9% June strengthening. Motor vehicle & parts prices rose 0.2% (1.6% y/y), after a 0.4% June decline.

Prices of nondurable goods eased 0.1% (+0.2% y/y) last month after rising 0.4% in June. Clothing prices held steady both m/m and y/y after rising 0.3% in June. Food & beverage prices eased 0.1% (+1.9% y/y), following a 0.4% June increase. Gasoline & other energy prices fell 1.7% (-9.6% y/y), after rising 0.9% in June.

Services prices in July rose 0.3% (3.6% y/y), after four straight 0.2% increases. Housing & utility prices rose 0.2% (4.3% y/y), after two consecutive 0.3% increases, and services prices excluding energy & healthcare gained 0.4% (3.7% y/y) after two 0.2% gains. Healthcare prices rose 0.2% (2.7% y/y), after rising 0.4%. The cost of financial services & insurance jumped 1.2% (5.5% y/y) after rising 0.4% in June. Recreation services costs rose 0.3% (3.2% y/y) after rising 0.1%. Transportation prices gained 0.2% (4.4% y/y), following a 0.1% rise, while hotel & restaurant prices improved 0.1% (2.8% y/y) after a slight June decline.

**Personal consumption expenditures (PCE)** rose 0.5% (4.7% y/y) last month after increasing 0.4% in June, revised from 0.3%, after holding steady in May. The July rise matched expectations in the Action Economics Forecast Survey. When adjusted for price changes, PCE improved 0.3% in July (2.1% y/y) after rising 0.1% in June.

Real spending on durable goods increased 2.0% (3.2% y/y) in July, after falling for three straight months. Real spending on motor vehicles jumped 4.5% (3.5% y/y), after falling sharply in both June and May. Real outlays on furnishings & appliances improved 0.2% (0.9% y/y), after falling in each of the prior month. Real spending on recreational goods & vehicles increased 1.5% (4.9% y/y) last month, after falling 0.4% in June. Spending on “other” durable goods improved 0.4% (2.6% y/y) after rising 0.2% in June.

Nondurable goods spending in real terms rose 0.3% (2.7% y/y) in July after gaining 0.6% in June. Real clothing & footwear purchases rose 0.6% (4.9% y/y) last month, following a 0.5% rise during June. Real food & beverage purchases strengthened 0.7% (1.7% y/y) after rising 0.4%. Real outlays on gasoline & other energy products fell 1.3% (-1.5% y/y), after rising 1.5%. Real spending on “other” nondurable goods edged 0.1% higher (4.1% y/y) last month, following a 0.6% rise in June.

Real spending on services improved 0.1% (1.7% y/y) in July for the second straight month. Real spending on housing & utilities rose 0.1% (1.1% y/y) in July, for a second consecutive month, while real health care spending also rose 0.1% (3.9% y/y) after rising 0.2%. Real spending on food services & accommodations eased 0.2% (+1.7% y/y), after rising 0.4% in June. Real spending on financial services & insurance rose 0.2% (2.4% y/y) after increasing 0.4% in June. Real spending on transportation services rose 0.3% (-0.0% y/y) in July, after falling 0.6% in June. Recreation spending slipped 0.1% (+1.0% y/y), the same as in June. Spending on “other” services rose 0.3% (2.7% y/y) for the second straight month.

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**Personal income** rose 0.4% last month (5.0% y/y) after increasing 0.3% in June. A 0.5% gain was expected. Wages & salaries moved 0.6% higher (5.3% y/y), following a 0.1% increase during June. Rental income increased 0.5% (4.0% y/y) in July, after falling for three straight months. Proprietors’ income improved 0.7% (2.3% y/y), after a minimal 0.1% increase. Income from assets rose 0.1% (1.4% y/y), after holding steady in June, and current transfer receipts were unchanged (8.3% y/y) following a 1.1% June increase.

Disposable personal income increased 0.4% (4.6% y/y) during July following a 0.3% June rise. After adjusting for price changes, disposable income improved 0.2% (2.0% y/y) after holding steady in June.

The personal saving rate held steady in July at 4.4%, after falling from 5.0% in April. It still stands well above low of 3.5% in December of last year. Personal saving fell 1.7% (+5.8% y/y) in July, after declining 0.9% in June.

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

**Let’s Get On with It** from Fed Governor Christopher J. Waller is available [here](https://www.federalreserve.gov/newsevents/speech/waller20250828a.htm).

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- Core price increase y/y matches highest since February.
- Real spending moderation centers on services.
- Real disposable income improves; personal savings rate steadies.

U.S. Core PCE Price Inflation Up in July; Real Spending Slows Y/Y 

Winnie Tapasanun

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The advance estimate of the U.S. international trade deficit in goods widened to a larger-than-expected $103.57 billion in July after narrowing to $84.85 billion in June, data from the U.S. Census Bureau showed. The July reading, the second widening in the goods trade deficit in three months, was slightly smaller than a $103.92 billion shortfall in July 2024. A deficit of $90.2 billion for July had been expected by the Action Economics Forecast Survey. The deficit reached a record $161.95 billion in March. In Q2'25, the goods trade deficit narrowed to $266.96 billion, the smallest since Q4'23, after ballooning to a record $465.035 billion in Q1'25; the monthly deficit averaged $88.99 billion in Q2'25, down from a record $155.01 billion in Q1'25.

Total goods exports dipped 0.1% m/m (+3.0% y/y), the third consecutive monthly decline, to $177.97 billion in July, the lowest level since January, after a 0.7% decrease to $178.08 billion in June. April registered a record high of $190.08 billion. Exports were up 9.6% from a June 2023 low but down 2.1% from a July 2022 high. The m/m decline in exports in July reflected exports m/m drops of 2.4% (+16.3% y/y) in other goods, 0.9% (+5.1% y/y) in nonfood consumer goods excluding autos, and 0.8% (-1.2% y/y) in industrial supplies & materials. To the upside, exports for the following end-use categories rose m/m in July: automotive vehicles & parts (2.2%; -4.0% y/y), capital goods excluding autos (0.7%; 7.0% y/y), and foods, feeds & beverages (0.5%; 1.4% y/y).

Total goods imports rebounded 7.1% m/m (1.7% y/y), the first monthly increase since March, to a four-month-high $281.54 billion in July following a 4.6% drop to $262.94 billion in June. March registered a record high of $344.59 billion. Imports were up 11.9% from a June 2023 low but down 2.6% from a March 2022 high. The m/m rebound in imports in July reflected m/m rises in most imports end-use categories. These included a 25.4% surge (the first m/m increase and the largest since January; 4.9% y/y) in industrial supplies & materials as well as rises of 11.5% (23.5% y/y) in other goods, 4.8% (14.7% y/y) in capital goods excluding autos, 2.4% (4.9% y/y) in foods, feeds & beverages, and 2.1% (-12.2% y/y) in nonfood consumer goods excluding autos. In contrast, imports of automotive vehicles & parts, the only end-use category with a monthly decline in July, fell 3.2% (-14.1% y/y), the third m/m fall in four months, on top of a 3.6% June decrease.

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

- Deficit: $103.57 bil. in July, jumping 22.1% from June’s $84.85 bil.
- Exports -0.1%, down for the third straight month, led by a 2.4% decline in exports of other goods.
- Imports +7.1%, up for the first time since March, led by a 25.4% surge in imports of industrial supplies & materials.

U.S. Goods Trade Deficit Balloons in July; Largest Since March’s Record High

Robert Brusca

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Inflation in the monetary union was tepid across the large, early-reporting, economies in August. The HICP rose by 0.2% on the month in Germany, rose by 0.1% in France, while it was flat in both Italy and Spain. However, these outstanding readings followed several months of stronger inflation; in particular in July German prices rose by 0.2%, in Italy the gauge rose by 0.3%, in France by 0.4%, and in Spain by 0.5%.

As a result, over three months, inflation is running hot on the headline gauge, over 2% in France, Italy, and Spain, and just below it, at a 1.8% annual rate in Germany. Over 12 months, inflation is well behaved, but that headline is up 0.8% in France, rises by 1.7% over 12 months in Italy, by 2.1% in Germany, and at a 2.6% pace in Spain. That is a bit more mixed but still quite solid set of results. The EMU-wide HICP for July – on a one-month lag- rises by 2.1% over 12 months with a core at 2.3%.

Core inflation is not well reported on an early basis. The Italian core rate rose 0.2% in August with Spain at 0.3%; both Italy and Spain logged increases of 0.3% in July and in June and as a result the 3-month inflation rate on the core for Italy and Spain runs at 2.7% in Italy and at 3.8% for Spain. These, of course, are much higher and more disturbing numbers for inflation. The 6-month inflation rate for core Italy and Spain runs at 2.9% and 3.1%, respectively, while over 12 months the Italian core is up by only 2.1% and the Spanish core is up by only 2.4%. The kick up and inflation for the core is a relatively recent phenomenon.

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These statistics give the ECB some room and some time to maneuver, since headline inflation is in pretty good shape and the inflation issues are scattered and have emerged more recently from the core and with growth still weak and with rising unemployment in Germany where it just topped 3 million for the first time in a decade. There may not be any impetus to have to raise rates to cool inflation. The European Central Bank, like the Federal Reserve, is likely playing a watch and wait game with the economic statistics, and this month the watch and wait game turned pretty much in its favor with very good headline figures although still having some difficult core figures. It will take a little time before we get the core numbers for the rest of the monetary union members to fill in to understand exactly where those trends sit.

However, based on the early returns, the ECB is probably relatively happy with how inflation is sitting even with the core rates slightly excessive and varied. There doesn't appear to be any burgeoning inflation problem; there's some kind of a modest core inflation issue building in Italy and Spain and we'll have to watch that in the coming months. For now, the ECB should be relatively content.

Europe

EMU Large Country Inflation Runs Cold – Over Tepid Cores

Andrew Cates

**The US labour market**
The latest data highlight a growing sense of fragility in the US labour market. The unemployment rate, while still relatively low by historical standards, has been edging higher through the course of this year. More telling, however, is the signal from this week’s consumer confidence survey from Conference Board and specifically the labour market differential — the gap between the share of consumers saying jobs are plentiful versus those saying jobs are hard to get. That balance has narrowed sharply, moving back toward levels historically associated with softer labour demand and rising unemployment.

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**Goods and services inflation** 
Haver’s breakdown of goods and services CPI inflation in the advanced economies highlights where fresh risks are emerging. Goods inflation, which had been receding sharply after the pandemic supply shocks, has recently shown signs of firming again. Some of this probably reflects the impact of US tariff policies, which are raising import costs and putting renewed upward pressure on traded goods prices. While services inflation remains the more stubborn component in most advanced economies, the risk is that tariffs could reintroduce stickiness into goods prices, slowing the overall disinflation process.

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**China, Europe and US trade policy**
A consequence of US tariff policies has been a sharp contraction in Chinese exports to the US market, with much of the surplus redirected elsewhere. Europe in particular has recorded near double-digit import growth in recent months, raising concerns that Beijing is deflecting its industrial overcapacity problem rather than resolving it, effectively transferring the pressure onto trading partners. China’s authorities, however, have begun to push back, introducing measures to curb excess supply and rein in so-called “involution,” including clampdowns on price wars across several industries.

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**China’s excess capacity and Europe**
A closer look at Europe–China trade shows that electric vehicles remain a key flashpoint. Import volumes from China have continued to rise even as per-unit prices fall sharply from a year ago —evidence suggesting that industrial overcapacity persists, with low-cost Chinese EVs increasingly challenging European automakers. The surge has carried on despite EU tariffs of up to 45% on battery EVs, as Chinese producers have adapted by pushing plug-in hybrids and expanding onshore production in Europe to bypass duties and defend market share.

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**Wage growth in the US and Europe** 
Turning back to inflation dynamics, the UK stands out for its persistent wage pressures. While posted wage growth has cooled across the US and euro area, the UK measure has remained elevated at around 6% year-on-year, well above pre-pandemic norms. This stickiness reflects a still-tight labour market in key service sectors, even as broader activity has slowed and unemployment has edged higher. For the Bank of England, it underscores the dilemma: headline inflation is easing, but underlying pay growth risks keeping services inflation uncomfortably high, complicating the timing and scale of policy easing.

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**The UK economy**
The UK’s net international investment position has deteriorated noticeably in recent years, with both direct investment and portfolio flows showing persistent weakness. The latest data underline how net FDI has turned increasingly negative, while the portfolio investment balance has also eroded, leaving the UK more reliant on volatile short-term funding sources. This deterioration comes against a backdrop of heightened investor unease about the riskiness of UK debt markets, where elevated gilt yields and rising debt-servicing costs have amplified concerns over fiscal sustainability. Taken together, these trends underscore the vulnerability of the UK’s external position at a time when global capital is arguably proving more selective and risk sensitive.

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Global markets have continued to rally into late summer, buoyed by AI optimism, dovish signals from central bankers at Jackson Hole, and expectations of easier policy ahead. Yet beneath the surface, risks to the world economy are accumulating. In the US, labour market indicators point to softening conditions (chart 1), while tariff-driven pressures are beginning to push goods prices higher (chart 2). Global trade flows are being reshaped by US policy, with China’s excess capacity increasingly diverted toward Europe, most visibly through surging exports of electric vehicles (EVs) (charts 3 and 4). At the same time, wage growth remains stubbornly elevated in the UK, complicating disinflation (chart 5), while concerns are mounting over the country’s external vulnerabilities as net FDI and portfolio positions weaken against the backdrop of jittery debt markets (chart 6). Together, these dynamics highlight the tension between buoyant market performance and a global economy still grappling with structural fragilities.

Charts of the Week: Riskbusters

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Real GDP grew 3.3% (SAAR) during the second quarter of 2025, revised from a 3.0% gain reported initially. The increase followed an unrevised 0.5% decline in Q1. A 3.1% rise had been expected in the Action Economics Forecast Survey. Growth during the last four quarters of 2.1% compared to 2.0% y/y in Q1, and remained below its most recent high of 3.2% in Q4 2023.

After-tax corporate profits without IVA & CCA adjustment increased 1.4% (7.0% y/y) last quarter after easing 0.8% in Q1. Before-tax earnings with IVA & CCA rose 1.7% (4.3% y/y) after falling 2.3% in Q1. Financial sector earnings rose 1.4% (15.3% y/y) after rising 2.3% in Q1. Nonfinancial corporate profits rose 2.2% (2.5% y/y) after falling 2.5% in Q1. Earnings from abroad eased 0.7% (-0.4% y/y) following a 7.3% Q1 decline.

Foreign trade balance improvement added 4.95 percentage points to growth last quarter after subtracting 4.61 percentage points in Q1. Imports fell 29.8% (+1.3% y/y) after surging 38.0% in Q1. Exports declined 1.3% (+2.0% y/y) after improving 0.4% in Q1. Inventories subtracted 3.29 percentage points from growth after adding 2.59 percentage point to Q1 growth.

Real final sales to domestic purchasers grew 1.6% (2.4% y/y), revised from 1.1%, in Q2 after rising 1.5% in Q1. Personal consumption expenditures rose 1.6% (2.4% y/y), revised from 1.4%, following a 0.5% gain. Durable goods spending rose 2.6% (4.6% y/y) after falling 3.7% in Q1. Motor vehicle purchases strengthened 11.7% (6.7% y/y) after declining 11.2% in Q1. Spending on home furnishings & appliances weakened 2.1% (+3.5% y/y) following a 1.5% rise. Recreational goods & vehicle outlays fell 3.5% (+4.3% y/y) last quarter after a 0.4% Q1 gain.

Nondurable goods outlays in constant dollars rose 2.3% (3.0% y/y) following 2.1% growth in Q1. Apparel spending increased 5.4% (4.8% y/y) following a 7.0% rise. Food & beverage buying gained 0.3% (1.5% y/y) after a 1.0% increase. Gasoline & fuel oil purchases weakened 1.4% (+0.9% y/y) after gaining 3.6% in Q1.

Real spending on services increased 1.2% (1.9% y/y) after a 0.6% gain. Outlays on housing & utilities eased 0.4% (+1.1% y/y) after rising 2.9% in Q1. Health care expenditures rose 4.2% (4.8% y/y) after a 3.1% increase. Transportation outlays declined 2.9% (-0.6% y/y) after a 1.4% rise, while recreation spending rose 3.6% (0.7% y/y) following a 5.1% decline. Restaurant & hotel expenditures increased 5.1% (1.9% y/y) after falling 1.8%. Financial services expenditures rose 1.9% (2.3% y/y) following a 0.1% Q1 increase.

Business fixed investment in constant dollars increased 5.7% last quarter (4.2% y/y), revised from 1.9%, following a 10.3% surge in Q1. Expenditures on structures declined 8.9% (-3.4% y/y), after falling 2.4% in Q1. Expenditures on producers’ durable equipment increased 7.4% (7.7% y/y), revised from 4.8%, after surging 23.7% in Q1. Outlays on information processing equipment rose 10.1% (20.1% y/y), revised from 5.5%, after soaring 72.8% during Q1. Industrial equipment investment rose 6.7% (4.0% y/y) after a 4.7% rise. Transportation equipment investment surged 20.4% (6.8% y/y) after a 6.9% gain. Intellectual property product spending rose 12.8% last quarter (5.2% y/y) following a 6.0% rise.

Residential structures investment in real terms declined a little-revised 4.7% (-1.3% y/y), the fourth decline in the last five quarters.

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Government spending eased 0.2%, revised from up 0.5% in Q2 (+1.8% y/y) after a 0.6% decline. Federal government expenditures declined 4.7% (+0.7% y/y) after falling 4.6% in Q1. National defense expenditures increased 1.4% (3.0% y/y) after declining 7.1% in Q1. State & local government spending rose 2.6% (2.5% y/y) following a 2.0% rise.

The GDP chain price index rose an unrevised and expected 2.0% last quarter (2.5% y/y) after increasing 3.8% in Q1. The PCE chain price index increased 2.0% (2.4% y/y) following a 3.7% rise. The PCE price index excluding food and energy rose 2.5% (2.7% y/y) after increasing 3.5% in Q1. The business fixed investment price index edged 0.5% lower (+1.1% y/y) after a 0.4% rise. The residential price index rose 1.1% (2.6% y/y) after a 4.1% rise while the government price index increased 3.3% (3.1% y/y) following a 4.6% rise.

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

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- Business investment strengthens & consumer spending firms.
- U.S. business earnings reverse Q1 decline.
- Increase in price index is unrevised, remaining roughly half of Q1’s gain.

Economy in Brief: 2006

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Initial Claims for Jobless Insurance Back Down

U.S. Consumer Sentiment Slipped

U.S. Import Prices Down: Oil & Other Prices Off

U.S. Trade Deficit Narrowed Sharply

U.S. Trade Deficit Narrowed Sharply

Mortgage Applications Recovery Big

Mortgage Applications Recovery Big

Japanese Household Living Expenditures Decline Sharply: Implications for 3rd Q GDP?