Tom Moeller

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101d.jpg" class="large" align="left">
The Composite Index of activity in the manufacturing sector,
reported by the Institute of Supply Management (ISM), fell to 50.9 last
month from 52.0 during September. A reading above 50 indicates growth
in factory sector activity. Consensus expectations had been for a
reading of 51.6.
Last month's PMI figure was the lowest since January when
industrial production in the factory sector fell 0.6%. The three month
% change in factory sector output fell to 0.4% last month
During the last twenty years there has been a 64% correlation
between the level of the Composite Index and the three month growth in
factory sector industrial production.
It is appropriate to correlate the ISM index level
with factory sector growth because the ISM index
is a diffusion index. It measures growth by being constructed using all
of the absolute positive changes in activity added to one half of the
no change in activity measures.
Declines in three of the index's five components accounted for
the lower composite index, notable was the decline in the production
component. The inventories component rose sharply to its highest level
since July and employment also rose.
The modest 0.3 point rise in the employment index to 52.0
followed a 0.4 point September rise. During the last twenty years there
has been a 67% correlation between the level of the ISM employment
Index and the three month growth in factory sector employment.
The index of new export orders recovered all of its September
decline with a 2.5 point rise to 57.0. The import index conversely fell
to 47.5, the lowest level since 2001 and suggestive that imports
declined last month.
The prices index moved much higher with the rise in oil
prices. During the last twenty years there has been a 77% correlation
between the price index and the three month change in the PPI for
intermediate goods. 

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101e.jpg" class="small"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101f.jpg" class="small">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"></th>
<th scope="col">October </th>
<th scope="col">September
</th>
<th scope="col">October'06
</th>
<th scope="col">2006 </th>
<th scope="col"> 2005</th>
<th scope="col">2004 </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>50.9</td>
<td>52.0</td>
<td>51.5</td>
<td>53.9</td>
<td>55.5</td>
<td>60.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>52.5</td>
<td>53.4</td>
<td>52.1</td>
<td>55.4</td>
<td>57.4</td>
<td>63.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>63.0</td>
<td>59.0</td>
<td>47.0</td>
<td>65.0</td>
<td>66.4</td>
<td>79.8</td>
</tr>
</tbody>
</table>

</body></html>

The Composite Index of activity in the manufacturing sector, reported by the Institute of Supply Management (ISM), fell to 50.9 last month from 52.0 during September. A reading above 50 indicates growth in factory sector activity. [...]

ISM Index Near "No Growth" Level

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<img align="left" class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101c.jpg">
Initial claims for unemployment insurance fell slightly last week but it was only to 327,000 from an upwardly revised 333,000 during the prior week. There were no distortions to the figure from holidays.
The four week moving average of initial claims rose again to 327,000 (4.1% y/y).
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last six years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
Continuing claims for unemployment insurance rose a sharp 2.6%. The increase during the prior week was downwardly revised slightly.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment rose to 2.0%. from 1.9% the week prior. 

<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">10/27/07 </th>
<th scope="col">10/20/07 </th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;327</td>
<td>333</td>
<td>-0.6%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance fell slightly last week but it was only to 327,000 from an upwardly revised 333,000 during the prior week. There were no distortions to the figure from holidays. The four week moving average [...]

U.S. Initial Unemployment Insurance Claims Still Higher

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<div align="left"><img align="left" class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101a.jpg">
Personal consumption expenditures rose 0.3% in September, below the downwardly revised 0.5% August increase and below expectations for a 0.4% rise. A pattern of steadily declining rates of increase prevailed through 2007; 1Q up 7.3% (AR), 2Q up 5.7%, 3Q 4.7%.
Most of that slowdown, however, reflects easier price gains. Adjusted for inflation, consumption rose 3.0% last quarter following a 1.4% 2Q gain and a 3.7% 1Q increase. For the year as a whole 2007 real personal consumption should turn in a 3.1% rise, the same as during 2006.
For September, the slower real increase of 0.1% versus a 0.6% August jump reflected a much easier 0.7% rise in auto sales. In the nondurable area spending on tobacco and clothing dropped. In the services area spending on recreation and electricity &amp; gas consumption fell. These (perhaps too) fine levels of detail are available in Haver&#39;s USNA database.
Personal income rose 0.4% in September, the same as during an upwardly revised August, in line with Consensus forecasts.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101b.jpg" width="353">
Wages &amp; salaries rose 0.6% (7.1% y/y), ahead of the upwardly revised 0.4% August increase. Factory sector wages were unchanged (6.2% y/y), about as they had been m/m during all of 3Q.Wage &amp; salary income in the service-producing industries recovered 0.8% (8.1% y/y) and wages in the government sector rose 0.4% (4.4% y/y).
Interest income grew 0.5% (4.7% y/y), stronger with the rise in interest rates, and dividend income popped another 0.9% (13.3% y/y).
Personal current taxes rose 0.5% (10.3% y/y). As a result, disposable personal income grew 0.4% (6.3% y/y). Adjusted for inflation, disposable personal income rose 0.2% (3.9% y/y) after a 0.5% August increase.
The PCE chain price index 0.2% (2.4% y/y). The core PCE price index was a bit firmer than in August with a 0.2% rise. The overall price index should firm with oil prices moving above $90 per barrel.
Can Social Security Survive the Baby Boomers? from the Federal reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20070901/cover.pdf">here</a>.
The text which accompanied yesterday&#39;s FOMC decision to cut interest rates can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20071031a.htm"> here</a>.</div>

<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/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.4%</td>
<td>0.4%</td>
<td>6.8%</td>
<td>6.6%</td>
<td>5.9%</td>
<td>6.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.3%</td>
<td>0.5%</td>
<td>5.6%</td>
<td>5.9%</td>
<td>6.2%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Saving Rate</td>
<td>0.9%</td>
<td>0.8%</td>
<td>0.4% (Sept. 06)</td>
<td>0.4%</td>
<td>0.5%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.2%</td>
<td>-0.0%</td>
<td>2.4%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.8%</td>
<td>2.2%</td>
<td>2.2%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
</body>
</html>

Personal consumption expenditures rose 0.3% in September, below the downwardly revised 0.5% August increase and below expectations for a 0.4% rise. A pattern of steadily declining rates of increase prevailed through 2007; 1Q up 7.3% [...]

U.S. Personal Spending Up 0.3%, Income Rose 0.4%

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<div align="left"><img align="left" class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101a.jpg">
Personal consumption expenditures rose 0.3% in September, below the downwardly revised 0.5% August increase and below expectations for a 0.4% rise. A pattern of steadily declining rates of increase prevailed through 2007; 1Q up 7.3% (AR), 2Q up 5.7%, 3Q 4.7%.
Most of that slowdown, however, reflects easier price gains. Adjusted for inflation, consumption rose 3.0% last quarter following a 1.4% 2Q gain and a 3.7% 1Q increase. For the year as a whole 2007 real personal consumption should turn in a 3.1% rise, the same as during 2006.
For September, the slower real increase of 0.1% versus a 0.6% August jump reflected a much easier 0.7% rise in auto sales. In the nondurable area spending on tobacco and clothing dropped. In the services area spending on recreation and electricity &amp; gas consumption fell. These (perhaps too) fine levels of detail are available in Haver&#39;s USNA database.
Personal income rose 0.4% in September, the same as during an upwardly revised August, in line with Consensus forecasts.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101b.jpg" width="353">
Wages &amp; salaries rose 0.6% (7.1% y/y), ahead of the upwardly revised 0.4% August increase. Factory sector wages were unchanged (6.2% y/y), about as they had been m/m during all of 3Q.Wage &amp; salary income in the service-producing industries recovered 0.8% (8.1% y/y) and wages in the government sector rose 0.4% (4.4% y/y).
Interest income grew 0.5% (4.7% y/y), stronger with the rise in interest rates, and dividend income popped another 0.9% (13.3% y/y).
Personal current taxes rose 0.5% (10.3% y/y). As a result, disposable personal income grew 0.4% (6.3% y/y). Adjusted for inflation, disposable personal income rose 0.2% (3.9% y/y) after a 0.5% August increase.
The PCE chain price index 0.2% (2.4% y/y). The core PCE price index was a bit firmer than in August with a 0.2% rise. The overall price index should firm with oil prices moving above $90 per barrel.
Can Social Security Survive the Baby Boomers? from the Federal reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20070901/cover.pdf">here</a>.
The text which accompanied yesterday&#39;s FOMC decision to cut interest rates can be found <a href="http://www.federalreserve.gov/newsevents/press/monetary/20071031a.htm"> here</a>.</div>

<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/@E7/@E711/@E71102/@E71102.HTM">Disposition of Personal Income</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Personal Income</td>
<td>0.4%</td>
<td>0.4%</td>
<td>6.8%</td>
<td>6.6%</td>
<td>5.9%</td>
<td>6.2%</td>
</tr>
<tr>
<td class="firstcol">Personal Consumption</td>
<td>0.3%</td>
<td>0.5%</td>
<td>5.6%</td>
<td>5.9%</td>
<td>6.2%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Saving Rate</td>
<td>0.9%</td>
<td>0.8%</td>
<td>0.4% (Sept. 06)</td>
<td>0.4%</td>
<td>0.5%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol">PCE Chain Price Index</td>
<td>0.2%</td>
<td>-0.0%</td>
<td>2.4%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Less food &amp; energy</td>
<td>0.2%</td>
<td>0.1%</td>
<td>1.8%</td>
<td>2.2%</td>
<td>2.2%</td>
<td>2.1%</td>
</tr>
</tbody>
</table>
U.S. Initial Unemployment Insurance Claims Still Higher 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 1, 2007


<img align="left" class="large" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101c.jpg">
Initial claims for unemployment insurance fell slightly last week but it was only to 327,000 from an upwardly revised 333,000 during the prior week. There were no distortions to the figure from holidays.
The four week moving average of initial claims rose again to 327,000 (4.1% y/y).
A claims level below 400,000 typically has been associated with growth in nonfarm payrolls. During the last six years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
Continuing claims for unemployment insurance rose a sharp 2.6%. The increase during the prior week was downwardly revised slightly.
The continuing claims numbers lag the initial claims figures by one week.
The insured rate of unemployment rose to 2.0%. from 1.9% the week prior. 

<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">10/27/07 </th>
<th scope="col">10/20/07 </th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>&nbsp;327</td>
<td>333</td>
<td>-0.6%</td>
<td>313</td>
<td>331</td>
<td>343</td>
</tr>
</tbody>
</table>
ISM Index Near "No Growth" Level 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 1, 2007


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101d.jpg" class="large" align="left">
The Composite Index of activity in the manufacturing sector,
reported by the Institute of Supply Management (ISM), fell to 50.9 last
month from 52.0 during September. A reading above 50 indicates growth
in factory sector activity. Consensus expectations had been for a
reading of 51.6.
Last month's PMI figure was the lowest since January when
industrial production in the factory sector fell 0.6%. The three month
% change in factory sector output fell to 0.4% last month
During the last twenty years there has been a 64% correlation
between the level of the Composite Index and the three month growth in
factory sector industrial production.
It is appropriate to correlate the ISM index level
with factory sector growth because the ISM index
is a diffusion index. It measures growth by being constructed using all
of the absolute positive changes in activity added to one half of the
no change in activity measures.
Declines in three of the index's five components accounted for
the lower composite index, notable was the decline in the production
component. The inventories component rose sharply to its highest level
since July and employment also rose.
The modest 0.3 point rise in the employment index to 52.0
followed a 0.4 point September rise. During the last twenty years there
has been a 67% correlation between the level of the ISM employment
Index and the three month growth in factory sector employment.
The index of new export orders recovered all of its September
decline with a 2.5 point rise to 57.0. The import index conversely fell
to 47.5, the lowest level since 2001 and suggestive that imports
declined last month.
The prices index moved much higher with the rise in oil
prices. During the last twenty years there has been a 77% correlation
between the price index and the three month change in the PPI for
intermediate goods. 

<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101e.jpg" class="small"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101f.jpg" class="small">

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol"></th>
<th scope="col">October </th>
<th scope="col">September
</th>
<th scope="col">October'06
</th>
<th scope="col">2006 </th>
<th scope="col"> 2005</th>
<th scope="col">2004 </th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Composite Index</td>
<td>50.9</td>
<td>52.0</td>
<td>51.5</td>
<td>53.9</td>
<td>55.5</td>
<td>60.5</td>
</tr>
<tr>
<td class="firstcol">&nbsp; New Orders Index</td>
<td>52.5</td>
<td>53.4</td>
<td>52.1</td>
<td>55.4</td>
<td>57.4</td>
<td>63.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Prices Paid Index (NSA)</td>
<td>63.0</td>
<td>59.0</td>
<td>47.0</td>
<td>65.0</td>
<td>66.4</td>
<td>79.8</td>
</tr>
</tbody>
</table>
UK Distributive Trade Sector Shows
a Slowdown 
by <a href="/comment/Brusca.html">Robert
Brusca</a> November 1, 2007


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101j.jpg" align="left" class="large">
The UK distributive trades survey shows a slowing of the UK
economy. Sales are at a +13 from a year ago and at +7 for this time of
year (Chart). Each of those figures is about at the midpoint of their
respective ranges. Orders at -1 stand in the bottom third of their
range. This is a slowdown in progress. The outlook is however more
upbeat. Sales are expected to post a +28 next month and that
expectation is a top 16% of range expectation. The graph on the left
shows the recent volatility in sales. For the moment it appears as
though industry respondents are not taking the slowdown very seriously.
The other outlook measures at the bottom of the table are strong to
firm in their respective ranges as well.


<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr><th scope="col" colspan="10"> UK Distributive volume data CBI Survey</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Reported:</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>12MO Avg</td>
<td>%tile</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales/Yr Ago</td>
<td>13</td>
<td>40</td>
<td>30</td>
<td>4</td>
<td>21</td>
<td>49%</td>
<td>49</td>
<td>-21</td>
<td>70</td>
</tr>
<tr>
<td class="firstcol">Orders/Yr Ago</td>
<td>-1</td>
<td>38</td>
<td>18</td>
<td>1</td>
<td>16</td>
<td>31%</td>
<td>42</td>
<td>-20</td>
<td>62</td>
</tr>
<tr class="odd">
<td class="firstcol">Sales: Time/Yr</td>
<td>7</td>
<td>32</td>
<td>23</td>
<td>11</td>
<td>17</td>
<td>56%</td>
<td>32</td>
<td>-25</td>
<td>57</td>
</tr>
<tr>
<td class="firstcol">Stocks: Sales</td>
<td>5</td>
<td>10</td>
<td>19</td>
<td>12</td>
<td>10</td>
<td>22%</td>
<td>30</td>
<td>-2</td>
<td>32</td>
</tr>
<tr class="even">
<td class="firstcol" colspan="10">Expected:</td>
</tr>
<tr>
<td class="firstcol">Sales/Yr Ago</td>
<td>28</td>
<td>33</td>
<td>0</td>
<td>19</td>
<td>20</td>
<td>84%</td>
<td>36</td>
<td>-15</td>
<td>51</td>
</tr>
<tr class="odd">
<td class="firstcol">Orders/Yr Ago</td>
<td>26</td>
<td>23</td>
<td>-4</td>
<td>16</td>
<td>16</td>
<td>89%</td>
<td>32</td>
<td>-24</td>
<td>56</td>
</tr>
<tr>
<td class="firstcol">Sales: Time/Yr</td>
<td>12</td>
<td>28</td>
<td>8</td>
<td>13</td>
<td>15</td>
<td>61%</td>
<td>29</td>
<td>-15</td>
<td>44</td>
</tr>
<tr class="odd">
<td class="firstcol">Stocks: Sales</td>
<td>7</td>
<td>15</td>
<td>8</td>
<td>8</td>
<td>8</td>
<td>53%</td>
<td>22</td>
<td>-10</td>
<td>32</td>
</tr>
</tbody>
</table>
UK Manufacturing Survey Turns Lower 
by <a href="/comment/Brusca.html">Robert
Brusca</a> November 1, 2007


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101k.jpg" align="left" class="large">
The CIPS/NTC index of MFG for the UK shows a rather rapid
downturn is in play. But the index reading at 52.9 is still reasonably
upbeat by the historic standards of this survey. While the index is
down from a peak of about 56 in August that nearly matches past peaks
of around 56 back in 2004, the current reading is still in the 58th
percentile of its range - a firm reading and solid location. Still, the
table shows that the index has been falling and is now down over 6
months and 12 months even though the fall is rather recent. The depth
of the plunge is notable. The two-month 3.03 point drop is the largest
change in the index since it rose by 3.03 points in January of this
year. We have to go back to May of 2005 to find a larger two-month
drop. So despite the reasonably cozy position of the index in its range
we should be on the outlook for more weakness given the speed of this
drop.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" colspan="8"> MFG PMI
CIPS/NTC</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td colspan="3">Monthly readings</td>
<td colspan="3">Change over:</td>
<td>percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>3MO</td>
<td>6MO</td>
<td>12MO</td>
<td>of range</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>52.93</td>
<td>54.73</td>
<td>55.96</td>
<td>-2.61</td>
<td>-1.07</td>
<td>-1.12</td>
<td>58.4</td>
</tr>
<tr class="grey1">
<td colspan="8" class="firstcol">Range since
January 1992</td>
</tr>
</tbody>
</table>
Australian Economy Remains Strong,
But Strong A$ May Already Be Generating Some Restraint 
by <a href="/comment/Stone.html">Carol
Stone</a> November 1, 2007


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101g.jpg" class="large" align="left">The deficit in Australia's trade in goods and
services
increased further in September as exports declined and an accompanying
decline in imports was smaller. The overall deficit was A$1,862
million, up from A$1,665 million in August (seasonally adjusted). The
year-ago figure was A$761 million.
We have highlighted here before (See May 4, 2007 commentary)
the role of raw materials, particularly mineral resources, in
Australia's international trade. The SITC 3 categories, "crude
materials, inedible, ex fuels" and "mineral fuels, etc" together
constitute about half of the nation's total goods exports. These
exports have brought considerable revenue into the Australian economy.
Australia's economy has been strong recently. Indeed, today, a report
of September retail trade shows a gain of 0.9% in that month, extending
a trend of notable growth in consumer spending.
However, the commodities markets are priced in US dollars. The
Australian dollar, perhaps bolstered by the vigorous economy, has risen
markedly. Yesterday, according to the New York Federal Reserve Bank, it
was priced at US$0.9271, the highest month-end value since March 1984.
[In fact, a retail purchase in New York City yesterday came right at
par.] This rapid increase in the exchange rate means that world
commodities, with US dollar prices, bring relatively fewer Australian
dollars than before. Thus, it is not surprising to see a moderation in
the value of these key Australian exports, which have averaged over the
last six months only 0.5% above a year ago.
This point is more clearly made in the commodity price index
compiled by the Reserve Bank of Australia; the RBA publishes this in
both US$ and A$. See the difference in the third graph. Flexible
currency values are, of course, one of the important transmission
mechanisms for global trade adjustment and for monetary policy. The
strong Australian dollar can help restrain inflation in Australia and
by slowing the Australian-dollar value of tradable goods, it can also
modulate economic activity, an "automatic stabilizer". Still, today's
strong retail trade report brought further talk the the RBA might raise
interest rates at its next policy meeting. This talk too can bring more
strength to the currency -- at least until it is evident that that very
strength is restraining the economy.
<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101h.jpg" class="small"><img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071101i.jpg" class="small">


 
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead><tr>
<th scope="col" class="firstcol">AUSTRALIA
(Mil.A$)</th>
<th scope="col">Sept 2007</th>
<th scope="col">Aug 2007</th>
<th scope="col">Jul 2007</th>
<th scope="col">Sept 2006</th>
<th scope="col" colspan="3">Monthly Averages</th>
</tr>
<tr>
<th scope="col" class="firstclass" colspan="5"></th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Balance on Goods
&amp; Services</td>
<td>-1,862</td>
<td>-1,665</td>
<td>-1,011</td>
<td>-761</td>
<td>-969</td>
<td>-1,399</td>
<td>-1,985</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods Credits
(Exports)</td>
<td>13,764</td>
<td>14,558</td>
<td>14,200</td>
<td>14,009</td>
<td>13,809</td>
<td>11,690</td>
<td>9,881</td>
</tr>
<tr>
<td class="firstcol">Goods Debits
(Imports)</td>
<td>15,848</td>
<td>16,408</td>
<td>15,408</td>
<td>14,908</td>
<td>14,871</td>
<td>13,147</td>
<td>11,922</td>
</tr>
<tr class="odd">
<td class="firstcol">Balance on Services</td>
<td>223</td>
<td>185</td>
<td>190</td>
<td>138</td>
<td>93</td>
<td>58</td>
<td>58</td>
</tr>
<tr>
<td class="firstcol">Raw Material Exports* (NSA)</td>
<td>6,404</td>
<td>7,077</td>
<td>6,681</td>
<td>6,556</td>
<td>6,544</td>
<td>5,475</td>
<td>3,908</td>
</tr>
</tbody>
</table>
</body>
</html>

Carol Stone, CBE

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The employment cost index slowed to an 0.8% advance for private industry workers in Q3, compared to 0.9% in Q2 and a Consensus forecast of 0.9%.
Wage and salary growth held at the 0.8% quarterly pace seen in Q2, with the year/year growth also at Q2&#39;s amount, 3.4%. Wages account for roughly 70% of the compensation index. The largest recent increase was 1.1% in Q1, driven by outsized increases in several industries.
Benefit costs dropped back from Q2&#39;s 1.1% to 0.8%; this put the year/year increase at 2.4%. For the first three quarters this year, the year/year growth rates are the lowest since 1998. This is at least in part due to a more moderate rise in the cost of health benefits, which was up 4.8% y/y again in Q3, the same as in Q2 and less than half the pace of 2002 and 2003.
Compensation costs also eased for state and local government workers. This group saw a rise of 0.8% in Q3, less than 1.1% in Q2 and 1.3% in Q1 and the lowest since Q1 2006. The move was in benefits, which rose &quot;only&quot; 0.7% in Q3, following 1.7% in Q2 and 2.1% in Q1. Wages and salaries actually picked up in Q3 to 1.0% from 0.8% in Q2.

<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031e.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031f.jpg">
<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/USECON/@EB/@EB08/@EB08.HTM">ECI- Private Industry Workers</a></th>
<th scope="col">3Q</th>
<th scope="col">2Q</th>
<th scope="col">1Q</th>
<th scope="col">Y/Y</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Compensation</td>
<td>0.8%</td>
<td>0.9%</td>
<td>0.6%</td>
<td>3.1%</td>
<td>2.9%</td>
<td>3.1%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Wages &amp; Salaries</td>
<td>0.8%</td>
<td>0.8%</td>
<td>1.1%</td>
<td>3.4%</td>
<td>2.9%</td>
<td>2.5%</td>
<td>4.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Benefit Costs</td>
<td>1.1%</td>
<td>1.1%</td>
<td>-0.3%</td>
<td>2.7%</td>
<td>2.9%</td>
<td>4.6%</td>
<td>6.8%</td>
</tr>
<tr>
<td class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB08/@EB08.HTM">ECI- State &amp; Local Government Workers</a></td>
<td>0.8%</td>
<td>1.1%</td>
<td>1.3%</td>
<td>4.3%</td>
<td>3.9%</td>
<td>3.8%</td>
<td>3.4%</td>
</tr>
</tbody>
</table>
</body>
</html>

The employment cost index slowed to an 0.8% advance for private industry workers in Q3, compared to 0.9% in Q2 and a Consensus forecast of 0.9%. Wage and salary growth held at the 0.8% quarterly pace seen in Q2, with the year/year [...]

U.S. Employment Cost Index Moderates to 0.8% Quarterly Increase

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031j.jpg" class="large" align="left">
German retail sales rose in September with downward revision
to the earlier month showing a strong 2.3% rise in real ex-auto sales.
The series is up by 5.1% from one year ago, a pretty good Yr/Yr rise.
But in the third quarter this gain still only leaves sales up at a 1.4%
annual rate. The revival in sales was across the main retail
categories. While the rise of 1.4% in the quarter is not very strong it
is in line with what exceptions have been for German retailing where
the outlook has been set low all year long.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th colspan="9" scope="col"> German
Real and Nominal Retail Sales</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Nominal</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>3-MO</td>
<td>6-MO</td>
<td>12-MO</td>
<td>YrAgo</td>
<td>New QTR 
Saar</td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>2.6%</td>
<td>-1.3%</td>
<td>0.6%</td>
<td>8.2%</td>
<td>4.8%</td>
<td>2.4%</td>
<td>5.6%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">Motor Vehicle and Parts</td>
<td>#N/A</td>
<td>3.6%</td>
<td>0.9%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>15.2%</td>
<td>#N/A</td>
</tr>
<tr>
<td class="firstcol">Food, Beverages &amp;
Tobacco</td>
<td>3.4%</td>
<td>-1.2%</td>
<td>-0.1%</td>
<td>8.5%</td>
<td>4.7%</td>
<td>1.9%</td>
<td>5.1%</td>
<td>-0.9%</td>
</tr>
<tr>
<td class="firstcol">Clothing footwear</td>
<td>3.4%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>16.0%</td>
<td>7.3%</td>
<td>14.0%</td>
<td>3.4%</td>
<td>1.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Real</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Retail Ex auto</td>
<td>2.3%</td>
<td>-1.6%</td>
<td>0.7%</td>
<td>6.0%</td>
<td>3.0%</td>
<td>1.4%</td>
<td>5.1%</td>
<td>1.4%</td>
</tr>
</tbody>
</table>
</body></html>

German retail sales rose in September with downward revision to the earlier month showing a strong 2.3% rise in real ex-auto sales. The series is up by 5.1% from one year ago, a pretty good Yr/Yr rise. But in the third quarter this [...]

German Retail Sales Show Unexpected Lift

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031i.jpg" class="large" align="left">
UK consumer confidence fell in October after dropping sharply
in September. The
index now resides in the lower 15 percentile of its range - a very poor
standing. But the index is not without its paradoxes. Consumers rate
their financial situation as the best ever, at the top of its range of
responses. But the environment for making major purchases is rated as
the worst ever (going back to January 1996).
Over the last 12 months the household financial situation was
rated
at zero, which garners a percentile standing of 75% - top 25 percentile
of its range. But the general economic condition is only rated in the
bottom 30%.
Over the next 12 months the financial situation is put at +13
which
is a top 15% of range standing. But again the general economic
situation is rated much lower, in its 46th
percentile below the neutral mark of 50%.
As to income levels the bottom income group and the top group
each
rate conditions in the bottom 20 percentile of range or worse.
Consumers in the UK are having some fickle moments. But for
the most
part their assessment of the economy and the period ahead is that the
times that lie ahead will not be so good.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead><tr>
<th colspan="7" scope="col"> GFK
Consumer Survey</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>% of 2Yr</td>
<td>% of 10Yr</td>
</tr>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>Range</td>
<td>Range</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Confidence</td>
<td>-8</td>
<td>-7</td>
<td>-4</td>
<td>-6</td>
<td> 14.3%</td>
<td>16.7%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">Current</td>
</tr>
<tr class="odd">
<td class="firstcol">Household Fin Sit</td>
<td>25</td>
<td>25</td>
<td>25</td>
<td>25</td>
<td> 100.0%</td>
<td> 100.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Major Purchases</td>
<td>-5</td>
<td>-3</td>
<td>4</td>
<td>-2</td>
<td> 0.0%</td>
<td> 0.0%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">Last
12 Months</td>
</tr>
<tr class="odd">
<td class="firstcol">Household Fin Sit</td>
<td>2</td>
<td>4</td>
<td>2</td>
<td>0</td>
<td>75.0%</td>
<td>70.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">General Econ Sit</td>
<td>-30</td>
<td>-29</td>
<td>-25</td>
<td>-25</td>
<td>29.4%</td>
<td>29.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">CPI</td>
<td>69</td>
<td>64</td>
<td>62</td>
<td>66</td>
<td> 100.0%</td>
<td> 100.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings</td>
<td>38</td>
<td>38</td>
<td>42</td>
<td>42</td>
<td>81.0%</td>
<td> 93.1%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">
Next
12-months
</td>
</tr>
<tr class="odd">
<td class="firstcol">Household Fin Sit</td>
<td>13</td>
<td>12</td>
<td>12</td>
<td>13</td>
<td> 85.7%</td>
<td> 85.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">General Econ Sit</td>
<td>-17</td>
<td>-19</td>
<td>-15</td>
<td>-13</td>
<td>46.2%</td>
<td>56.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment</td>
<td>29</td>
<td>27</td>
<td>29</td>
<td>27</td>
<td>28.6%</td>
<td>58.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Major Purchases</td>
<td>-18</td>
<td>-20</td>
<td>-18</td>
<td>-21</td>
<td>62.5%</td>
<td>29.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Savings</td>
<td>19</td>
<td>17</td>
<td>20</td>
<td>17</td>
<td>63.6%</td>
<td> 85.2%</td>
</tr>
<tr>
<td colspan="7" class="firstcol">By
Income</td>
</tr>
<tr class="odd">
<td class="firstcol">Lower</td>
<td>-14</td>
<td>-13</td>
<td>-11</td>
<td>-8</td>
<td>20.0%</td>
<td> 12.5%</td>
</tr>
<tr class="odd">
<td class="firstcol">Upper</td>
<td>-3</td>
<td>-1</td>
<td>1</td>
<td>0</td>
<td> 10.0%</td>
<td> 9.1%</td>
</tr>
</tbody>
</table>
</body></html>

UK consumer confidence fell in October after dropping sharply in September. The index now resides in the lower 15 percentile of its range - a very poor standing. But the index is not without its paradoxes. Consumers rate their [...]

UK Consumer Confidence Stays in a Downdraft

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/071031g.jpg" width="353">
Flash flare does not seem to be part of trend&#133;Wake up call or wrong number? 
The survey on flash inflation for the EMU region does not appear to be part of a trend. Indeed with the euro rising, the only real impulse to inflation right now is from commodity prices and since they are priced in dollars even that channel is muted. 
The jump in the flash HICP seems to be just a flash in the pan but it&#146;s a pan with explosives in it since the flash has made a huge impact. On a day when the EU Commission indexes show widespread losing in the Euro area and Draghi and Liikanen have made statements about the coming adverse impact on growth. On a totally different track, the BKK&#146;s/ECB&#146;s Weber has cautioned that the pressures on prices could force the ECB to act again to quell rising inflation pressures. 
The table below shows the relative trends. There are only three new observations for October for the flash overall rate and the overall rates for German and Italian inflation. For the others, trends derive from prices in September. Through that point there is no solid evidence of inflation spiking or even gradually rising. But Italy and Germany do support the acceleration in the overall rate in October. 
There is no core rate to look at to infer what the culprit was in creating price pressures. But there is little evidence of inflation building in the pipeline. In the Euro area 13 both goods and services prices have been pushed to lower rates of increase by the rising euro. For goods the strong euro is at work as the new three-month inflation rate through September is only 0.1% down from inflation in the area of 2% previously. Service sector inflation is at 2.1% for three months up from 2% over six months but down from 2.6% Yr/Yr. In short the 2.6% Euro area flash CPI may be a wake up call but it may also be a wrong number.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr><th colspan=" 8" scope="col"> Trends in HICP</th>

</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td colspan="3">% mo/mo</td>
<td colspan="4">% saar</td>
</tr>
<tr class="grey4">
<td class="firstcol">&nbsp;</td>
<td>Oct-07</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
</tr>
<tr class="grey3">
<td class="firstcol">EU-13</td>
<td>#N/A</td>
<td>0.4%</td>
<td>0.0%</td>
<td>1.8%</td>
<td>2.5%</td>
<td>2.1%</td>
<td>1.7%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Core</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.5%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Goods</td>
<td>#N/A</td>
<td>1.0%</td>
<td>0.0%</td>
<td>0.1%</td>
<td>2.2%</td>
<td>1.9%</td>
<td>1.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Services</td>
<td>#N/A</td>
<td>-0.5%</td>
<td>0.2%</td>
<td>1.8%</td>
<td>2.5%</td>
<td>2.5%</td>
<td>2.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">FLASH -&nbsp;</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.2%</td>
<td>2.1%</td>
<td>2.0%</td>
<td>2.6%</td>
<td>1.6%</td>
</tr>
<tr class="grey2">
<td colspan="8" class="firstcol">Monthly Flash data are derived from Yr/Yr presentation</td>
</tr>
<tr class="grey3">
<td colspan="8" class="firstcol">HICP</td>
</tr>
<tr class="grey3">
<td class="firstcol">Germany</td>
<td>0.2%</td>
<td>0.7%</td>
<td>-0.1%</td>
<td>3.1%</td>
<td>2.7%</td>
<td>2.7%</td>
<td>1.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.3%</td>
<td>1.8%</td>
<td>2.7%</td>
<td>1.6%</td>
<td>1.5%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Italy</td>
<td>0.7%</td>
<td>0.3%</td>
<td>0.2%</td>
<td>4.7%</td>
<td>3.3%</td>
<td>2.3%</td>
<td>1.9%</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.1%</td>
<td>-0.4%</td>
<td>0.6%</td>
<td>1.7%</td>
<td>2.4%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.4%</td>
<td>0.0%</td>
<td>2.3%</td>
<td>2.8%</td>
<td>2.7%</td>
<td>2.9%</td>
</tr>
<tr class="grey3">
<td colspan="8" class="firstcol">Core Excl Food Energy &amp; A</td>
</tr>
<tr class="grey3">
<td class="firstcol">Germany</td>
<td>#N/A</td>
<td>0.3%</td>
<td>0.1%</td>
<td>2.4%</td>
<td>2.6%</td>
<td>2.3%</td>
<td>0.8%</td>
</tr>
<tr class="grey3">
<td class="firstcol">France</td>
<td>#N/A</td>
<td>0.1%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>2.0%</td>
<td>1.6%</td>
<td>1.2%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Italy</td>
<td>#N/A</td>
<td>0.4%</td>
<td>0.2%</td>
<td>2.3%</td>
<td>1.8%</td>
<td>1.8%</td>
<td>2.0%</td>
</tr>
<tr class="grey3">
<td class="firstcol">UK</td>
<td>#N/A</td>
<td>#N/A</td>
<td>0.2%</td>
<td>#N/A</td>
<td>#N/A</td>
<td>#N/A</td>
<td>1.6%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Spain</td>
<td>#N/A</td>
<td>0.2%</td>
<td>0.3%</td>
<td>3.0%</td>
<td>2.7%</td>
<td>2.6%</td>
<td>3.0%</td>
</tr>
<tr class="grey1">
<td colspan="8" class="firstcol">Blue shaded area data trail by one month</td>
</tr>
</tbody>
</table>
</body>
</html>

Flash flare does not seem to be part of trend Wake up call or wrong number? The survey on flash inflation for the EMU region does not appear to be part of a trend. Indeed with the euro rising, the only real impulse to inflation right [...]

Sentiment Slips but Flash Inflation Flares

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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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).

Charts of the Week: Between Relief and Reality

Sandy Batten

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Total retail sales rose a much larger-than-expected 0.9% m/m (6.9%y/y) in May following a slightly downwardly revised 0.4% monthly gain in April (previously 0.5% m/m), according to data released by the U.S. Census Bureau. The Action Economics Forecast Survey looked for a 0.5% m/m gain. Excluding autos, other sales increased 0.8% m/m (7.5% y/y) after an unrevised 0.7% m/m increase in April. Expectations were for a 0.5% monthly rise.

Elevated retail gasoline prices continued to boost the value of gasoline sales in May. Gasoline sales increased 3.4% m/m (26.5% y/y) in May on top of a 2.8% m/m increase in April. However, both monthly increases were slower than the 14.2% monthly jump reported in March. Gasoline sales accounted for 31% of total sales in May. However, sales were solid even without gasoline sales. Total sales excluding gasoline rose 0.7% m/m in April, up from 0.2% m/m in April. Sales excluding both autos and gasoline increased 0.5% m/m in May, the same monthly gain as in April.

The control group of sales (total sales excluding food services, autos, gasoline and building materials that the BEA uses to construct PCE in the national accounts) posted another solid increase in May, rising 0.7% m/m (6.3% y/y) following an unrevised 0.5% monthly increase in April. The strong performance at the end of Q1 followed by solid gains in April and May put the April-May level of control group sales up 8.6% at an annual rate from the Q1 average, pointing to another solid contribution by consumption to overall GDP growth in Q2. Consumer spending remains surprisingly resilient notwithstanding the recent hit to disposable income from the marked increase in energy prices.

Sales generally increased across major sectors in May. Auto sales rebounded, rising 1.2% m/m in May and more than reversing the 0.9% monthly decline in April. This was the third gain in auto sales in the past four months. Furniture sales rose 1.0% m/m but sales at electronics and appliance stores slipped 0.5% m/m. Building material sales gained 1.0% m/m on top of a 1.1% monthly increase in April. Clothing sales rose 0.3% m/m. Sales at general merchandise stores gained 0.4% m/m in May. Miscellaneous sales jumped 2.3% m/m in May, their first monthly gain in three months. Sales by nonstore retailers continued their strong performance, increasing 1.5% m/m in May on top of a 1.1% monthly rise in April. Over the first five months of this year, nonstore retail sales have risen 7.2%, not annualized. By contrast, food sales were unchanged in May from April while sales at restaurants edged down 0.1% m/m in May, their first monthly decline in four months.

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

260617X1.jpg

260617Y1.jpg

- Total sales increased 0.9% m/m in May, nearly twice expectations.
- Auto sales rebounded, rising 1.2% m/m in May, more than reversing a 0.9% monthly decline in April. 
- Gasoline sales rose 3.4% m/m in May.
- Excluding auto and gasoline sales, remaining sales increased by a solid 0.5% m/m in May, the same monthly increase as in April.
- Sales of the retail control group that is used to construct PCE rose 0.7% m/m in May and are 8.6% annualized above the Q1 average.

U.S. Retail Sales Jumped More than Expected in May

Winnie Tapasanun

260617A49.jpg

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Mortgage applications fell 3.8% w/w (+8.6% y/y) in the week ending June 12 following a 10.8% rebound in the week ending June 5, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. The latest reading was the fourth w/w fall in five weeks, lowering the index to 269.5. Applications for loans to purchase a house slid 3.4% (+3.0% y/y) in the June 12 week, down for the fourth time in five weeks, after a 7.3% rise in the previous week. Applications for loan refinancing dropped 4.5% (+17.0% y/y) in the June 12 week, the seventh w/w decline in eight weeks, following a 15.3% jump in the June 5 week.

The effective interest rate on a 30-year fixed-rate loan was unchanged at 6.78% in the week ending June 12; it was above a low of 6.24% in the February 27 week but below a peak of 8.12% in the week of October 20, 2023. The rate on 15-year fixed-rate mortgages edged up 2bps to 6.18% in the June 12 week, the highest in three weeks, from 6.16% in the previous week; it was up from a low of 5.60% in the week of September 20, 2024 but down from a high of 7.44% in the week of October 27, 2023. Meanwhile, the rate on 30-year jumbo loans declined 4bps to 6.78% in the June 12 week from 6.82% in the prior week; it was above a low of 6.25% in the February 27 week but below a high of 7.99% in the week of October 27, 2023. The rate on a 5-year ARM fell 7bps to 6.16% in the June 12 week, the first w/w decline in six weeks, from 6.23% in the previous week (the highest since the week of August 15, 2025); it was above a low of 5.38% in the February 20 week but below a high of 7.31% in the week of October 27, 2023.

The share of applications for refinancing an existing loan edged up to 40.3% of total applications in the week ending June 12—the fourth w/w increase in five weeks and the highest level since the May 15 week—after rising to 40.2% in the week ending June 5; it remained below a peak of 61.9% in the January 16 week but above a low of 34.6% in the week of May 23, 2025. The adjustable-rate mortgage (ARM) share of activity slipped to 8.5% in the June 12 week from 8.6% in the prior week; it was below a peak of 12.9% in the week of September 12, 2025 but above a low of 4.7% in the week of January 3, 2025.

The average size of a mortgage loan fell 1.5% w/w (+3.7% y/y) to $394,100 in the June 12 week, the lowest level since the April 3 week, after a 0.4% rebound to $399,900 in the June 5 week. The average size of a purchase loan dropped 1.9% (+4.0% y/y) to $456,600 in the June 12 week following a 2.8% recovery to $465,300 in the prior week. The average size of a loan to refinance a mortgage fell 0.4% (+7.0% y/y) to $301,400 in the June 12 week on top of a 2.3% decline to $302,500 in the previous week, marking the third consecutive w/w fall, the sixth decline in seven weeks, and the lowest level since the week of July 25, 2025.

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

- Purchase applications -3.4% w/w, down for fourth time in five weeks; refinance applications -4.5% w/w, seventh fall in eight weeks.
- Effective interest rate on 30-year fixed loans unchanged at 6.78%, up from a late-February low of 6.24%.
- Average loan size down for the second time in three weeks, lowest since the April 3 week.

U.S. Mortgage Applications Down 3.8% in the June 12 Week, Fourth Drop in Five Weeks

260617E.jpg

It's an interesting time for the Bank of England to be meeting; it has its next policy meeting on June 18. Top money center central banks have been meeting, and the European Central Bank delivered a rate hike, with what is believed to be a likelihood of another hike before the end of the year. The Bank of Japan as just met and executed a 25-basis-point rate hike that brought the overnight interest rate up to 1% for the first time in 31 years. The Federal Reserve meets today and although the Fed is not expected to make an interest rate change, it is widely expected to remove the language that implies the next rate change is likely to be a reduction. Against that background, there is a pending deal to be signed on Friday between the United States and Iran to end the hostilities, to open the Strait of Hormuz, and to allow a normalization—or at least a transition toward normalization—of traffic flow through the Strait of Hormuz and the restoration of the delivery of the world's oil supplies.

Against this background, the Bank of England will be making its rate decision. Part of this background shows other central banks having taken steps to become less accommodative or more vigilant against inflation risks and what have been ongoing overshoots of inflation targets by monetary policy globally. The Bank of England is part of this phenomenon as its rate of inflation, measured by the CPIH, is 3% year-over-year, a full percentage point above where it's supposed to be. However, both the CPIH and the HICP treatments for measuring U.K. inflation show inflation edging slightly lower—from 3% for the CPIH over 12 months to 2.7% over three months annualized. For the HICP, it moves from 2.9% over 12 months to a 2.7% annual rate over three months. Both of these are small moves but in the right direction. In addition, the CPIH core measure, excluding food, energy, alcohol, and tobacco, shows inflation declining from 2.9% over 12 months to 2.6% at an annual rate over six months, and to 1.7% at an annual rate over three months.

In short, inflation progress in the U.K. is very much in gear for the headline; inflation is quite moderately easing, however. For the core, the move lower is impressive and considerable. The question is whether the MPC at the Bank of England will find these movements sufficient in and of themselves to stay their hand and hold interest rate policy, or whether the Committee will join the ranks of central banks hiking interest rates to make sure that inflation makes that turn lower.

The situation in the Strait of Hormuz is hopeful, but not definitive, and there have been a number of ceasefires in the Middle East that have been called and then broken up relatively quickly. This time, markets are reacting to this particular announcement much more decisively and treating it as if this one is the ‘Real McCoy’ with oil prices having fallen down into the mid $70/barrel range and other indicators showing that markets are convinced that prices are moving lower too. Are the Bank of England's MPC members buying onto this as well? Or are they going to treat this as perhaps one last opportunity to get interest rates up and to make sure that the inflation rate goes down?

U.K. inflation on a monthly basis shows a slight tendency to accelerate in May, with inflation diffusion measuring inflation acceleration month-to-month at 58.3%, above the neutral reading of 50. However, diffusion had been at 50% in April and at 41.7% in March. Acceleration has been broadly blunted. In addition, the May increase in the CPIH was only 0.1%, the same as in April, with March having posted a much stronger increase of 0.4%.

Looking at trends sequentially over 12 months, six months and three months, diffusion is only 25% over 12 months; it is 50% over six months and 25% over three months. These metrics reinforce the view that inflation is not broadly accelerating but rather decelerating and moving back into line.

Taking the year-over-year inflation rate, it's a ranking of overall inflation rates back to January 2000. The headline CPIH is still high at a 74.4 percentile standing; that means it has been higher than 3% about 25% of the time and lower about 75% of the time. The average ranking across the various metrics in the table is 61%. That's above a ranking of 50% that delineates the median for the period. And despite the fast fall in the CPIH core rate, the year-over-year core is at 2.9% and has an 81.2 percentile ranking, meaning it has been higher since January 2000, less than 20% of the time. However, that 12-month rate of 2.9% is now down to 1.7% over three months. There are too many ways to look at inflation, at the environment, at what other central banks have done, and at trends to know with any certainty what the BOE will do.

260617.jpg

The Bank of England has had a long period of overshooting its inflation target. It certainly will want to make sure that it's on a clear path toward getting inflation back to 2%. There's a question here about how much the Bank of England will want to trust the trend that it sees, how much it wants to trust the fast drop in the core rate, and then how much it wants to believe that the deal struck with Iran to open the Strait of Hormuz is going to prove durable. There are no real answers to these questions; they're going to be based upon opinions and perceptions, and they're also going to be based upon the pressure that the Bank of England feels about needing to make sure that it gets inflation back to 2% after its long period of intransigence. We'll find this out tomorrow.

United Kingdom

U.K. Inflation Dips and Shows Progress

Michael J. Moran

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The headline index on import prices rose 1.9% in May, close to the blistering pace in April and the fourth consecutive high-side reading. This recent pressure has pulled the year-over-year change to 6.7%, a distinct shift from last year when import prices showed no change over the 12 months of 2025.

Prices of petroleum products have been the most important factor behind the recent surge, increasing 13.0% in May after an average of 17.8% in the prior two months. However, prices excluding petroleum products also have stirred this year, as they have increased more than 0.6% in each of the past five months. May posted the firmest increase in this string of brisk readings (1.3%). Prices of consumer goods had been increasing moderately in early 2026, but they jumped 0.5% in May. The changes in capital and consumer goods led to an increase of 0.8% in nonpetroleum prices in May and an average of 0.6% in the first five months of the year.

Some observers might seek to look for the effects of tariffs on import prices, but these figures would not be especially helpful in this regard, as prices are recorded before the imposition of tariffs. However, if foreign producers wished to absorb the tariff burden to remain competitive in the US market, they could reduce invoiced prices to keep post-tariff prices steady. Indeed, nonpetroleum prices softened after April of last year following the announcement of President Trump’s Liberation Day tariffs. The subsequent easing of some of the draconian tariffs and the nullification of tariffs imposed under the International Emergency Economic Powers Act might be factors leading importers to return to original prices this year. Given that the pressure on import prices ex-petroleum has been concentrated in the capital goods area, there does not seem to be a rush to return to pre-tariff pricing.

On the export side, prices rose 1.3% in May, continuing the firm pace seen in the preceding four months. Petroleum prices have played a role in this pressure, as shown by an increase of 2.4% in the industrial supply category (petroleum prices alone are not available on the export side). Food prices also have jumped this year, increasing 0.8% in May after an average of 1.2% in the prior three months. Prices of capital goods were tame in the early months of the year, but they have firmed in the past two months (0.5% in April and 0.7% in May).

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

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- Petroleum products led import prices higher, but capital goods also had an influence.
- Petroleum was also a factor on the export side; some stirring in food and capital goods.

Economy in Brief

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