Robert Brusca

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<p></p><div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070928e.jpg" width="353">
<p>The German IFO Index shows a broad weakening in its various sector indexes. Like the EU index, the decline though broad is also slow.<br><br></p>
<p>The business expectations index is now only in the top one-third of its range the current situation and overall climate indexes sport readings in the low 80 percentile of their respective ranges.<br><br></p>
<p>For MFG the reading overall is a still strong 92 percentile for the current situation but the forward-looking readings are much deteriorated from that. Business expectations are only in the top third of the range. as is month-to-month demand and orders on hand. Foreign orders on hand remain much stronger residing in the 96th percentile of their range.<br><br></p>
<p>The 3-month outlook sector is relatively firm with expected MFG activity in the 80th percentile. But orders expectations have been steadily slipping and are now just above the range midpoint at 57% for retail orders. Wholesale orders expectations are firm, in the top third of their range. Export expectations are still in the low 80th percentiles &#150; but all of these readings are slipping. Employment expectations have slipped to the bottom third of their range.<br></p></div>
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<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
<th colspan="10" scope="col"><b>IFO Survey: Germany</b></th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="5">Percent:Yr/Yr</td>
<td colspan="4">Index Numbers</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>sep<br>07</td>
<td>aug<br>07</td>
<td>jul<br>07</td>
<td>jun<br>07</td>
<td>may<br>07</td>
<td>current</td>
<td>average</td>
<td>curr<br>/Avg</td>
<td>%tile</td>
</tr>
<tr>
<td class="firstcol">Biz Climate</td>
<td style="color:red;">-0.9%</td>
<td>0.7%</td>
<td>0.8%</td>
<td>0.2%</td>
<td>2.8%</td>
<td>104.2</td>
<td>95.7</td>
<td>108.9%</td>
<td>81.0%</td>
</tr>
<tr>
<td class="firstcol">Current Situation</td>
<td style="color:red;">-1.3%</td>
<td>2.4%</td>
<td>2.4%</td>
<td>1.6%</td>
<td>4.7%</td>
<td>109.9</td>
<td>94.8</td>
<td>115.9%</td>
<td>83.2%</td>
</tr>
<tr>
<td class="firstcol">Biz Expectations: Next6-Mos</td>
<td style="color:red;">-0.4%</td>
<td style="color:red;">-1.1%</td>
<td style="color:red;">-0.9%</td>
<td style="color:red;">-1.2%</td>
<td>1.0%</td>
<td>98.7</td>
<td>96.7</td>
<td>102.1%</td>
<td>69.1%</td>
</tr>
<tr class="grey3">
<td class="firstcol">Manufacturing:</td>
<td>sep<br>07</td>
<td>aug<br>07</td>
<td>jul<br>07</td>
<td>jun<br>07</td>
<td>may<br>07</td>
<td>current</td>
<td>average</td>
<td>curr<br>/Avg</td>
<td>%tile</td>
</tr>
<tr class="even">
<td colspan="10" class="firstcol">Current Situation</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.8%</td>
<td>4.4%</td>
<td>4.5%</td>
<td>4.4%</td>
<td>6.7%</td>
<td>110.3</td>
<td>92.3</td>
<td>119.5%</td>
<td>92.8%</td>
</tr>
<tr class="even">
<td colspan="10" class="firstcol">Biz Expectations: Next 6-Mos</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td style="color:red;">-1.4%</td>
<td style="color:red;">-1.9%</td>
<td style="color:red;">-0.4%</td>
<td style="color:red;">-2.8%</td>
<td>0.9%</td>
<td>97.0</td>
<td>96.5</td>
<td>100.6%</td>
<td>66.1%</td>
</tr>
<tr class="even">
<td colspan="10" class="firstcol">Activity (m/m)</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td style="color:red;">-4.5%</td>
<td>1.0%</td>
<td style="color:red;">-1.9%</td>
<td style="color:red;">-3.7%</td>
<td>2.0%</td>
<td>102.9</td>
<td>97.0</td>
<td>106.1%</td>
<td>77.8%</td>
</tr>
<tr class="even">
<td colspan="10" class="firstcol">Demand M/M</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td style="color:red;">-6.3%></td>
<td style="color:red;">-2.8%</td>
<td style="color:red;">-3.3%</td>
<td style="color:red;">-7.1%</td>
<td>0.5%</td>
<td>100.3</td>
<td>97.1</td>
<td>103.3%</td>
<td>65.6%</td>
</tr>
<tr class="even">
<td colspan="10" class="firstcol">Orders on hand</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td style="color:red;">-4.7%</td>
<td style="color:red;">-2.4%</td>
<td style="color:red;">-2.8%</td>
<td style="color:red;">-3.6%</td>
<td style="color:red;">-0.9%</td>
<td>101.2</td>
<td>96.4</td>
<td>104.9%</td>
<td>69.0%</td>
</tr>
<tr class="even">
<td colspan="10" class="firstcol">Foreign orders on hand</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>0.5%</td>
<td>2.5%</td>
<td>1.9%</td>
<td>2.0%</td>
<td>2.5%</td>
<td>111.3</td>
<td>94.5</td>
<td>117.8%</td>
<td>96.0%</td>
</tr>
<tr class="even">
<td colspan="10" class="firstcol">Yr/Yr percentage changes in underlying Indexes</td>
</tr>
<tr class="grey1">
<td colspan="10" class="firstcol">IFO outlook for 3-Months ahead</td>
</tr>
<tr class="grey4">
<td class="firstcol">3-Mos ahead</td>
<td colspan="5">Percent: Yr/Yr</td>
<td colspan="4">Index Numbers</td>
</tr>
<tr class="grey3">
<td class="firstcol">Expected Activity</td>
<td>sep<br>07</td>
<td>aug<br>07</td>
<td>jul<br>07</td>
<td>jun<br>07</td>
<td>may<br>07</td>
<td>current</td>
<td>average</td>
<td>curr/<br>Avg</td>
<td>%tile</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td style="color:red;">-0.9%</td>
<td>2.4%</td>
<td>1.0%</td>
<td>3.3%</td>
<td>0.5%</td>
<td>100.3</td>
<td>96.8</td>
<td>103.7%</td>
<td>80.6%</td>
</tr>
<tr class="even">
<td colspan="10" class="firstcol">Orders expectations</td>
</tr>
<tr>
<td class="firstcol">Retail Orders Expectations</td>
<td style="color:red;">-1.8%</td>
<td style="color:red;">-10.5%</td>
<td style="color:red;">-11.7%</td>
<td style="color:red;">-10.9%</td>
<td style="color:red;">-4.7%</td>
<td style="color:red;">-18.0</td>
<td style="color:red;">-17.6</td>
<td>102.2%</td>
<td>57.3%</td>
</tr>
<tr>
<td class="firstcol">Wholesale</td>
<td style="color:red;">-0.1%</td>
<td>7.7%</td>
<td>7.0%</td>
<td>5.6%</td>
<td>15.7%</td>
<td style="color:red;">-1.1</td>
<td style="color:red;">-13.9</td>
<td>7.9%</td>
<td>67.1%</td>
</tr>
<tr class="even">
<td colspan="10" class="firstcol">EXPORT Biz Expectations</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td style="color:red;">-1.4%</td>
<td>0.9%</td>
<td>0.0%</td>
<td>0.5%</td>
<td style="color:red;">-0.5%</td>
<td>102.3</td>
<td>98.4</td>
<td>103.9%</td>
<td>83.0%</td>
</tr>
<tr class="even">
<td colspan="10" class="firstcol">Employment Expectations</td>
</tr>
<tr>
<td class="firstcol">MFG</td>
<td>4.1%</td>
<td>4.1%</td>
<td>7.4%</td>
<td>8.4%</td>
<td>7.5%</td>
<td>104.5</td>
<td>96.0</td>
<td>108.8%</td>
<td>33.3%</td>
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The German IFO Index shows a broad weakening in its various sector indexes. Like the EU index, the decline though broad is also slow. The business expectations index is now only in the top one-third of its range the current situation [...]

The German IFO Index Shows a Broad Weakening

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<p></p>
<p></p><div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070928d.jpg" width="353">
<p>Sentiment fell across the EU region in September. The drop was widespread but not severe. Consumer sentiment had the lowest absolute reading but retail sentiment fell the most in September, dropping by five points. Construction sentiment bucked the trend and rose by one point. In EMU the top four countries saw sharp drops in confidence. The UK, an EU member, bucked that trend and saw sentiment rise by 1%. Across the largest EU member economies, Spain and Germany have the lowest relative sentiment readings in their ranges at 56% and 65% respectively.<br><br></p>
<p>Across EU it is clear that it is the consumer that is leading the slippage. The lowest relative rank among the confidence indicators is for services followed by consumer sentiment directly and by retailing. The industrial and construction readings are still above the average sentiment percentile reading for the month.<br><br></p>
<p>The accompanying chart shows that the slide in overall EU sentiment has been in progress for some time--since about mid-2006. It also shows that inflation has been moving lower steadily until this month when it suddenly shot up above the 2.0% ECB threshold to 2.1%.<br><br></p>
<p>Europe is in a dilemma. Not that 2.1% inflation is such a worry; but having inflation spurt while growth slides is a dilemma for a central bank. Since it is the first over-ceiling inflation observation in over a yea, I don&#146;t expect the ECB to overreact to it. But the ECB has been on a bias to hike rates that it put off due to financial markets unrest and this could turn the bias into an actual rate hike. At the same the ECB must be mindful that the euro is high-valued and climbing. There has been squawking from various elements since the euro broke toward and above $1.40.<br><br></p>
<p>The ECB will have to puzzle out what risk it fears most. Is the strong euro enough to contain inflation and will it also cool growth obviating the need for a rate hike? Or will the ECB opt for the more direct approach and hike rates risking an even stronger move up by the euro and the risk to growth that such a move could bring?<br><br></p>
<p>We shall look for signs of tilting one way or the other on this issue from the various upcoming ECB spokesmen in the weeks ahead. <br></p></div>
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<colgroup><col><col><col><col><col><col><col><col><col><col><col><col></colgroup>
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<th colspan=12 scope="col"><b>EU Sectors and Country level Overall Sentiment</b></th>
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<tbody>
<tr class="odd">
<td class="firstcol">EU</td>
<td>Sep<br>07</td>
<td>Aug<br>07</td>
<td>Jul<br>07</td>
<td>Jun<br>07</td>
<td>%tile</td>
<td>Rank</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
<td>Mean</td>
<td>r-sq<br>w/<br>Confid</td>
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<tr class="grey2">
<td class="firstcol">Overall</td>
<td>110.8</td>
<td>113.1</td>
<td>113.3</td>
<td>115</td>
<td>85.9</td>
<td>41</td>
<td>117</td>
<td>74</td>
<td>43</td>
<td>100</td>
<td>1.00</td>
</tr>
<tr>
<td class="firstcol">Industrial</td>
<td>3</td>
<td>5</td>
<td>5</td>
<td>7</td>
<td>88.2</td>
<td>19</td>
<td>7</td>
<td>-27</td>
<td>34</td>
<td>-7</td>
<td><b>0.90</b></td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Confidence</td>
<td>-4</td>
<td>-3</td>
<td>-2</td>
<td>-2</td>
<td>79.3</td>
<td>34</td>
<td>2</td>
<td>-27</td>
<td>29</td>
<td>-10</td>
<td "><b>0.82</b></td>
</tr>
<tr>
<td class="firstcol">Retail</td>
<td>1</td>
<td>6</td>
<td>5</td>
<td>5</td>
<td>81.5</td>
<td>23</td>
<td>6</td>
<td>-21</td>
<td>27</td>
<td>-6</td>
<td><b>0.47</b></td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>1</td>
<td>0</td>
<td>0</td>
<td>1</td>
<td>95.6</td>
<td>5</td>
<td>3</td>
<td>-42</td>
<td>45</td>
<td>-18</td>
<td><b>0.44</b></td>
</tr>
<tr>
<td class="firstcol">Services</td>
<td>20</td>
<td>22</td>
<td>20</td>
<td>21</td>
<td>68.4</td>
<td>58</td>
<td>32</td>
<td>-6</td>
<td>38</td>
<td>17</td>
<td><b>0.80</b></td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td colspan="4">% m/m</td>
<td colspan="2">Based on Level</td>
<td colspan="4">Level</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">EMU</td>
<td style="color:red;">-2.5%</td>
<td style="color:red;">-1.0%</td>
<td style="color:red;">-0.6%</td>
<td style="color:red;">-0.4%</td>
<td>76.5</td>
<td>61</td>
<td>117</td>
<td>74</td>
<td>44</td>
<td>100</td>
<td><b>0.94</b></td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td style="color:red;">-3.3%</td>
<td style="color:red;">-0.9%</td>
<td style="color:red;">-0.5%</td>
<td style="color:red;">-0.4%</td>
<td>65.2</td>
<td>57</td>
<td>121</td>
<td>79</td>
<td>42</td>
<td>100</td>
<td><b>0.61</b></td>
</tr>
<tr>
<td class="firstcol">France</td>
<td style="color:red;">-1.3%</td>
<td style="color:red;">-1.1%</td>
<td>0.6%</td>
<td>0.0%</td>
<td>81.8</td>
<td>27</td>
<td>119</td>
<td>72</td>
<td>47</td>
<td>100</td>
<td><b>0.80</b></td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td style="color:red;">-0.8%</td>
<td style="color:red;">-3.0%</td>
<td style="color:red;">-0.9%</td>
<td style="color:red;">-1.3%</td>
<td>61.9</td>
<td>90</td>
<td>121</td>
<td>72</td>
<td>49</td>
<td>100</td>
<td><b>0.79</b></td>
</tr>
<tr>
<td class="firstcol">Spain</td>
<td style="color:red;">-2.9%</td>
<td>1.1%</td>
<td style="color:red;">-0.9%</td>
<td>1.2%</td>
<td>56.5</td>
<td>161</td>
<td>118</td>
<td>67</td>
<td>50</td>
<td>100</td>
<td><b>0.67</b></td>
</tr>
<tr class="odd">
<td class="firstcol">Memo:UK</td>
<td>1.1%</td>
<td>4.5%</td>
<td style="color:red;">-5.7%</td>
<td>1.6%</td>
<td>92.9</td>
<td>6</td>
<td>119</td>
<td>69</td>
<td>50</td>
<td>101</td>
<td><b>0.38</b></td>
</tr>
<tr class="grey1">
<td colspan="4" class="firstcol">Since 1990 except Services(Oct 1996)</td>
<td colspan=3>208-Count</td>
<td colspan=2>Services:</td>
<td colspan="3">126-Count</td>

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<tr class="grey1">
<td colspan="12" class="firstcol">Sentiment is an index, sector readings are net balance diffusion measures</td>

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Sentiment fell across the EU region in September. The drop was widespread but not severe. Consumer sentiment had the lowest absolute reading but retail sentiment fell the most in September, dropping by five points. Construction [...]

EU Growth and Inflation Conditions

Tom Moeller

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<p></p>
<p><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070928k.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070928l.jpg"></p>
<p>The Chicago Purchasing Manager&#39;s Association reported that its August business barometer ticked up to 53.8 after the 6.8 point collapse during July. The figure remained well below the highs of earlier this year.</p>
<p>During the last ten years there has been a 69% correlation between the index and the three-month change in US factory sector industrial production.</p>
<p>New orders recovered about half of the sharp July drop but the employment measure skidded hard. The production index dropped 3.3 points to its lowest level since May and order backlogs remained quite low.</p>
<p>The prices paid index fell just slightly after solid gains though most of this year.During the last ten years there has been an 89% correlation between the level of the prices diffusion index and the three month change in the core PPI for intermediate goods.</p>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S2/@S203/@S203.htm">Chicago PMI</a></th>
<th scope="col">&nbsp;<u><b>August</b></u></th>
<th scope="col">&nbsp; <u><b>July</b></u></th>
<th scope="col"><b><u>Aug. &#39;06</u></b></th>
<th scope="col"><b><u>2006</u></b></th>
<th scope="col"><b><u>2005</u></b></th>
<th scope="col"><b><u>2004</u></b></th>
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<td class="firstcol">Chicago PMI Business Barometer Index</td>
<td>53.8</td>
<td>53.4</td>
<td>58.4</td>
<td>56.8</td>
<td>60.4</td>
<td>62.8</td>
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The Chicago Purchasing Manager's Association reported that its August business barometer ticked up to 53.8 after the 6.8 point collapse during July. The figure remained well below the highs of earlier this year. During the last ten [...]

Chicago Purchasing Managers Survey Ticked Up

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<span id="articletext">
<p></p>
<p></p><div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070928b.jpg" width="353">
<p>The value of construction put in place recovered 0.2% last month following a 0.5% drop during July. The rise topped consensus expectations for another decline of 0.5%.</p>
<p>Strength in public construction spending again provided much of the lift to overall construction spending with a 0.7% rise. Construction on highways &amp; streets jumped 0.8% (4.2% y/y). The value of construction on highways and streets is nearly one third of the value of total public construction spending. Construction spending on education gave a real pop with a 1.3% (18.3% y/y) rise.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070928c.jpg" width="353"></p>
<p>Nonresidential building jumped 2.3% after a slight dip in July. Office construction surged 3.7% (14.7% y/y) while construction in the commercial sector jumped 2.6% (14.2% y/y). It more than recovered its 1.3% July drop.</p>
<p>Residential building continued on the down slope and fell 1.4%. Building of new single family building fell another huge 3.3% (-25.6% y/y). Spending on improvements recovered from two months of decline with a 1.6% (1.3% y/y) increase.</p>
<p>During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.</p>
<p>These more detailed categories represent the Census Bureau&#146;s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.</p>
<p><b>Globalization, Macroeconomic Performance, and Monetary Policy</b> is yesterday&#39;s speech by Federal Reserve Board GovernorFrederic S. Mishkin and it is available <a href="http://www.federalreserve.gov/newsevents/speech/Mishkin20070927a.htm"> here</a>.<br></p></div>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col"><u><b>August</b></u></th>
<th scope="col"><u><b>July</b></u></th>
<th scope="col"><b><u>Y/Y</u></b></th>
<th scope="col"><b><u>2006</u></b></th>
<th scope="col"><u><b>2005</b></u></th>
<th scope="col"><b><u>2004</u></b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>0.2%</td>
<td>-0.5%</td>
<td>-1.7%</td>
<td>5.6%</td>
<td>10.7%</td>
<td>11.0%</td>
</tr>
<tr>
<td class="firstcol">Private</td>
<td>0.0%</td>
<td>-1.1%</td>
<td>-6.1%</td>
<td>4.7%</td>
<td>12.0%</td>
<td>13.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Residential</td>
<td>-1.5%</td>
<td>-1.7%</td>
<td>-16.5%</td>
<td>0.5%</td>
<td>13.7%</td>
<td>18.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Nonresidential</td>
<td>2.3%</td>
<td>-0.2%</td>
<td>15.2%</td>
<td>15.2%</td>
<td>7.8%</td>
<td>3.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Public</td>
<td>0.7%</td>
<td>1.2%</td>
<td>14.7%</td>
<td>9.2%</td>
<td>6.2%</td>
<td>1.7%</td>
</tr>
</tbody>
</table>
</body>
</html>


The value of construction put in place recovered 0.2% last month following a 0.5% drop during July. The rise topped consensus expectations for another decline of 0.5%. Strength in public construction spending again provided much of [...]

U.S. Construction Spending Recovered A Bit

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<p></p><div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070928a.jpg" width="353">
<p><b>Personal income</b> rose 0.3% in August after an unrevised 0.5% July increase. The latest rise lagged Consensus forecasts for a 0.4% gain and it was the weakest monthly increase since April.</p>
<p>Much of the weakness in last month&#39;s income gain was due to a modest rise in wages &amp; salaries of just 0.2% (7.1% y/y) and it also was the weakest since April. Factory sector wages fell 0.1% (6.2% y/y) after a downwardly revised 0.1% July uptick.Wage &amp; salary income in the service-producing industries also was weak and rose 0.3% (8.2% y/y) following the downwardly revised 0.5% July increase. Wages in the government sector rose 0.2% (4.0% y/y).</p>
<p>Interest income grew 0.7% (4.4% y/y), stronger with the rise in interest rates, and dividend income popped another 1.0% (13.7% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070928i.jpg" width="353"></p>
<p>Personal current taxes rose just 0.2% but much stronger growth earlier this year pulled the y/y gain to a strong 10.8%. As a result, <b>disposable personal income</b> grew 0.4% (6.2% y/y), a bit below the increase in overall income, after a 0.6% July gain. Real disposable personal income rose 0.4% last month (4.4% y/y).<b>
<p>Personal consumption expenditures gained 0.6% last month. The increase was ahead of expectations for a 0.4% rise and was ahead of an unrevised 0.4% July gain. Durable goods purchases surged 2.4% (4.3% y/y) on the strength of a 5.4% (3.1% y/y) jump in motor vehicle outlays. Spending on furniture &amp; other household equipment rose 0.8% (4.2% y/y) and July&#39;s increase was doubled to 1.0%. Spending on household operation jumped 2.1% (6.6% y/y) on the strength of a 4.2% (8.1% y/y) spike in electricity &amp; gas costs. Outlays on gasoline continued to offset some of these increases with a 6.5% (-8.4% y/y) drop. Spending on apparel rose 0.5% (5.0% y/y), well below the pace of an upwardly revised 1.3% July spike, while outlays on medical care rose a steady 0.4% (6.2% y/y).<br><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070928j.jpg" width="353"></p>
<p>The <b>PCE chain price index </b>in August fell 0.1%, the first monthly decline since last October. The core PCE price index was steady at a 0.1% pace, where it has been for six months<span style="mso-bidi-font-weight: bold">. Some of the decline in gasoline prices, which has been dampening the PCE price measure, is probably about to reverse direction with the rise in crude oil prices above $80 per barrel. However another source of price strength has been the rise in food prices, up 0.4% (4.0% y/y) in August and the annualized rate of increase so far this year is 5.4%.</span></p>
<p>The <b>personal saving rate</b> of 0.7% last month was fairly steady. That low figure compares to the flow of funds measure from the Federal Reserve which pegs households&#39; net worth at nearly six times income due to the rise in real estate prices.</p>
<p><b>Can Social Security Survive the Baby Boomers? </b>from the Federal reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20070901/cover.pdf"> here</a>.<br></p></b></p></div>
</span>
<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"><b>Disposition of Personal Income</b></a></th>
<th scope="col"><b><u>August</u></b></th>
<th scope="col"><b><u>July</u></b></th>
<th scope="col"><b><u>Y/Y</u></b></th>
<th scope="col"><b><u>2006</u></b></th>
<th scope="col"><b><u>2005</u></b></th>
<th scope="col"><b><u>2004</u></b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><b>Personal Income</b></td>
<td>0.3%</td>
<td>0.5%</td>
<td>6.8%</td>
<td>6.6%</td>
<td>5.9%</td>
<td>6.2%</td>
</tr>
<tr>
<td class="firstcol"><b>Personal Consumption</b></td>
<td>0.6%</td>
<td>0.4%</td>
<td>5.2%</td>
<td>5.9%</td>
<td>6.2%</td>
<td>6.4%</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>Saving Rate</b></td>
<td>0.7%</td>
<td>0.9%</td>
<td>-0.1% (Aug. 06)</td>
<td>0.4%</td>
<td>0.5%</td>
<td>2.1%</td>
</tr>
<tr>
<td class="firstcol"><b>PCE Chain Price Index</b></td>
<td>-0.1%</td>
<td>0.1%</td>
<td>1.8%</td>
<td>2.8%</td>
<td>2.9%</td>
<td>2.6%</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>&nbsp; Less food &amp; energy</b></td>
<td>0.1%</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 income rose 0.3% in August after an unrevised 0.5% July increase. The latest rise lagged Consensus forecasts for a 0.4% gain and it was the weakest monthly increase since April. Much of the weakness in last month's income [...]

U.S. Personal Income Rise of 0.3% Missed Expectations

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<span id="articletext">
<p></p>
<p></p><div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070927f.jpg" width="353">
<p>Currency rates are after all the price of one money in terms of another. But currency values are not simply determined by the size or growth in relative money stocks. EMU money supply is now growing faster than the US money supply even though the euro is the strong currency and the dollar is the weaker one.<br><br></p>
<p>The ECB is worried about inflation at or close to its ceiling rate. The flash German HICP (released Sept 27th) shows that Germany has seen a turn for the worse in inflation trends in August. The ECB has been wary for some time of money and credit growth above its guidelines. But the ECB paused its tightening effort in the wake of the subprime mortgage crisis. It may soon find it has more work to do.<br><br></p>
<p>This notion, however, is complicated by the rise in the euro itself. In Germany unions are already urging the ECB to cut rates to take that upward pressure off the Euro. While it may seem odd for fast money growth to be associated with a rising currency, it is nonetheless true that the rising currency will help to contain whatever inflation pressures may be brewing inside the Euro area.<br><br></p>
<p>That is a Euro area dilemma. The euro has risen enough that it going to start to crimp growth. Indeed growth appears to have started to slow even before the Euro crossed the $1.40 threshold. </p></div>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th colspan="7" scope="col"><b>Look at Global and Euro Liquidity Trends</b></th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">Saar-all</td>
<td colspan="3"><b>Euro Measures (E13): Money &amp; Credit</b></td>
<td colspan="3"><b>G-10 Major Markets: Money</b></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td><b>&#128;&#128;-Supply M2</b></td>
<td><b>Credit: Resources</b></td>
<td><b>Loans</b></td>
<td><b>$US M2</b></td>
<td><b>&pound;&pound;UK M4</b></td>
<td><b>&yen;&yen;Jpn M2+Cds</b></td>
</tr>
<tr>
<td class="firstcol"><b>3-Mo</b></td>
<td>12.4%</td>
<td>12.7%</td>
<td>12.9%</td>
<td>5.9%</td>
<td>13.7%</td>
<td>1.1%</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>6-Mo</b></td>
<td>11.8%</td>
<td>13.5%</td>
<td>12.0%</td>
<td>6.8%</td>
<td>14.3%</td>
<td>1.5%</td>
</tr>
<tr>
<td class="firstcol"><b>12-Mo</b></td>
<td>10.8%</td>
<td>11.7%</td>
<td>11.0%</td>
<td>6.7%</td>
<td>13.4%</td>
<td>1.8%</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>2Yr</b></td>
<td>6.3%</td>
<td>11.7%</td>
<td>11.1%</td>
<td>5.6%</td>
<td>13.5%</td>
<td>1.1%</td>
</tr>
<tr>
<td class="firstcol"><b>3Yr</b></td>
<td>14.2%</td>
<td>16.7%</td>
<td>15.8%</td>
<td>7.8%</td>
<td>19.0%</td>
<td>2.0%</td>
</tr>
</tbody>
</table>
</body>
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Currency rates are after all the price of one money in terms of another. But currency values are not simply determined by the size or growth in relative money stocks. EMU money supply is now growing faster than the US money supply [...]

Euro Rises as Money Growth Accelerates... Dollar Drops and Money Growth Slows

Carol Stone, CBE

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<p></p><div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070927c.jpg" width="353">
<p>We&#39;ve commented on developments in Germany often in recent weeks, but it seems worthwhile as that nation&#39;s economy remains firm. Today, the Federal Statistics Office reported on the labor market through August. Employment of German residents rose 19,000 in August and 26,000 in July, continuing a string of increases into a 19th month. Employment within Germany, including commuters from surrounding countries and other foreign nationals, was stronger, adding 15,000 more in each July and August. This broader total employment is up 1.6% from a year ago. By comparison, the UK, Italy and Japan each have roughly 0.5% employment growth over the last year, while France has seen a similar 1.6% to Germany&#39;s.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070927d.jpg" width="353"></p>
<p>Unemployment continues to decline. The ILO definition, used throughout the Euro area, puts the rate at 6.1% in August, down 2.1 points from the year-ago level and the lowest since November 1992 -- almost 15 years. The Germans own survey of &quot;registered&quot; unemployment gave a rate of 8.8% in September, compared with 10.6% in September 2006. The latest figure is the lowest since the same in June 1993.</p>
<p>The &quot;registered&quot; data are available for the former Western and Eastern regions of Germany. It has long been the case that the Eastern area has had the far weaker economy, but these data highlight that the improvement there is greater than in the West. After a period of relative worsening through the late 1990s, the Eastern unemployment rate has declined more than the Western rate. So from a differential of about 10 percentage points that persisted from 2001 through 2004, the difference is now 7.4%, with the rates for September at 7.3% in the West and 14.7% in the East. Both men and women have benefited, while the rates for both genders together under age 25 have remained in about the same relative positions. That said, the rates in all of Germany for people under 25 have improved noticeably; September&#39;s 8.9% is down from 11.0% a year ago and is the lowest September rate since 1993.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070927e.jpg" width="353">These data don&#39;t square well with the weak business confidence measures Louise Curley wrote about Tuesday. The same anomaly we found yesterday in France and Italy seems to apply in Germany too; we pointed out that business is worried in those two countries about orders in manufacturing even as those orders have remained firm. The same collection of uncertainties apply in all these countries: will the financial turmoil that began in the US housing market extend to European goods markets; will unemployment turn back higher after such favorable behavior as recently seen in Germany? A clue might be found in retail trade data: while jobs are increasing, retail trade is not. It stalled in mid-2006 and continues to flutter within a tight range. Thus, as German business leaders and financial analysts describe eroding confidence through their professional surveys, consumers are doing so by holding back on their spending, not a sign of confidence on their part either.</p></div>
</span>
<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><b>GERMANY (Seas Adj, ex as noted)</b></th>
<th scope="col"><b>Sep 2007</b></th>
<th scope="col"><b>Aug 2007</b></th>
<th scope="col"><b>Jul 2007</b></th>
<th scope="col"><b>Year Ago</b></th>
<th scope="col"><b>2006</b></th>
<th scope="col"><b>2005</b></th>
<th scope="col"><b>2004</b></th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol"><b>LFS Employment</b> (mil)</td>
<td>--</td>
<td>39.73</td>
<td>39.71</td>
<td>39.10</td>
<td>39.01</td>
<td>38.72</td>
<td>38.79</td>
</tr>
<tr>
<td class="firstcol"><b>Change</b> (thous)</td>
<td>--</td>
<td>19</td>
<td>26</td>
<td>601</td>
<td>281</td>
<td>-67</td>
<td>160</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>Yr/Yr % Change</b>, NSA</td>
<td>--</td>
<td>1.6</td>
<td>1.7</td>
<td>--</td>
<td>0.7</td>
<td>-0.2</td>
<td>0.4</td>
</tr>
<tr>
<td class="firstcol"><b>Unemployment Rate<br></b> (%, ILO Def.)</td>
<td>--</td>
<td>6.1</td>
<td>6.2</td>
<td>8.2</td>
<td>8.1</td>
<td>9.1</td>
<td>9.2</td>
</tr>
<tr class="odd">
<td class="firstcol"><b>Registered Unemployment Rate</b> (%)</td>
<td>8.8</td>
<td>8.9</td>
<td>9.0</td>
<td>10.6</td>
<td>10.8</td>
<td>11.7</td>
<td>10.6</td>
</tr>
<tr>
<td class="firstcol"><b>Job Vacancies</b> (thous)</td>
<td>615</td>
<td>615</td>
<td>611</td>
<td>589</td>
<td>564.2</td>
<td>413.1</td>
<td>284.3</td>
</tr>
</tbody>
</table>
</body>
</html>


We've commented on developments in Germany often in recent weeks, but it seems worthwhile as that nation's economy remains firm. Today, the Federal Statistics Office reported on the labor market through August. Employment of German [...]

Employment Up, Unemployment Down in Germany; But Does the Better Jobs Situation Spur 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

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

Tighter US immigration enforcement adversely impacting labor force

Economic policy uncertainty, while still elevated, is declining

Gradual disinflation and easier monetary policies across advanced economies

Largest October layoffs since 2003, led by technology

Subdued global shipping costs not yet pointing to supply chain problems

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The ISM U.S. manufacturing PMI held at a lower-than-expected 52.7 in April and March following a 0.2-point easing to 52.4 in February, data from the Institute for Supply Management showed. The April reading, above the 50 expansion-contraction dividing line, indicated the U.S. manufacturing sector expanded for the fourth successive month. A reading of 53.0 for April had been expected in the Action Economics Forecast Survey. The April manufacturing PMI, while above a contraction-level 48.8 in April 2025 and a low of 47.0 in October 2024, remained below a peak of 63.8 in March 2021.

The production index slipped to 53.4 in April from 55.1 in March, indicating production expanded for the sixth consecutive month but at the slowest pace since December. The index was above its recent low of 44.8 in April 2025 but below a peak of 66.5 in March 2021. In April, 28.3% (NSA) of respondents reported higher production while 13.0% reported lower production. The new orders index rebounded to 54.1 in April from 53.5 in March, signaling new orders grew for the fourth straight month following four successive months of contraction. The index remained well above a low of 41.8 in January 2023. In April, an increased 31.6% (NSA) of respondents reported higher new orders while 15.2% reported declines. The inventories index increased to 49.0 in April from 47.1 in March, marking the 12th straight month of contraction. The index was below its recent high of 52.7 in March 2025 but above a low of 43.8 in October 2024. Meanwhile, the supplier deliveries index rose to 60.6 in April from 58.9 in March, indicating slower delivery performance for the fifth consecutive month after faster deliveries in November. In April, 22.6% (NSA) of respondents reported slower delivery speeds while only 1.5% reported faster speeds.

On the labor front, the employment index slid to 46.4 in April from 48.7 in March, showing employment contracted for the 31st straight month and at the lowest level since December following a brief expansion in September 2023. The index was above its recent low of 44.1 in November 2025 but below a high of 49.7 in January 2025 and a high of 56.5 in March 2022. In April, 17.5% (NSA) of respondents reported higher employment while 20.2% reported less hiring.

On the pricing front, the prices paid index jumped to 84.6 (NSA) in April from 78.3 in March, indicating raw materials prices rose for the 19th consecutive month and at the fastest pace since April 2022. The index remained well above a low of 39.4 in December 2022 but below a high of 87.1 in March 2022 and a peak of 92.1 in June 2021. In April, an increased 70.3% (NSA) of respondents reported higher prices while only 1.2% reported price declines.

In other ISM series not included in the composite index, the new export orders index fell to 47.9 in April from 49.9 in March, indicating new export orders contracted for the second successive month after expanding in February and January. The index was up from a low of 40.1 in May 2025 but down from its recent high of 52.4 in January 2025 and a high of 57.1 in February 2022. The imports index decreased to 50.3 in April from 52.6 in March, suggesting imports expanded at the weakest pace in three months. The index was below its recent high of 54.9 in February but above a low of 39.9 in May 2025. The order backlog index declined to 51.4 (NSA) in April from 54.4 in March, showing backlog levels grew at the slowest pace in four months. The index was well above a low of 37.5 in May 2023 but far below a peak of 70.6 in May 2021.

The ISM figures are based on responses from over 400 purchasing and supply executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These data are diffusion indexes where a reading above 50 indicates expansion; below 50 indicates contraction. The ISM Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes (seasonally adjusted) with equal weights: New Orders, Production, Employment, Supplier Deliveries, and Inventories. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- ISM Mfg. PMI at 52.7 in Apr. and Mar.; fourth consecutive month of expansion.
- Production (53.4) expands for the sixth straight mth.; new orders (54.1) for the fourth successive mth.
- Employment (46.4) contracts for the 31st straight mth.; at a four-month low.
- Prices Index (84.6) highest since Apr. ’22; prices rising for the 19th consecutive mth.
- Exports (47.9) contract; imports (50.3) still grow but at a three-month low.

U.S. ISM Manufacturing PMI Steady in April; New Orders and Production Growing; Employment Contracting

Andrew Cates

**Front-End Yields Reflect Policy Reassessment**
Against a backdrop of key central bank meetings either having just taken place or imminent, short-dated government bond yields have moved decisively higher across most major economies since the escalation of the Middle East conflict, with the sharpest increase seen in the UK. The rise in 2-year yields reflects a repricing of near-term monetary policy expectations, as markets respond to the inflationary implications of higher energy prices and the growing likelihood that central banks will delay easing cycles. Moves have been most pronounced in economies where inflation is expected to be more persistent—most notably the UK—while increases have been more modest in the US and particularly Japan, where policy normalisation remains gradual. In effect, the front end of the curve is signalling a shift away from the “rate cuts soon” narrative that prevailed earlier in the year toward a more cautious, higher-for-longer policy outlook.

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**US Recession Risks Remain Contained—For Now**
Despite the recent deterioration in the macro backdrop, real-time recession risk indicators for the US remain relatively subdued. This is notable given the combination of softer growth momentum, higher bond yields and heightened geopolitical risk. The nowcast—derived from a blend of high-frequency activity data and financial stress measures—has historically tended to move sharply when conditions turn, rather than drift higher gradually. That asymmetry is important in the current environment. While recession risks are not yet flashing red, past cycles suggest they can reprice abruptly, and arguably at present if energy-driven inflation were to feed much more forcefully into financial conditions or begin to weigh more materially on demand.

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**Consumer Confidence Diverges: Europe and UK Slide, US Stabilises**
Consumer confidence has weakened across the major economies, but the deterioration has been more pronounced in the euro area and the UK than in the US. While sentiment in the US has recently edged up, it remains at relatively subdued levels. By contrast, confidence in Europe and the UK has fallen more sharply, reflecting greater exposure to higher energy costs and a more direct squeeze on real household incomes. This divergence is consistent with broader macro trends, suggesting that demand in Europe may prove more sensitive to the current shock, with weaker sentiment feeding more quickly into consumption.

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**Euro area Credit Conditions Turn More Restrictive**
The latest ECB lending survey points to a clear tightening in credit conditions across the euro area, with banks raising lending standards for both firms and households while loan demand weakens. This combination—more restrictive supply alongside softer demand—is typically associated with a cooling in activity, particularly in interest-sensitive sectors. Recent evidence suggests that higher perceived risks, rising funding costs and geopolitical uncertainty are all weighing on banks’ willingness to lend, while weaker confidence and reduced investment appetite are dampening borrowing needs. The result is a tightening in financial conditions that is likely to amplify the broader slowdown already evident in survey data, reinforcing the more fragile growth dynamics now emerging across the region.

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**An Intensifying AI Boom with Supply-Side Undercurrents**
Against the backdrop of surging AI-related investment, semiconductor prices are not just high—they are rising at an increasingly rapid pace. This chart shows a clear acceleration in both prices and export values, pointing to an intensifying boom in global chip demand. While this is in part a reflection of strong, structural demand, supply-side factors may also be playing a growing role. Although the Middle East is not a direct source of key chip-making minerals, it is central to the energy and petrochemical inputs that underpin semiconductor production. Ongoing geopolitical tensions are therefore likely feeding into higher costs and renewed frictions across supply chains. The combination of accelerating demand and tightening supply conditions suggests that semiconductor inflation could prove more persistent—and more globally consequential—than currently assumed.

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**Labour Markets Reflect the AI Acceleration**
Our final chart this week highlights the extent to which the current AI boom is now feeding through into labour markets. This high-frequency indicator—based on the share of job listings containing AI-related keywords—shows a sharp and sustained increase since the widespread adoption of generative AI tools in late 2022. What began as a more traditional build-out in machine learning roles has evolved into a broader and more intense wave of hiring tied to generative AI capabilities, with demand accelerating markedly across multiple economies. The scale and persistence of this trend point to a structural shift rather than a cyclical upswing, reinforcing the view that AI is becoming an increasingly important driver of investment, productivity expectations and, potentially, broader macroeconomic dynamics.

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Against a backdrop of persistent geopolitical tensions, firmer energy prices and a busy week of central bank meetings—including the Fed, ECB, BoE and BoJ—financial markets have remained notably resilient, even as the macro narrative has softened at the margin. The message from this week’s charts is one of growing tension beneath that surface calm. Front-end bond yields have moved higher, signalling a shift toward a more cautious, “higher-for-longer” policy outlook (chart 1). At the same time, real-time recession indicators for the United States suggest risks remain contained for now (chart 2). Consumer confidence data paint a more uneven picture, with sharper declines in the euro area and UK than in the US, highlighting regional vulnerabilities to the current energy shock (chart 3). The ECB’s latest bank lending survey reinforces this, pointing to tighter credit conditions and weaker demand—factors that are likely to weigh further on European growth (chart 4). By contrast, developments in the semiconductor sector underline a different dynamic: an intensifying global boom, with accelerating price pressures reflecting both strong AI-driven demand and emerging supply-side constraints linked indirectly to energy and logistics disruptions (chart 5). Finally, labour market data confirm that the AI surge is not merely a market narrative but a tangible structural shift, with hiring for AI-related roles accelerating across economies (chart 6). Taken together, these signals point to a more complex macro environment—one in which resilient markets coexist with softening growth, more persistent inflation risks and increasingly delicate policy trade-offs.

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Charts of the Week: Tension Beneath the Surface

Michael J. Moran

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Real GDP grew at an annual rate of 2.0% in the first quarter of 2026, almost identical to the expected advance of 2.1%. The latest change was comfortably within the range of recent observations and close to the economy’s potential rate of growth. The year-over-year change totaled 2.7%, but that shift reflected what might be viewed as a special factor (robust growth in the second and third quarters that offset a trade-tariff-induced drop in 2025-Q1 GDP).

Business fixed investment was the star of the show in the first quarter, registering growth of 10.4%. Outlays for information processing equipment and software were especially strong, while outlays for industrial equipment and Research & Development contributed positively as well. Outlays for structures remained decidedly soft, dropping for the ninth consecutive quarter. Building of data centers have been vigorous, but softness in offices and manufacturing facilities has dwarfed the strength in this new area.

Federal spending surged 9.4% in Q1, but the rise reflected the reopening of most federal agencies after their closure during much of the fourth quarter. Excluding this noise, support from the federal government has been softening. Nondefense outlays peaked in the fourth quarter of 2024, and they were 6.9% shy of that total in the first quarter. Defense spending also peaked in 2024-Q4 and has eased 2.4% since then. Defense spending most likely will grow in coming quarters because of the efforts in the Middle East. Orders for defense goods have already started to rise.

Consumer spending rose 1.5% in the first quarter, a bit shy of the 2.1% pace over the four quarters of last year and less than half the rates in 2023 and 2024. Consumer spending showed signs of softening in late 2025 and January of this year, but activity picked up in February and March. Firm tax refunds might have provided a boost to household spending in the latest months. Some of the tax cuts from the One Big Beautiful Bill were applied retroactively to 2025, but withholding schedules were not adjusted last year. Thus, many households are receiving larger-than-normal tax refunds.

International trade acted as a drag on economic growth in Q1, with net exports subtracting 1.3 percentage points from the GDP increase. Exports did well in the first quarter with growth of 12.9%, but imports were even stronger with a jump of 21.4%. The real trade deficit of $1.1 trillion was noticeably smaller than the shortfall of $1.4 trillion in 2025-Q1 when importers were rushing to get goods into the US before the imposition of tariffs. Still, the trade shortfall was sizeable and its effect on growth noticeable.

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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- Robust business investment led the advance; moderate support from consumers.
- Government spending jumped with the reopening of most federal agencies.
- The trade sector remained volatile, making a sizeable negative contribution in Q1.

Q1 GDP: Weathering the Challenges; Trend-Like Growth

Sandy Batten

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This monthly report contains a wealth of information concerning the state of the consumer. The anticipation ahead of today’s report centered on how much the surge in energy prices since the escalation of the US-Iran conflict in early March would push up overall PCE inflation. Prices of energy goods and services jumped 11.6% m/m not annualized in March. This was the largest monthly increase since September 2005. As a result, the headline PCE price index increased 0.7% m/m (3.5% y/y versus 2.8% y/y in February), the largest monthly gain since July 2022 but in line with expectations of the Action Economics Forecast Survey.

The core index (that is, excluding food and energy prices) rose by a more modest 0.3% m/m in March, down from a 0.4% monthly increase in February and in line with expectations. However, the yearly rate rose further to 3.2% y/y in March from 3.0% in February, well above and moving away from the Fed’s 2% target. The FOMC left its fed funds rate target unchanged at yesterday’s meeting, but some committee members dissented, opposing the implied easing bias contained in the statement. Chair Powell, in his press conference, noted that a number of members have become more concerned over the inflation outlook and the possible need for a Fed response.

Nominal personal income posted a solid 0.6% m/m (3.7% y/y) increase in March following an upwardly revised unchanged reading in February (previously -0.1% m/m). The March increase was twice the 0.3% monthly gain expected by the Action Economics Forecast Survey. However, after adjusting for inflation, real personal income slipped 0.1% m/m in March on top of a 0.4% m/m decline in February.

Employee compensation continued to be a major driver of personal income in March. It rose 0.4% m/m (4.1% y/y) in March after a 0.2% monthly increase in February. In March, proprietors’ income jumped 2.8%. This outsized increase reflected payments to farmers from the federal government’s Farmer Bridge Assistance Program. Rental income rose a solid 0.7% m/m, the same gain as in February. Income from financial assets increased 0.4% m/m following a 0.9% m/m decline in February. Personal current transfer payments edged up 0.1% m/m versus a 0.3% m/m decline in February.

Nominal consumption expenditures jumped 0.9% m/m (5.7% y/y) in March following an upwardly revised 0.6% monthly gain in February (previously +0.5% m/m). Spending on goods rose 2.0% m/m (4.5% y/y) while spending on services increased 0.4% m/m (6.3% y/y). As for overall inflation, the surge in energy prices also accounted for a large portion of the March gain in nominal spending. After adjusting for overall inflation, real PCE rose a more modest 0.2% m/m following an upwardly revised 0.3% m/m increase in February (previously +0.1% m/m). Still, the solid gains in February and March provide a strong starting point for Q2. The March level is 1.5% at an annual rate above the Q1 average. For all of Q1, real PCE rose 1.6% q/q saar.

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**.

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- The PCE price index jumped 0.7%, reflecting an 11.6% m/m surge in energy prices.
- The core index was up 0.3%, in line with expectations but still well above the Fed’s target.
- Personal income increased 0.6% m/m, led by a 0.4% m/m rise in compensation.
- Personal consumption jumped 0.9% m/m with a slight upward revision to February.
- However, much of the March gain in nominal consumption also reflected the jump in energy prices.
- Real consumption rose by a more modest 0.2% m/m.

Surging Energy Prices Push Up PCE Prices and Consumption in March

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance dropped by 26,000 to 189,000 in the week ending April 25, from 215,000 in the week ending April 18, revised from 214,000. The four-week average declined by 3,500 to 207,500 in the week ending April 25, from 211,000 the April 18 week, revised from 210,750. The Action Economics/Haver Analytics Survey looked for 214,000 claims to have been filed.

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—dropped by 23,000 to 1.785 million in the week ending April 18, from 1.808 million in the week ending April 11, revised from 1.821 million. The four-week moving average declined to 1.797 million in the latest week from 1.809 million in the April 11 week. The insured unemployment rate remained at 1.2% in the week of April 11. It has remained at that level since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending April 11, the highest unemployment rates were in New Jersey (2.51%), Washington (2.25%), Massachusetts (2.21%), Rhode Island (2.10%), and California (2.06%). The lowest rates were in Florida (0.31%), Louisiana (0.32%), Arkansas, North Carolina and Mississippi (all 0.35%), Alabama (0.36%), South Dakota (0.41%) and Tennessee (0.43%). Rates in other notable states include New York (1.96%), Illinois (1.77%), Pennsylvania (1.40%), and Texas (1.04%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.

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- New claims dropped by 26,000 to 189,000.
- Continuing claims declined by 23,000 to 1.785 million.
- The insured unemployment rate remained at 1.2%.

Economy in Brief

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The German IFO Index Shows a Broad Weakening

EU Growth and Inflation Conditions

Chicago Purchasing Managers Survey Ticked Up

U.S. Construction Spending Recovered A Bit

U.S. Personal Income Rise of 0.3% Missed Expectations

U.S. Personal Income Rise of 0.3% Missed Expectations

Euro Rises as Money Growth Accelerates... Dollar Drops and Money Growth Slows

Employment Up, Unemployment Down in Germany; But Does the Better Jobs Situation Spur Spending