Robert Brusca

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824g.jpg" width="353">
GDP steady Y/Y up Q/Q on stronger private consumption. 
UK trends are more or less in tact with the release of the Q2 GDP report. Both exports and imports are sharply lower owing to a boost in both flows in Q1 2006. Quarterly trade flows show that exports are lagging a bit more in their recovery compared to imports. Private consumption is still strong, unlike on the continent. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
UK GDP
</tr>
</thead>
<tbody>
<tr class="grey4">
<td colspan="2">&nbsp;</td>
<td colspan="2">Consumption</td>
<td colspan="2">Capital Formation</td>
<td>3COLSPAN</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>GDP</td>
<td>Private</td>
<td>Public</td>
<td>Total</td>
<td>Housing</td>
<td>Exports</td>
<td>Imports</td>
<td>Domestic Demand</td>
</tr>
<tr class="grey2">
<td colspan="9">% change Q/Q; X-M is Q/Q change in Blns of euros</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q2-07</td>
<td>3.4%</td>
<td>3.0%</td>
<td>3.2%</td>
<td>-4.3%</td>
<td>#N/A</td>
<td>-4.0%</td>
<td>-1.7%</td>
<td>3.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q1-07</td>
<td>2.8%</td>
<td>1.9%</td>
<td>2.2%</td>
<td>4.5%</td>
<td>16.0%</td>
<td>-3.3%</td>
<td>-2.6%</td>
<td>2.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q4-06</td>
<td>3.3%</td>
<td>4.4%</td>
<td>1.8%</td>
<td>13.1%</td>
<td>-11.4%</td>
<td>-1.4%</td>
<td>-3.0%</td>
<td>2.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q3-06</td>
<td>2.8%</td>
<td>1.1%</td>
<td>1.3%</td>
<td>8.7%</td>
<td>8.4%</td>
<td>-38.5%</td>
<td>-39.8%</td>
<td>0.3%</td>
</tr>
<tr class="grey2">
<td colspan="9">% change Yr/Yr; X-M is Yr/Yr change in Gap in Blns of euros</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q2-07</td>
<td>3.0%</td>
<td>2.6%</td>
<td>2.1%</td>
<td>5.3%</td>
<td>#N/A</td>
<td>-13.4%</td>
<td>-13.5%</td>
<td>2.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q1-07</td>
<td>3.0%</td>
<td>2.9%</td>
<td>1.1%</td>
<td>8.9%</td>
<td>6.7%</td>
<td>-11.6%</td>
<td>-9.8%</td>
<td>3.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q4-06</td>
<td>3.1%</td>
<td>2.5%</td>
<td>1.9%</td>
<td>9.8%</td>
<td>5.0%</td>
<td>-1.1%</td>
<td>0.1%</td>
<td>3.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q3-06</td>
<td>3.0%</td>
<td>1.9%</td>
<td>1.9%</td>
<td>7.8%</td>
<td>12.6%</td>
<td>3.5%</td>
<td>4.0%</td>
<td>3.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">5-Yrs</td>
<td>2.8%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>4.3%</td>
<td>#N/A</td>
<td>3.1%</td>
<td>3.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
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GDP steady Y/Y up Q/Q on stronger private consumption. UK trends are more or less in tact with the release of the Q2 GDP report. Both exports and imports are sharply lower owing to a boost in both flows in Q1 2006. Quarterly trade [...]

Yr/Yr UK GDP Growth Holds Steady

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824f.jpg" width="353">
Longer view shows price pressures dissipating in Germany. 
On the month, German export and import prices were subdued but over three months some pressures are evident. But broader year-over-year trends do seem to have turned a corner. Excluding petroleum export and import prices are moving lower: fast for imports, slower for exports. Domestically, producer prices excluding energy are ever so gradually losing momentum, while consumer prices are slow in showing declines after having stepped up their pace sharply early in 2007. Internationally, excluding petroleum, trends are generally milder than their domestic counterparts.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
German International and Domestic Inflation Trends
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/M % Change</td>
<td colspan="4">% SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">SA</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Export Prices</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>1.9%</td>
<td>1.5%</td>
<td>1.6%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Import Prices</td>
<td>0.1%</td>
<td>1.1%</td>
<td>0.5%</td>
<td>6.9%</td>
<td>5.6%</td>
<td>0.4%</td>
<td>6.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">NSA</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Exports ex Petrol</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>1.5%</td>
<td>1.7%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Imports ex Petrol</td>
<td>-0.4%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>-1.5%</td>
<td>0.0%</td>
<td>0.6%</td>
<td>4.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: SA</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">CPI</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.2%</td>
<td>1.8%</td>
<td>2.5%</td>
<td>1.8%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">CPI ex energy</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>1.5%</td>
<td>1.8%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">PPI</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>1.9%</td>
<td>1.1%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">PPI ex energy</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.2%</td>
<td>2.6%</td>
<td>2.6%</td>
<td>2.5%</td>
<td>3.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

Longer view shows price pressures dissipating in Germany. On the month, German export and import prices were subdued but over three months some pressures are evident. But broader year-over-year trends do seem to have turned a corner. [...]

German Export and Import Prices Misbehave as Domestic Trends Turn Lower Too

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824d.jpg" width="353">
July new home sales increased 2.8% from June to 870,000 following a 4.0% drop during June which was less than reported initially. 
The sales increase during July owed mostly to a 22.4% (-19.6% y/y) gain in sales in the West. Sales also rose 0.6% (-3.0% y/y) in the South but in the Northeast sales fell 24.3% (11.7 y/y) after a similar drop during June. In the Midwest sales fell 0.9% (-18.2% y/y) after a whopping 21.5% decline during June.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824c.jpg" width="353">
The inventory of unsold homes fell 0.9% (-7.0% y/y) after three months of steady decline.
The median new home price rose 3.9% (+0.6% y/y) after three months of hard decline during which the June decline was deepened to -4.6% m/m.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">US New Homes</th>
<th scope="col">July</th>
<th scope="col">June</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">Total Sales (SAAR, 000s)</td>
<td>870</td>
<td>846</td>
<td>-10.2%</td>
<td>1,049</td>
<td>1,279</td>
<td>1,201</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA, $)</td>
<td>239,500</td>
<td>230,600</td>
<td>0.6%</td>
<td>241,125</td>
<td>234,208</td>
<td>217,817</td>
</tr>
</tbody>
</table>
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July new home sales increased 2.8% from June to 870,000 following a 4.0% drop during June which was less than reported initially. The sales increase during July owed mostly to a 22.4% (-19.6% y/y) gain in sales in the West. Sales also [...]

New Home Sales and Prices Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824a.jpg" width="353">
New orders for durable goods during July gained an impressive 5.9% and the gain during the prior month was revised up slightly to 1.9%. Consensus expectations had been for a 2.0% rise in orders for last month.
During the last ten years there has been a 67% correlation between the y/y change in durable goods orders and the change in production of durable goods.
The rise in new orders less the transportation category for July, however, was a less impressive 1.3% ... less impressive especially since it followed a 2.5% flop in June.
Changing new orders for motor vehicles &amp; parts caused much of this volatility with a 9.8% rise last month after a 0.7% decline during June. And the aircraft sector got into the act with a 13.0% rise last month which was roughly a third of the 31.4% spike during June. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824b.jpg" width="353">
Orders for nondefense capital goods rose 5.8% during July following the 6.4% June increase which was revised up slightly. (Orders in May fell 6.8%.) Still, excluding aircraft &amp; parts July orders rose a modest 2.2% following two months of decline The y/y change is roughly zero. During the last ten years there has been an 84% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment &amp; software from the GDP accounts.
Orders for computers &amp; electronic products also have been volatile. They rose 7.4% (+1.8% y/y) after a little revised 2.8% June decline. Orders for just computers &amp; related products fell 4.0% (-8.4% y/y) for the second month of sharp decline. Primary metals orders rose 7.9% (-0.5% y/y) but that only lifted orders back about to where they were in March. And electrical equipment orders fell for the third consecutive month (+0.2% y/y). Machinery orders were the strongest area with a 5.5% (4.4% y/y) increase following a 3.4% June gain.
Shipments of durable goods rose 3.8% (4.2% y/y) after a 1.1% June slip. Less the transportation sector, shipments made up declines during the prior two months with a 1.9% (1.3% y/y) increase. During the last ten years there has been an 82% correlation between the y/y change in durable goods shipments and the change in industrial production of durable goods. The July increase less transportation amounted to 1.9% (1.3% y/y).

<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/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">July </th>
<th scope="col">June</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">Durable Goods Orders</td>
<td>5.9%</td>
<td>1.9%</td>
<td>8.1%</td>
<td>6.3%</td>
<td>9.9%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>1.3%</td>
<td>-2.5%</td>
<td>1.3%</td>
<td>7.6%</td>
<td>8.8%</td>
<td>7.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>5.8%</td>
<td>6.4%</td>
<td>14.2%</td>
<td>10.6%</td>
<td>17.1%</td>
<td>5.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>2.2%</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>8.5%</td>
<td>11.1%</td>
<td>3.2%</td>
</tr>
</tbody>
</table>
</body>
</html>

New orders for durable goods during July gained an impressive 5.9% and the gain during the prior month was revised up slightly to 1.9%. Consensus expectations had been for a 2.0% rise in orders for last month. During the last ten [...]

U.S. Durable Goods Orders Better Due To Transportation

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824g.jpg" width="353">
GDP steady Y/Y up Q/Q on stronger private consumption. 
UK trends are more or less in tact with the release of the Q2 GDP report. Both exports and imports are sharply lower owing to a boost in both flows in Q1 2006. Quarterly trade flows show that exports are lagging a bit more in their recovery compared to imports. Private consumption is still strong, unlike on the continent. 

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
UK GDP
</tr>
</thead>
<tbody>
<tr class="grey4">
<td colspan="2">&nbsp;</td>
<td colspan="2">Consumption</td>
<td colspan="2">Capital Formation</td>
<td>3COLSPAN</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>GDP</td>
<td>Private</td>
<td>Public</td>
<td>Total</td>
<td>Housing</td>
<td>Exports</td>
<td>Imports</td>
<td>Domestic Demand</td>
</tr>
<tr class="grey2">
<td colspan="9">% change Q/Q; X-M is Q/Q change in Blns of euros</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q2-07</td>
<td>3.4%</td>
<td>3.0%</td>
<td>3.2%</td>
<td>-4.3%</td>
<td>#N/A</td>
<td>-4.0%</td>
<td>-1.7%</td>
<td>3.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q1-07</td>
<td>2.8%</td>
<td>1.9%</td>
<td>2.2%</td>
<td>4.5%</td>
<td>16.0%</td>
<td>-3.3%</td>
<td>-2.6%</td>
<td>2.8%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q4-06</td>
<td>3.3%</td>
<td>4.4%</td>
<td>1.8%</td>
<td>13.1%</td>
<td>-11.4%</td>
<td>-1.4%</td>
<td>-3.0%</td>
<td>2.6%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q3-06</td>
<td>2.8%</td>
<td>1.1%</td>
<td>1.3%</td>
<td>8.7%</td>
<td>8.4%</td>
<td>-38.5%</td>
<td>-39.8%</td>
<td>0.3%</td>
</tr>
<tr class="grey2">
<td colspan="9">% change Yr/Yr; X-M is Yr/Yr change in Gap in Blns of euros</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q2-07</td>
<td>3.0%</td>
<td>2.6%</td>
<td>2.1%</td>
<td>5.3%</td>
<td>#N/A</td>
<td>-13.4%</td>
<td>-13.5%</td>
<td>2.4%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q1-07</td>
<td>3.0%</td>
<td>2.9%</td>
<td>1.1%</td>
<td>8.9%</td>
<td>6.7%</td>
<td>-11.6%</td>
<td>-9.8%</td>
<td>3.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q4-06</td>
<td>3.1%</td>
<td>2.5%</td>
<td>1.9%</td>
<td>9.8%</td>
<td>5.0%</td>
<td>-1.1%</td>
<td>0.1%</td>
<td>3.5%</td>
</tr>
<tr class="grey1">
<td class="firstcol">Q3-06</td>
<td>3.0%</td>
<td>1.9%</td>
<td>1.9%</td>
<td>7.8%</td>
<td>12.6%</td>
<td>3.5%</td>
<td>4.0%</td>
<td>3.2%</td>
</tr>
<tr class="grey1">
<td class="firstcol">5-Yrs</td>
<td>2.8%</td>
<td>2.5%</td>
<td>2.7%</td>
<td>4.3%</td>
<td>#N/A</td>
<td>3.1%</td>
<td>3.6%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
German Export and Import Prices Misbehave as Domestic Trends Turn Lower Too 
by <a href="/comment/Brusca.html">Robert Brusca</a> August 24, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824f.jpg" width="353">
Longer view shows price pressures dissipating in Germany. 
On the month, German export and import prices were subdued but over three months some pressures are evident. But broader year-over-year trends do seem to have turned a corner. Excluding petroleum export and import prices are moving lower: fast for imports, slower for exports. Domestically, producer prices excluding energy are ever so gradually losing momentum, while consumer prices are slow in showing declines after having stepped up their pace sharply early in 2007. Internationally, excluding petroleum, trends are generally milder than their domestic counterparts.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
German International and Domestic Inflation Trends
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td colspan="3">M/M % Change</td>
<td colspan="4">% SAAR</td>
</tr>
<tr class="odd">
<td class="firstcol">SA</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr-Ago</td>
</tr>
<tr>
<td class="firstcol">Export Prices</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>1.9%</td>
<td>1.5%</td>
<td>1.6%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">Import Prices</td>
<td>0.1%</td>
<td>1.1%</td>
<td>0.5%</td>
<td>6.9%</td>
<td>5.6%</td>
<td>0.4%</td>
<td>6.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">NSA</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">Exports ex Petrol</td>
<td>0.1%</td>
<td>0.1%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>1.5%</td>
<td>1.7%</td>
<td>2.5%</td>
</tr>
<tr>
<td class="firstcol">Imports ex Petrol</td>
<td>-0.4%</td>
<td>0.0%</td>
<td>0.0%</td>
<td>-1.5%</td>
<td>0.0%</td>
<td>0.6%</td>
<td>4.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">Memo: SA</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">CPI</td>
<td>0.3%</td>
<td>0.0%</td>
<td>0.2%</td>
<td>1.8%</td>
<td>2.5%</td>
<td>1.8%</td>
<td>2.0%</td>
</tr>
<tr>
<td class="firstcol">CPI ex energy</td>
<td>0.2%</td>
<td>0.0%</td>
<td>0.1%</td>
<td>1.1%</td>
<td>1.5%</td>
<td>1.8%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">PPI</td>
<td>-0.1%</td>
<td>0.3%</td>
<td>0.3%</td>
<td>2.0%</td>
<td>1.9%</td>
<td>1.1%</td>
<td>6.0%</td>
</tr>
<tr>
<td class="firstcol">PPI ex energy</td>
<td>0.1%</td>
<td>0.4%</td>
<td>0.2%</td>
<td>2.6%</td>
<td>2.6%</td>
<td>2.5%</td>
<td>3.0%</td>
</tr>
</tbody>
</table>
Borrowing at the Fed:  Some Arithmetic 
by <a href="/comment/Stone.html">Carol Stone</a> August 24, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824e.jpg" width="353">
A further clarification on the borrowings data reported late yesterday by the Federal Reserve. There&#39;s some confusion over whether any banks borrowed earlier in the week or if it was just the four large banks who announced they were borrowing on Wednesday.
The Fed&#39;s &quot;Factors Affecting Bank Reserves&quot; H.4.1 release includes two measures for these factors, the daily average for the 7-day week ended each Wednesday and the amount outstanding on Wednesday at the close of business. The average amount of &quot;Primary Credit&quot; for the entire week ended August 22 was $1,200 million. The amount outstanding Wednesday night was $2,001 million. The Fed doesn&#39;t publish these figures for each day. We can, though, use the ones we have to address the general question, was there borrowing before Wednesday?
Take the $1,200 million average for the week. Multiply by 7 to obtain the aggregate amount of daily borrowing for the whole week; this is $8,400 million. Subtract the amount outstanding Wednesday night, $2,001 million, leaving $6,399 million. Divide this by the remaining days of the week, 6, and see that there indeed was an average $1,067 million every day before Wednesday. This is a not inconsiderable amount, given that there had been only $11 million of primary credit on average during the week before. We have no idea what days saw the most, who those borrowers might have been or even what Fed district they are in. But there was in fact noticeable borrowing prior to Wednesday and it looks to us that it was large enough that it probably came from a number of institutions.

U.S. Durable Goods Orders Better Due To Transportation 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 24, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824a.jpg" width="353">
New orders for durable goods during July gained an impressive 5.9% and the gain during the prior month was revised up slightly to 1.9%. Consensus expectations had been for a 2.0% rise in orders for last month.
During the last ten years there has been a 67% correlation between the y/y change in durable goods orders and the change in production of durable goods.
The rise in new orders less the transportation category for July, however, was a less impressive 1.3% ... less impressive especially since it followed a 2.5% flop in June.
Changing new orders for motor vehicles &amp; parts caused much of this volatility with a 9.8% rise last month after a 0.7% decline during June. And the aircraft sector got into the act with a 13.0% rise last month which was roughly a third of the 31.4% spike during June. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824b.jpg" width="353">
Orders for nondefense capital goods rose 5.8% during July following the 6.4% June increase which was revised up slightly. (Orders in May fell 6.8%.) Still, excluding aircraft &amp; parts July orders rose a modest 2.2% following two months of decline The y/y change is roughly zero. During the last ten years there has been an 84% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment &amp; software from the GDP accounts.
Orders for computers &amp; electronic products also have been volatile. They rose 7.4% (+1.8% y/y) after a little revised 2.8% June decline. Orders for just computers &amp; related products fell 4.0% (-8.4% y/y) for the second month of sharp decline. Primary metals orders rose 7.9% (-0.5% y/y) but that only lifted orders back about to where they were in March. And electrical equipment orders fell for the third consecutive month (+0.2% y/y). Machinery orders were the strongest area with a 5.5% (4.4% y/y) increase following a 3.4% June gain.
Shipments of durable goods rose 3.8% (4.2% y/y) after a 1.1% June slip. Less the transportation sector, shipments made up declines during the prior two months with a 1.9% (1.3% y/y) increase. During the last ten years there has been an 82% correlation between the y/y change in durable goods shipments and the change in industrial production of durable goods. The July increase less transportation amounted to 1.9% (1.3% y/y).

<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/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">July </th>
<th scope="col">June</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">Durable Goods Orders</td>
<td>5.9%</td>
<td>1.9%</td>
<td>8.1%</td>
<td>6.3%</td>
<td>9.9%</td>
<td>5.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>1.3%</td>
<td>-2.5%</td>
<td>1.3%</td>
<td>7.6%</td>
<td>8.8%</td>
<td>7.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>5.8%</td>
<td>6.4%</td>
<td>14.2%</td>
<td>10.6%</td>
<td>17.1%</td>
<td>5.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>2.2%</td>
<td>-0.1%</td>
<td>0.2%</td>
<td>8.5%</td>
<td>11.1%</td>
<td>3.2%</td>
</tr>
</tbody>
</table>
New Home Sales and Prices Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> August 24, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824d.jpg" width="353">
July new home sales increased 2.8% from June to 870,000 following a 4.0% drop during June which was less than reported initially. 
The sales increase during July owed mostly to a 22.4% (-19.6% y/y) gain in sales in the West. Sales also rose 0.6% (-3.0% y/y) in the South but in the Northeast sales fell 24.3% (11.7 y/y) after a similar drop during June. In the Midwest sales fell 0.9% (-18.2% y/y) after a whopping 21.5% decline during June.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070824c.jpg" width="353">
The inventory of unsold homes fell 0.9% (-7.0% y/y) after three months of steady decline.
The median new home price rose 3.9% (+0.6% y/y) after three months of hard decline during which the June decline was deepened to -4.6% m/m.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">US New Homes</th>
<th scope="col">July</th>
<th scope="col">June</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">Total Sales (SAAR, 000s)</td>
<td>870</td>
<td>846</td>
<td>-10.2%</td>
<td>1,049</td>
<td>1,279</td>
<td>1,201</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA, $)</td>
<td>239,500</td>
<td>230,600</td>
<td>0.6%</td>
<td>241,125</td>
<td>234,208</td>
<td>217,817</td>
</tr>
</tbody>
</table>
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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823h.jpg" width="353">
Financial markets have been in a &quot;liquidity crisis&quot;. Weekly Federal Reserve data reported just this afternoon and also earlier today give several measures of this for the US and highlight what the Federal Reserve and bankers are trying to do about it. Some evidence is shown in the graph of interest rates here. In the paragraph below, we discuss the discount and fed funds rates. Also, of late, there have been divergent moves in key money rates, such as LIBOR, which has risen and Treasury bills, which have plunged. Investors with that scarce commodity &quot;cash&quot; want to keep it safe and have poured substantial sums into the shortest most liquid asset of all, Treasury bills, while users of ordinarily highly liquid money markets have found themselves paying a premium.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823i.jpg" width="353">
As conditions such as this worsened last Friday, the Federal Reserve Board reduced the discount rate by 50 basis points, cutting the spread between it and the federal funds rate. The Fed encouraged banks to borrow at the central bank, trying to tell them there would be no stigma attached to doing so. Today&#39;s weekly report on &quot;factors affecting reserves&quot;, the Fed&#39;s H.4.1 release, shows that this pushed so-called &quot;primary credit&quot; at Federal Reserve Banks to a daily average of $1,200 million, the largest amount since the aftermath of September 11, 2001. The other notable figure in the table below is &quot;secondary credit&quot;. Banks with more serious problems can borrow under more liberal terms if they pay a premium rate higher still than the discount rate. While the amount of these borrowings last week was small, $85 million per day, this borrowing hardly ever occurs at all; the last instance was $21 million in the week of March 14 and before that $152 million October 5, 2005. These borrowings inject funds into the banking system, and while only banks can go to the discount window, these monies are surely helping them funds their own customers.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823j.jpg" width="353">
And why might their customers need funding? Among other needs, many of them have been cut out of the commercial paper market. We spoke here a couple of weeks ago about asset-backed commercial paper, which is used as a short-term source of funds by issuers of MBS and ABS securities while they prepare packages of securities for sale in the bond market or meet other liquidity needs. We mentioned then that this paper had become larger in total than paper issued by traditional corporate and finance company borrowers and indicated that it was likely imparting risk to commercial paper that would be unusual for this market sector. No sooner were the words out of our computer than that market seized up. Just how much is plain in the chart here. It&#39;s amazing. Haver&#39;s quality-assurance programs that pick up out-liers in data, warning database managers that something may be wrong with the figures, found this one. There was no mistake, though. A market that had been growing by $4 billion a week shrank by $125 billion over two weeks.
Some markets, such as stocks, seem to be settling just a bit from the recent turmoil. Certainly the Federal Reserve is trying to get money to places where it is needed and banks, whose basic function of making loans to borrowers had seemed to be diminishing in importance relative to their trading and asset/liability management activities, have found once again their key roles as financial intermediaries.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Million $</th>
<th scope="col">8/22/07</th>
<th scope="col">8/15/07</th>
<th scope="col">8/08/07</th>
<th scope="col">July 2007</th>
<th scope="col">Jan-June 2007</th>
<th scope="col">2006</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Loans to Deposit Institutions</td>
<td>1,541</td>
<td>271</td>
<td>251</td>
<td>258</td>
<td>110</td>
<td>225</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Primary</td>
<td>1,200</td>
<td>11</td>
<td>1</td>
<td>52</td>
<td>52</td>
<td>59</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Secondary</td>
<td>85</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>1</td>
<td>0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Seasonal</td>
<td>256</td>
<td>260</td>
<td>249</td>
<td>206</td>
<td>56</td>
<td>166</td>
</tr>
<tr>
<td colspan="7">Percent</td>
</tr>
<tr class="odd">
<td class="firstcol">Fed Funds Rate</td>
<td>4.91</td>
<td>4.79</td>
<td>5.25</td>
<td>5.26</td>
<td>5.25</td>
<td>4.96</td>
</tr>
<tr class="odd">
<td class="firstcol">Discount Rate</td>
<td>5.82</td>
<td>6.25</td>
<td>6.25</td>
<td>6.25</td>
<td>6.25</td>
<td>5.96</td>
</tr>
<tr>
<td colspan="7">Seas. Adj. Bil. $</td>
</tr>
<tr class="odd">
<td class="firstcol">Commercial Paper--Total </td>
<td>2,042.2</td>
<td>2,132.4</td>
<td>2,223.5</td>
<td>2,191.5</td>
<td>2,045.8</td>
<td>1,798.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Asset-Backed</td>
<td>1,057.4</td>
<td>1,134.5</td>
<td>1,182.9</td>
<td>1,167.7</td>
<td>1,080.1</td>
<td>931.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Weekly Change</td>
<td>-77.1</td>
<td>-48.4</td>
<td>+2.1</td>
<td>+6.7</td>
<td>+4.2</td>
<td>+4.0</td>
</tr>
</tbody>
</table>
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Financial markets have been in a "liquidity crisis". Weekly Federal Reserve data reported just this afternoon and also earlier today give several measures of this for the US and highlight what the Federal Reserve and bankers are [...]

Borrowings at the Federal Reserve Largest in 6 Years; Big Drops in Commercial Paper Outstanding

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823e.jpg" width="353">
For all the media hype regarding the &quot;subprime&quot; loan issuance problem, the latest data issued by the Federal Reserve Board for 2Q07 indicate only slight increases in delinquent payments on consumer, real estate and commercial &amp; industrial loans at commercial banks.
Even if delinquencies rise further this quarter (which they probably will), the levels are still quite low absolutely and relative to historical comparison, i.e., relative to the late 1980s and the early 1990s.
For all loans and leases, the delinquency rate increased to 1.86% during the second quarter from 1.72% during 1Q07. That level is up versus 1.57% during the prior two years but, still, it is only a third of the delinquency rate during the last two recessions.
The rise in delinquent payments on residential real estate loans indeed is more dramatic to 2.28% from 2.07% in 1Q07. It is equal to where it was during the last recession. Yet these figures are below the high seen in 1991 of 3.32%. Again, these comments await the update for this quarter.
For consumer loans, the delinquency rate rose to 3.02% from 2.98% during 1Q. That&#39;s up from the 2005 low of 2.82%, but down from the highs during the last two recessions. It&#39;s lower even than the 3.75% range that prevailed during the late 1990s expansion.
Delinquencies on C&amp;I loans actually fell q/q to 1.17% from 1.18% during 1Q. Delinquent C&amp;I loans last year averaged 1.27% of the total outstanding.
These data series are available in Haver&#39;s USECON database.
Subprime Mortgages is recent Congressional testimony delivered by Sandra F. Braunstein of the Federal Reserve Board and it is available <a href="http://www.federalreserve.gov/boarddocs/testimony/2007/20070327/default.htm"> here</a>.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823f.jpg" width="353"><img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823g.jpg" width="353">

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For all the media hype regarding the "subprime" loan issuance problem, the latest data issued by the Federal Reserve Board for 2Q07 indicate only slight increases in delinquent payments on consumer, real estate and commercial & [...]

U.S. Loan Delinquencies Up Slightly, But Still Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070823d.jpg" width="353">
Germany is a much more export oriented economy than is the United States. With the formation of the EMU, Germany was helped by having a large proportion of its trade no longer subject to foreign exchange fluctuations. Goods sold outside Germany are still exports, but if they are sold to EMU members the currency of the transaction does not change.
German private consumption is only 55% of German GDP. Compared to the US where personal consumption is over 70% of GDP.Also German exports are 49% of GDP whereas in the US exports of goods and service are only about 11% of GDP. The German economy has a structure very different from the US. Still at 55% of GDP the German economy needs to get the consumer involved to have its expansion last. Germany&#146;s economy is being carried by its export strength compared to weaker imports and strong business capital formation. But it will need more for the expansion to endure. Germany like many other EMU countries continues to show that order demand outside the country is much stronger than within. Overall orders remain strong for Germany and France. For the time being the expansion still seems to be in place. But it must broaden. The risk cited recently in the Zew survey is that confidence may have been hurt by financial turmoil. This remains something to be on the look-out for in Germany as well as throughout the Euro area.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
German GDP
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol">&nbsp;</td>
<td> GDP</td>
<td> Private Consumption</td>
<td> Public Consumption</td>
<td> Total Capital Formation</td>
<td> Housing</td>
<td> Exports</td>
<td> Imports</td>
<td> Domestic Demand</td>
</tr>
<tr class="odd">
<td colspan="9"> % change Q/Q; X-M is Q/Q change in billions of chained 2000 euros</td>
</tr>
<tr>
<td class="firstcol">Q2-07</td>
<td>1.0%</td>
<td>2.5%</td>
<td>-0.7%</td>
<td>10.3%</td>
<td>-18.0%</td>
<td>3.6%</td>
<td>-3.5%</td>
<td>-2.2%</td>
</tr>
<tr>
<td class="firstcol">Q1-07</td>
<td>2.2%</td>
<td>-7.0%</td>
<td>6.9%</td>
<td>15.7%</td>
<td>5.8%</td>
<td>-1.2%</td>
<td>8.7%</td>
<td>6.8%</td>
</tr>
<tr>
<td class="firstcol">Q4-06</td>
<td>4.0%</td>
<td>3.4%</td>
<td>0.0%</td>
<td>10.8%</td>
<td>6.2%</td>
<td>23.0%</td>
<td>5.4%</td>
<td>-3.6%</td>
</tr>
<tr>
<td class="firstcol">Q3-06</td>
<td>3.0%</td>
<td>1.4%</td>
<td>2.1%</td>
<td>-2.4%</td>
<td>8.0%</td>
<td>13.9%</td>
<td>14.9%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td colspan="9"> % change Yr/Yr; X-M is Yr/Yr change in Gap in billions of chained 2000 euros</td>
</tr>
<tr>
<td class="firstcol">Q2-07</td>
<td>2.5%</td>
<td>0.0%</td>
<td>2.0%</td>
<td>8.4%</td>
<td>-0.1%</td>
<td>9.4%</td>
<td>6.2%</td>
<td>0.8%</td>
</tr>
<tr>
<td class="firstcol">Q1-07</td>
<td>3.6%</td>
<td>-0.5%</td>
<td>2.1%</td>
<td>11.7%</td>
<td>12.7%</td>
<td>10.4%</td>
<td>7.9%</td>
<td>2.3%</td>
</tr>
<tr>
<td class="firstcol">Q4-06</td>
<td>3.9%</td>
<td>2.2%</td>
<td>0.9%</td>
<td>7.1%</td>
<td>6.6%</td>
<td>16.1%</td>
<td>9.7%</td>
<td>0.8%</td>
</tr>
<tr>
<td class="firstcol">Q3-06</td>
<td>3.2%</td>
<td>0.6%</td>
<td>0.8%</td>
<td>9.4%</td>
<td>7.2%</td>
<td>11.6%</td>
<td>11.0%</td>
<td>2.6%</td>
</tr>
<tr>
<td class="firstcol">5-Yrs</td>
<td>1.3%</td>
<td>0.2%</td>
<td>0.4%</td>
<td>5.8%</td>
<td>-0.7%</td>
<td>7.8%</td>
<td>6.9%</td>
<td>0.7%</td>
</tr>
</tbody>
</table>
</body>
</html>

Germany is a much more export oriented economy than is the United States. With the formation of the EMU, Germany was helped by having a large proportion of its trade no longer subject to foreign exchange fluctuations. Goods sold [...]

German GDP Rebound Still Not Supported by the Consumer

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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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.

260430Z2.jpg

**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.

260430Z3.jpg

**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.

260430Z4.jpg

**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.

260430Z5.jpg

**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.

260430Z6.jpg

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.

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/20j2LcPyLFkPvV7NrquXuj?utm_source=generator" width="100%" height="152" frameBorder="0" allowfullscreen="" allow="autoplay; clipboard-write; encrypted-media; fullscreen; picture-in-picture" loading="lazy"></iframe>

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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260430Q.jpg

- 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%.

U.S. Initial Unemployment Claims dropped in the Week of April 25

260430E.jpg

**Unemployment rates are stable near all-time lows for EMU**
Unemployment rates in the European Monetary Union (EMU) continued to hover at the lowest level. The EMU all-time low unemployment rate is 6.2%, and that’s the number reported for March. There have been five of these 6.2% unemployment rates monthly in the history of the monetary union.

Unemployment rates in March saw declines in five of the 12 early reporting countries: the Netherlands, Italy, Finland, Belgium, and Austria. Over the last three months, there were net declines in the unemployment rates in four countries, while year-over-year once again four countries—though a different four—showed declines in the unemployment rate.

Unemployment rates, evaluated relative to their historic standings, have a median rank standing in their 33.6 percentile. That is the median unemployment rank among these 12 countries; it shows that the unemployment rate is in the lower one-third of its historic rank. Among the 12 early reporting countries, only three failed to have unemployment rate rankings below their 30th percentile; those three are Austria with a 71.3 percentile ranking, Finland with an 80th percentile ranking, and Luxembourg with a 98.8 percentile ranking. So, there are three countries among these 12 that have relatively high unemployment rates compared to their histories, whereas the rest of the reporters have unemployment rates below their respective 30th percentiles.

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**Good, but not great, labor markets**
Clearly, the labor situation is in good hands; however, at the same time, inflation runs over the top of the ECB target, and with war in the Middle East and flurrying oil prices, inflation is going to climb higher. The ECB, like the Federal Reserve, finds itself in the awkward position of not wanting to raise rates because the economy is generating growth; on the other hand, growth seems somewhat fragile. The unemployment rate is low, and inflation has been overshooting, so the central bank is in a difficult position.

**Are central banks awakening from their slumber?**
Despite the good news on the unemployment front, central banks have been wary not to raise interest rates to fend off inflation. Inflation can really be described as having been moved around by financial crises and shocks going back to the great financial crisis. That shock, coupled with the losses that it created, left a legacy of inflation discipline for a very long run, basically, right into the COVID-created recession. COVID weakened economies globally as they were shut down by government policies and then inflation spurted as result of stimulative monetary action and fiscal excess. After that experience, central banks kept stimulative policies on the books and tried to coax growth out of a wounded economy and maintain low unemployment rates, while tolerating inflation that was excessive relative to their targets, but that did not accelerate and did decline slowly—at least for a while. As a result, there's now a legacy of overshooting inflation and more question marks about central banks and their backbone than central bankers want to admit as inflation rises, and as they continue to watch and postpone acting.

**ECB met and declared watchful waiting—not policy action**
At the recent meeting, the ECB policy statement admitted that “Longer-term inflation expectations remain well anchored, although inflation expectations over shorter horizons have moved up significantly.” They are following the model used in the U.S. to contend that long-term inflation expectations are still firmly anchored while they are only slipping away for the short term—a year ahead or so. However, to its credit, the ECB does refer to expectations having moved up significantly in the near term. This is something policy must be wary of, and it also must be wary that long-term expectations may have been damaged as well.

In her press conference, Christine Lagarde noted that the forward guidance from the ECB has several different elements: “There are sort of three anchors of what our reaction function is. So first of all, to remind you: target is 2% medium term, number one. Number two: symmetry. We discussed that today and we reaffirmed it. Number three: our reaction will depend on the type of deviation from target that we observe. Is it large and sustainable?”

"The increase in energy prices will keep inflation well above 2% in the near term. ⁠As the period of high energy prices extends, the likely impact on broader inflation through indirect and second-round effects intensifies. We will therefore closely monitor the size and persistence of the energy price surge, and how it feeds through to price and wage setting, inflation expectations and overall economic dynamics." (Source [here](https://www.reuters.com/business/finance/lagarde-comments-ecb-press-conference-2026-04-30/)).

**The road they kick the can down is getting narrower**
So, we are in store for more watchful waiting. Central bankers can feel that the flexibility is closing in on them. There's been a long period in which post financial crisis and post-COVID events helped to keep inflation under control, but now we're getting into a situation where it may be harder to keep control of inflation, especially since central bank credibility has been eroded by a long period of target misses. Two wars are in progress, and fiscal excess is the order of the day. So why not wait longer?

**No eager-beaver rate hikers**
No central bank seems eager to undertake this new challenge; however, they seem to be circling around the policy change and preparing to do something they haven't done in a long time, which would be to raise interest rates. Last time, in the wake of COVID, the central banks raised interest rates they waited too long to hike them, calling the situation of inflation temporary or transitory. Once again, the central banks see the oil price shock as something that is temporary; however, it's also severe, and while it's temporary, it could turn out to be ‘temporary’ but fairly long-lasting, making it harder to ignore or for a central bank that plans to ‘look through.’

**Some act, some talk, some just look...**
As I noted in the [report on money supplies](https://www.haver.com/articles/globally-money-supplies-accelerate-no-problemo) yesterday, the current practice of trying to look through this supply shock is creating an overshoot of money supply as we have money supply accelerations brewing in the U.S., the U.K., and the European Monetary Union. However, one of the rules from the 1970s was to not accommodate an oil price shock. Unfortunately, the practice of ‘looking through’ a supply shock—which means holding interest rates steady—is at the same time encouraging acceleration in the money supply, which looks accommodative to me. I don't see any evidence that central bankers have recognized the contradiction implied by these policies; it's something we should keep an eye on.

Economy in Brief

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Yr/Yr UK GDP Growth Holds Steady

German Export and Import Prices Misbehave as Domestic Trends Turn Lower Too

New Home Sales and Prices Up

U.S. Durable Goods Orders Better Due To Transportation

Yr/Yr UK GDP Growth Holds Steady

Borrowings at the Federal Reserve Largest in 6 Years; Big Drops in Commercial Paper Outstanding

U.S. Loan Delinquencies Up Slightly, But Still Low

German GDP Rebound Still Not Supported by the Consumer