Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107a.jpg" width="353">
 Retail prices for a gallon of regular unleaded gasoline drifted two cents lower last week to an average $2.20. On average during October, gasoline averaged $2.25 per gallon.
The spot market (NY harbor) price for a gallon of regular gasoline rose two cents yesterday to $1.53 versus an average $1.51 last week.
Oil prices have been rising recently with WTI Crude at $60.03 (0.9% y/y) yesterday, up from $58.88 averaged during October.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107b.jpg" width="353">
Natural gas prices eased d/d yesterday to $6.75 per mmbtu (-24.0% y/y) but the Henry Hub price still was up from an average of $5.77 in October and $4.90 during September.
The Department of Energy reported that gasoline demand during the latest four weeks rose 5.0% from the year earlier period. That increase, however, understated the appetite for gasoline according to estimated figures from the Oil &amp; Gas Journal which indicated a 15.5% rise. These figures are available in the Haver OILWKLY database.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107c.jpg" width="353">
The latest Short-Term Energy Outlook from the U.S. Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.
Oil Prices and the U.S. Trade Deficit from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-24.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">Weekly Energy Prices</a></th>
<th scope="col">11/06/06</th>
<th scope="col">10/30/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">US Retail Gasoline Price, Regular</td>
<td>$2.20</td>
<td>$2.22</td>
<td>-7.4%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
</tbody>
</table>


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Retail prices for a gallon of regular unleaded gasoline drifted two cents lower last week to an average $2.20. On average during October, gasoline averaged $2.25 per gallon. The spot market (NY harbor) price for a gallon of regular [...]

Gasoline Prices Drift Lower

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107d.jpg" width="353">
Chain store sales last week recovered much of the declines during the prior two weeks with a 1.0% gain, according to the International Council of Shopping Centers (ICSC)-UBS. That pulled the opening level of sales in November 0.4% higher than the October average which fell 0.7% from September.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS fell 0.4% (+0.2% y/y) last week after an unchanged reading the prior period.
A Theory of Political Cycles from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/working_papers/pdfs/wp05-4.pdf"> here</a>.
Politics and Exchange Rate Forecasts from the Federal Reserve Bank of Kansas City is available <a href="http://www.kc.frb.org/publicat/reswkpap/rwp96-02.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">11/04/06</th>
<th scope="col">10/28/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>466.4</td>
<td>461.8</td>
<td>2.3%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


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Chain store sales last week recovered much of the declines during the prior two weeks with a 1.0% gain, according to the International Council of Shopping Centers (ICSC)-UBS. That pulled the opening level of sales in November 0.4% [...]

Chain Store Sales Recover

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107d.jpg" width="353">
Chain store sales last week recovered much of the declines during the prior two weeks with a 1.0% gain, according to the International Council of Shopping Centers (ICSC)-UBS. That pulled the opening level of sales in November 0.4% higher than the October average which fell 0.7% from September.
During the last ten years there has been a 45% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS fell 0.4% (+0.2% y/y) last week after an unchanged reading the prior period.
A Theory of Political Cycles from the Federal Reserve Bank of Richmond can be found <a href="http://www.richmondfed.org/publications/economic_research/working_papers/pdfs/wp05-4.pdf"> here</a>.
Politics and Exchange Rate Forecasts from the Federal Reserve Bank of Kansas City is available <a href="http://www.kc.frb.org/publicat/reswkpap/rwp96-02.htm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">11/04/06</th>
<th scope="col">10/28/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>466.4</td>
<td>461.8</td>
<td>2.3%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>
Gasoline Prices Drift Lower 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 7, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107a.jpg" width="353">
 Retail prices for a gallon of regular unleaded gasoline drifted two cents lower last week to an average $2.20. On average during October, gasoline averaged $2.25 per gallon.
The spot market (NY harbor) price for a gallon of regular gasoline rose two cents yesterday to $1.53 versus an average $1.51 last week.
Oil prices have been rising recently with WTI Crude at $60.03 (0.9% y/y) yesterday, up from $58.88 averaged during October.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107b.jpg" width="353">
Natural gas prices eased d/d yesterday to $6.75 per mmbtu (-24.0% y/y) but the Henry Hub price still was up from an average of $5.77 in October and $4.90 during September.
The Department of Energy reported that gasoline demand during the latest four weeks rose 5.0% from the year earlier period. That increase, however, understated the appetite for gasoline according to estimated figures from the Oil &amp; Gas Journal which indicated a 15.5% rise. These figures are available in the Haver OILWKLY database.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107c.jpg" width="353">
The latest Short-Term Energy Outlook from the U.S. Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.
Oil Prices and the U.S. Trade Deficit from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-24.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">Weekly Energy Prices</a></th>
<th scope="col">11/06/06</th>
<th scope="col">10/30/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">US Retail Gasoline Price, Regular</td>
<td>$2.20</td>
<td>$2.22</td>
<td>-7.4%</td>
<td>$2.27</td>
<td>$1.85</td>
<td>$1.56</td>
</tr>
</tbody>
</table>
  Japanese Household Living Expenditures Decline Sharply:  Implications for 3rd Q GDP? 
by <a href="/comment/Curley.html">Louise Curley</a> November 7, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107e.jpg" width="353">
By the many measures of family living expenditures the Ministry of Internal Affairs and Communications publishes, Japanese families have been reducing their living expenditures. The index of living expenditures for all households in Japan declined 2.8% in September. Those of worker households declined 3.35%. On seasonally adjusted bases, all households reduced spending on average in September by 1.97% in real terms and 2.16% in nominal terms.Comparable declines for the worker households were 2.42% and 2.32%. The September declines have, in most cases followed declines in August and July. The first chart showing the seasonally adjusted real living expenditure by all households is illustrative of declines in the various measures of household living expenditures over the recent quarter. In addition to the various indexes, data in yen are also available.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107g.jpg" width="353">
The seasonally unadjusted data give details of the composition of expenditures. For example, in September, expenditures on food, fuel, light and water charges, medical care, education and culture all rose while expenditures on housing, furniture and household utensils, clothing and foot ware, transportation and communication and miscellaneous all declined. The second chart shows expenditures on medical care and transportation,<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107h.jpg" width="353">
In addition to the seasonally adjusted data on expenditures, data are also available on income, disposable income and the propensity to consume. The propensity to consume for all households increased in August and September, in spite of the decline in expenditures since the decline in disposable income was greater than the decline in living expenditures. Even with the rise, the propensity to consume is still at a historically low level as can be seen in the third chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061107f.jpg" width="353">
One would think that the living expenditure series might be a good indicator of consumer spending in the national accounts. The relationship, however, appears tenuous as can be seen in the fourth chart that compares the seasonally adjusted real living expenditures of all households with final consumption expenditures in GDP. Nevertheless, the recent trend in the real living expenditures looks ominous. (To compare the two series, we aggregated the monthly data of the living expenditure series on a quarterly basis and we put the Consumption data on an index with the same basis--(2005=100)--as the living expenditure series.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/JAPAN/@J8/@J808/@J808.HTM">Japan:&nbsp; Family Living Expenditures (2005=100)</a></th>
<th scope="col">Sep 06</th>
<th scope="col">Aug 06</th>
<th scope="col">Sep 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">All Households NSA </td>
<td>94.0</td>
<td>96.7</td>
<td>100.3</td>
<td>-2.79</td>
<td>-6.28</td>
<td>100.0</td>
<td>100.1</td>
<td>99.6</td>
</tr>
<tr>
<td class="firstcol">Worker Households&nbsp;NSA</td>
<td>92.3</td>
<td>95.5</td>
<td>99.2</td>
<td>-3.35</td>
<td>-6.96</td>
<td>100.0</td>
<td>99.8</td>
<td>98.5</td>
</tr>
<tr class="odd">
<td class="firstcol"> All Household SA </td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Real</td>
<td>94.5</td>
<td>96.4</td>
<td>100.5</td>
<td>-1.97</td>
<td>-5.97</td>
<td>100.0</td>
<td>100.5</td>
<td>100.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Nominal</td>
<td>95.2</td>
<td>97.3</td>
<td>100.5</td>
<td>-2.16</td>
<td>-5.27</td>
<td>100.0</td>
<td>100.8</td>
<td>100.4</td>
</tr>
<tr>
<td class="firstcol"> Worker Household SA </td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Real</td>
<td>92.7</td>
<td>94.9</td>
<td>99.3</td>
<td>-2.32</td>
<td>-6.65</td>
<td>100.0</td>
<td>100.3</td>
<td>98.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp; Nominal</td>
<td>93.2</td>
<td>95.5</td>
<td>99.1</td>
<td>-2.41</td>
<td>-5.95</td>
<td>100.0</td>
<td>100.7</td>
<td>99.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Propensity to Consume All HH (Nominal SA)(%)</td>
<td>70.3</td>
<td>69.8</td>
<td>74.7</td>
<td>0.5*</td>
<td>-4.4*</td>
<td>74.5</td>
<td>74.1</td>
<td>74.0</td>
</tr>
</tbody>
</table>


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Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061106c.jpg" width="353">
September manufacturing sales and new orders for Germany were released today. Sales increased 0.17% from August but were almost 6% above September, 2005. New orders, however, fell 2.5% in September, although they were 9.6% above a year ago. The decline in new orders was attributable to foreign orders which declined 6.2% in the month. Domestic order actually increased 1.5%. Both sales and new orders--domestic and foreign--are well above year ago levels.
New orders tend to be erratic, as a result, a change in one month&#39;s orders may not be indicative. If we take a three month moving average of the data, a smoother picture emerges. The first chart compares the actual new orders with the three month moving average. The three month moving average in September shows a 1.1% gain over the August value. In the second chart, which shows domestic and foreign new orders on a three month moving average basis, foreign new orders are virtually unchanged in September and domestic orders are somewhat better.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061106d.jpg" width="353">
The NTC Economics Ltd&#39;s Purchasing Managers&#39; Survey for manufacturing in German is suggesting some cooling. The diffusion indexes continue well above the 50 mark, that is indicative of increased activity, but in several indices, the October values are below the September values. The overall index for manufacturing is 58.32 for October, compared to 58.54 in September. Comparable data for the new orders index are 59.84 and 60.09; for export new orders, 56.26 and 57.09 respectively.
Deceleration in growth is not unusual after the good expansion Germany manufacturing has experienced since the beginning of 2005.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D6/@D64/@D64.HTM">Germany</a></th>
<th scope="col">Sep 06</th>
<th scope="col">Aug 06</th>
<th scope="col">Sep 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005 %</th>
<th scope="col">2004 %</th>
<th scope="col">2003&nbsp; %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Manufacturing&nbsp; (2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Sales&nbsp;</td>
<td>115.1</td>
<td>114.9</td>
<td>108.6</td>
<td>0.17</td>
<td>5.99</td>
<td>3.27</td>
<td>3.92</td>
<td>-0.48</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Orders&nbsp;</td>
<td>121.5</td>
<td>124.6</td>
<td>110.5</td>
<td>-2.43</td>
<td>9.56</td>
<td>5.27</td>
<td>5.56</td>
<td>0.59</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>110.3</td>
<td>108.7</td>
<td>99.5</td>
<td>1.47</td>
<td>10.85</td>
<td>2.01</td>
<td>3.11</td>
<td>-0.12</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Foreign</td>
<td>135.6</td>
<td>144.4</td>
<td>125.2</td>
<td>-6.23</td>
<td>8.15</td>
<td>8.80</td>
<td>8.29</td>
<td>1.94</td>
</tr>
<tr>
<td class="firstcol">3 Month&nbsp; Moving Averages</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Total New Orders</td>
<td>122.1</td>
<td>120.8</td>
<td>110.1</td>
<td>1.08</td>
<td>10.90</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Domestic</td>
<td>108.1</td>
<td>106.0</td>
<td>100.9</td>
<td>1.98</td>
<td>7.14</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Foreign</td>
<td>139.5</td>
<td>139.3</td>
<td>123.9</td>
<td>0.14</td>
<td>12.59</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
</body>
</html>

September manufacturing sales and new orders for Germany were released today. Sales increased 0.17% from August but were almost 6% above September, 2005. New orders, however, fell 2.5% in September, although they were 9.6% above a [...]

Sales and New Orders and NTC's PMI Suggest Manufacturing in Germany Is Decelerating

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061106a.jpg" width="353">
The 3Q &#39;06 Composite Business Index published by the Manufacturers&#39; Alliance/MAPI fell for the second quarter to 64 from 71 the prior quarter. The figure was at the lowest level since the second quarter of 2003.
During the last ten years there has been a 69% correlation between the Composite Index Level and quarterly growth in US factory sector output.
The current orders index fell to 77 from 81 in 2Q and that was the lowest since late 2003. The 3Q export orders index, however, improved moderately to 75. During the last ten years there has been a 59% correlation between the export orders index and quarterly growth in real US exports.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061106b.jpg" width="353">
The profit margins index improved slightly to 75 from 74 in 2Q and so far in 2006 the quarters have averaged 77 versus an average 65 last year.Capital spending intentions for the coming year fell sharply 56 from the record high 86 in 2Q. During the last ten years there has been a 75% correlation between the capital spending index a q/q growth in business investment.
The survey of 60 senior financial executives representing a broad range of manufacturing industries reflects the views on current &amp; future business conditions. The business outlook index is a weighted sum of shipments, backlogs, inventories, and profit margin indexes.
For the latest US Business Outlook from the MAPI click <a href="http://www.mapi.net/html/prelease.cfm?release_id=2316">here</a>.
Confessions of a Data Dependent are Dallas Federal Reserve Bank President Richard W. Fisher Remarks before the New York Association for Business Economics and they are available <a href="http://dallasfed.org/news/speeches/fisher/2006/fs061102.cfm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveys/@SE/@SE.HTM">Manufacturers&#39; Alliance/MAPI Survey</a></th>
<th scope="col">3Q &#39;06</th>
<th scope="col">2Q &#39;06</th>
<th scope="col">3Q &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Business Index</td>
<td>64</td>
<td>71</td>
<td>66</td>
<td>70</td>
<td>76</td>
<td>67</td>
</tr>
</tbody>
</table>
</body>
</html>

The 3Q '06 Composite Business Index published by the Manufacturers' Alliance/MAPI fell for the second quarter to 64 from 71 the prior quarter. The figure was at the lowest level since the second quarter of 2003. During the last ten [...]

MAPI Business Outlook Survey Off Further

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061106a.jpg" width="353">
The 3Q &#39;06 Composite Business Index published by the Manufacturers&#39; Alliance/MAPI fell for the second quarter to 64 from 71 the prior quarter. The figure was at the lowest level since the second quarter of 2003.
During the last ten years there has been a 69% correlation between the Composite Index Level and quarterly growth in US factory sector output.
The current orders index fell to 77 from 81 in 2Q and that was the lowest since late 2003. The 3Q export orders index, however, improved moderately to 75. During the last ten years there has been a 59% correlation between the export orders index and quarterly growth in real US exports.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061106b.jpg" width="353">
The profit margins index improved slightly to 75 from 74 in 2Q and so far in 2006 the quarters have averaged 77 versus an average 65 last year.Capital spending intentions for the coming year fell sharply 56 from the record high 86 in 2Q. During the last ten years there has been a 75% correlation between the capital spending index a q/q growth in business investment.
The survey of 60 senior financial executives representing a broad range of manufacturing industries reflects the views on current &amp; future business conditions. The business outlook index is a weighted sum of shipments, backlogs, inventories, and profit margin indexes.
For the latest US Business Outlook from the MAPI click <a href="http://www.mapi.net/html/prelease.cfm?release_id=2316">here</a>.
Confessions of a Data Dependent are Dallas Federal Reserve Bank President Richard W. Fisher Remarks before the New York Association for Business Economics and they are available <a href="http://dallasfed.org/news/speeches/fisher/2006/fs061102.cfm"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveys/@SE/@SE.HTM">Manufacturers&#39; Alliance/MAPI Survey</a></th>
<th scope="col">3Q &#39;06</th>
<th scope="col">2Q &#39;06</th>
<th scope="col">3Q &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Business Index</td>
<td>64</td>
<td>71</td>
<td>66</td>
<td>70</td>
<td>76</td>
<td>67</td>
</tr>
</tbody>
</table>
 Sales and New Orders and NTC's PMI Suggest Manufacturing in Germany Is Decelerating   
by <a href="/comment/Curley.html">Louise Curley</a> November 6, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061106c.jpg" width="353">
September manufacturing sales and new orders for Germany were released today. Sales increased 0.17% from August but were almost 6% above September, 2005. New orders, however, fell 2.5% in September, although they were 9.6% above a year ago. The decline in new orders was attributable to foreign orders which declined 6.2% in the month. Domestic order actually increased 1.5%. Both sales and new orders--domestic and foreign--are well above year ago levels.
New orders tend to be erratic, as a result, a change in one month&#39;s orders may not be indicative. If we take a three month moving average of the data, a smoother picture emerges. The first chart compares the actual new orders with the three month moving average. The three month moving average in September shows a 1.1% gain over the August value. In the second chart, which shows domestic and foreign new orders on a three month moving average basis, foreign new orders are virtually unchanged in September and domestic orders are somewhat better.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061106d.jpg" width="353">
The NTC Economics Ltd&#39;s Purchasing Managers&#39; Survey for manufacturing in German is suggesting some cooling. The diffusion indexes continue well above the 50 mark, that is indicative of increased activity, but in several indices, the October values are below the September values. The overall index for manufacturing is 58.32 for October, compared to 58.54 in September. Comparable data for the new orders index are 59.84 and 60.09; for export new orders, 56.26 and 57.09 respectively.
Deceleration in growth is not unusual after the good expansion Germany manufacturing has experienced since the beginning of 2005.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D6/@D64/@D64.HTM">Germany</a></th>
<th scope="col">Sep 06</th>
<th scope="col">Aug 06</th>
<th scope="col">Sep 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005 %</th>
<th scope="col">2004 %</th>
<th scope="col">2003&nbsp; %</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Manufacturing&nbsp; (2000=100)</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Sales&nbsp;</td>
<td>115.1</td>
<td>114.9</td>
<td>108.6</td>
<td>0.17</td>
<td>5.99</td>
<td>3.27</td>
<td>3.92</td>
<td>-0.48</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; New Orders&nbsp;</td>
<td>121.5</td>
<td>124.6</td>
<td>110.5</td>
<td>-2.43</td>
<td>9.56</td>
<td>5.27</td>
<td>5.56</td>
<td>0.59</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Domestic</td>
<td>110.3</td>
<td>108.7</td>
<td>99.5</td>
<td>1.47</td>
<td>10.85</td>
<td>2.01</td>
<td>3.11</td>
<td>-0.12</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Foreign</td>
<td>135.6</td>
<td>144.4</td>
<td>125.2</td>
<td>-6.23</td>
<td>8.15</td>
<td>8.80</td>
<td>8.29</td>
<td>1.94</td>
</tr>
<tr>
<td class="firstcol">3 Month&nbsp; Moving Averages</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Total New Orders</td>
<td>122.1</td>
<td>120.8</td>
<td>110.1</td>
<td>1.08</td>
<td>10.90</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Domestic</td>
<td>108.1</td>
<td>106.0</td>
<td>100.9</td>
<td>1.98</td>
<td>7.14</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Foreign</td>
<td>139.5</td>
<td>139.3</td>
<td>123.9</td>
<td>0.14</td>
<td>12.59</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
</tbody>
</table>
</body>
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MAPI Business Outlook Survey Off FurtherĀĀ

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/061103f.jpg" width="353">
Canadian labor markets seem to be staging a comeback after something of a sinking spell during the summer. In October data reported this morning by StatCan, employment gained by 50,500 and the unemployment rate fell to 6.2%, the lowest since 6.1% in May and June.
Back in September we were puzzled about whether recent months&#39; job losses were a sign of sagging activity, or merely a correction after an outsized rise in May. After two months of increases, we probably can conclude that the latter is the more valid conclusion. In October, at 16,555,500, employment in Canada reached a new high.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103g.jpg" width="353">
Further, the downtrend we thought we were seeing in the goods-producing sector may also be &quot;just a phase&quot;. September and October had gains of 18,000 and 9,000, respectively, in construction, mining and utilities. We&#39;d attribute these increases to added supply efforts in Canada&#39;s energy production. It is still the case that manufacturing jobs are declining.
Service industries have mixed performances. Some, like finance, business support services and accommodation and food services, are growing vigorously. But others, including professional and technical activities and information services, are waffling after extended uptrends. The service sector as a whole is gaining, but the sources of growth seem to be different most every month.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103h.jpg" width="353">
The unemployment rate fell 0.2 point in October. Not all of that move represents good news, though. Along with the employment growth, the number of people in the labor force flattened out. The so-called participation rate, the labor force as a portion of the population over age 15, has edged lower, reaching 67.08%, the lowest since February&#39;s 67.02%; this rate peaked at 67.34% in July. These may look like small differences, but in Canada, each 0.1% in the participation rate represents about 26,000 people who are seeking work or deciding not to seek work. All these caveats aside, the decline in the unemployment rate obviously contains more good news than bad, and we are encouraged by the October labor data, which indeed seem to confirm that the declines in the summer were perhaps a &quot;vacation&quot; and labor markets have picked up once again.
These national Canadian data are contained in Haver&#39;s CANSIM database. Some detail is also available for the Provinces; those data are in CANSIMR.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CANSIM/@C6/@C6.HTM">Canada&nbsp;</a> (Seasonally Adjusted)</th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Employment (000s)</td>
<td>16,555</td>
<td>16,505</td>
<td>16,488</td>
<td>16,268</td>
<td>16,169</td>
<td>15,949</td>
<td>15,672</td>
</tr>
<tr>
<td class="firstcol">Change, 000s/%</td>
<td>+50</td>
<td>+16</td>
<td>-16</td>
<td>1.8%</td>
<td>1.4%</td>
<td>1.8%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods-Producing </td>
<td>+9</td>
<td>+18</td>
<td>-18</td>
<td>-0.4%</td>
<td>0.2%</td>
<td>1.7%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Service-Producing</td>
<td>+2</td>
<td>+2</td>
<td>+30</td>
<td>2.8%</td>
<td>2.1%</td>
<td>1.8%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment (000s)</td>
<td>1,086</td>
<td>1,131</td>
<td>1,141</td>
<td>1,155</td>
<td>1,173</td>
<td>1,235</td>
<td>1,286</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>6.2</td>
<td>6.4</td>
<td>6.5</td>
<td>6.6</td>
<td>6.8</td>
<td>7.2</td>
<td>7.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Participation Rate (%)</td>
<td>67.08</td>
<td>67.14</td>
<td>67.21</td>
<td>67.20</td>
<td>67.20</td>
<td>67.54</td>
<td>67.54</td>
</tr>
</tbody>
</table>
</body>
</html>

Canadian labor markets seem to be staging a comeback after something of a sinking spell during the summer. In October data reported this morning by StatCan, employment gained by 50,500 and the unemployment rate fell to 6.2%, the [...]

Rebound in Canadian Labor Market after Summer Pause

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103d.jpg" width="353">
The Business Activity Index for the non-manufacturing sector in October recovered all of the prior month&#39;s decline and rose to 57.1. The figure from the Institute for Supply Management (ISM) exceeded Consensus expectations for a lesser rise to 54.5.
Since the series&#39; inception in 1997 there has been a 50% correlation between the level of the Business Activity Index and the q/q change in real GDP for services plus construction.
The new orders sub-index slipped to 56.5 after a sharp September increase though the employment index gave back all of its September gain. At 51.0 it was at the lowest monthly level since 2004 and just 14% of survey respondents reported higher employment. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103e.jpg" width="353">
Pricing power dropped to its worst since 2003. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates back to July 1997.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Oct. &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>57.1</td>
<td>52.9</td>
<td>59.2</td>
<td>60.1</td>
<td>62.5</td>
<td>58.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>51.9</td>
<td>56.7</td>
<td>74.1</td>
<td>67.9</td>
<td>68.8</td>
<td>56.6</td>
</tr>
</tbody>
</table>


</html>

The Business Activity Index for the non-manufacturing sector in October recovered all of the prior month's decline and rose to 57.1. The figure from the Institute for Supply Management (ISM) exceeded Consensus expectations for a [...]

ISM Nonmanufacturing Index Recovered

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

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

US production rebounded in Q2, but demand continued to slow

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

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

FOMC expects more inflation and less growth than in March

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

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

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

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

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

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

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

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

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Winnie Tapasanun

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

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

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

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

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

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

Robert Brusca

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

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

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

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

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

Europe

EMU Large Country Inflation Runs Cold – Over Tepid Cores

Andrew Cates

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

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

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

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

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

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

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

Charts of the Week: Riskbusters

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

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

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

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

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

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

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

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

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

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

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

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

Economy in Brief: 2006

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