Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061009a.jpg" width="353">
The Leading Index of the major 7 OECD economies slipped another 0.1% during August after 0.2% declines during the prior two months, revised slightly shallower from the earlier reports. August was, however, the fourth consecutive month of slippage and that has not occurred since 2002. The declines lowered the index&#39;s six month growth rate to 0.5%, the lowest in more than a year.
During the last ten years there has been a 64% correlation between the change in the leading index and the q/q change in the GDP Volume Index for the Big Seven OECD countries.
The U.S. leading indicators were unchanged for the second month but have fallen 0.4% during the last five months. That dropped the six month growth rate to 1.2%, the lowest since Spring 2005. The weakness has been led by lower construction starts but consumer sentiment, new orders for durable goods and share prices improved. The correlation between the leaders&#39; growth rate and U.S. real GDP growth has been a high 73% during the last ten years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061009b.jpg" width="353">
The leading index for the European Union (15 countries) fell 0.2% and the index&#39;s six month growth rate fell to 2.9%, the lowest since last November. During the last ten years there has been a 59% correlation between the change in the leading index and the quarterly change in the European Union GDP volume index.
The German leading index fell 0.1% for the second consecutive month but a previously reported 0.5% July decline was revised to -0.1%. and June was revised up to no change. The six month growth rate nevertheless fell to 3.9%, its worst in about one year. During the last ten years there has been a 32% correlation between the change in the German leading index and the quarterly change in GDP volume. Weakness in the leaders has been led by a worsening, negative interest rate spread and lower export orders.
In France the leaders rose 0.4% for the eighth consecutive monthly increase. The gains have left the series&#39; six month growth rate at 2.7%. During the last ten years there has been a 54% correlation between the leaders&#39; growth rate and growth in France&#39;s real GDP, up 4.9% (AR, 2.6% y/y) last quarter. Consumer confidence has improved markedly and industrial sector prospects also are up.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061009c.jpg" width="353">
The Italian leading index fell sharply again. The 0.7% August decline lowered the series&#39; six month growth rate to a negative 2.0%, the worst since 2003. Worsening terms of trade &amp; higher interest rates account the weakness and have offset improved consumer confidence.
The UK leaders fell 0.2% for the second down month in the last three. That lowered the six month growth rate 0.8%, its worst since January. During the last ten years there has been a 36% correlation between the leaders&#39; growth rate and U.K. real GDP growth.
The Canadian leaders also fell 0.2% after an upwardly revised 1.1% July spike. The index&#39;s six month growth rate held at a much improved 3.9%, its best in two years. The correlation of the leaders&#39; growth with Canadian real GDP has been 49% during the last ten years.
The leading index in Japan fell 0.5%, the sixth consecutive monthly decline which dropped the index&#39;s six month growth rate to -3.6%. Share prices (recently), interest rate spreads and construction starts all are down from their highs. The leaders&#39; correlation with Japan&#39;s real economic growth has been a meaningful 41% during the last ten years.
The latest OECD Leading Indicator report can be found <a href="http://www.oecd.org/dataoecd/4/59/37499069.pdf">here</a>.
Do Inflation Targeters Outperform Non-targeters from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/06/09/Dueker.pdf"> here</a>.
The Exchange Rate-Consumer Price Puzzle from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-23.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/OECDMEI/OECDMEI.HTM">OECD</a></th>
<th scope="col">August</th>
<th scope="col">July</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">Composite Leading Index&nbsp;</td>
<td>104.82</td>
<td>104.97</td>
<td>1.8%</td>
<td>102.97</td>
<td>102.49</td>
<td>98.10</td>
</tr>
<tr>
<td class="firstcol">&nbsp;6 Month Growth Rate</td>
<td>0.5%</td>
<td>1.1%</td>
<td>--</td>
<td>0.7%</td>
<td>3.5%</td>
<td>2.6%</td>
</tr>
</tbody>
</table>
</body>
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The Leading Index of the major 7 OECD economies slipped another 0.1% during August after 0.2% declines during the prior two months, revised slightly shallower from the earlier reports. August was, however, the fourth consecutive month [...]

OECD Leaders: Four Months Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061009a.jpg" width="353">
The Leading Index of the major 7 OECD economies slipped another 0.1% during August after 0.2% declines during the prior two months, revised slightly shallower from the earlier reports. August was, however, the fourth consecutive month of slippage and that has not occurred since 2002. The declines lowered the index&#39;s six month growth rate to 0.5%, the lowest in more than a year.
During the last ten years there has been a 64% correlation between the change in the leading index and the q/q change in the GDP Volume Index for the Big Seven OECD countries.
The U.S. leading indicators were unchanged for the second month but have fallen 0.4% during the last five months. That dropped the six month growth rate to 1.2%, the lowest since Spring 2005. The weakness has been led by lower construction starts but consumer sentiment, new orders for durable goods and share prices improved. The correlation between the leaders&#39; growth rate and U.S. real GDP growth has been a high 73% during the last ten years.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061009b.jpg" width="353">
The leading index for the European Union (15 countries) fell 0.2% and the index&#39;s six month growth rate fell to 2.9%, the lowest since last November. During the last ten years there has been a 59% correlation between the change in the leading index and the quarterly change in the European Union GDP volume index.
The German leading index fell 0.1% for the second consecutive month but a previously reported 0.5% July decline was revised to -0.1%. and June was revised up to no change. The six month growth rate nevertheless fell to 3.9%, its worst in about one year. During the last ten years there has been a 32% correlation between the change in the German leading index and the quarterly change in GDP volume. Weakness in the leaders has been led by a worsening, negative interest rate spread and lower export orders.
In France the leaders rose 0.4% for the eighth consecutive monthly increase. The gains have left the series&#39; six month growth rate at 2.7%. During the last ten years there has been a 54% correlation between the leaders&#39; growth rate and growth in France&#39;s real GDP, up 4.9% (AR, 2.6% y/y) last quarter. Consumer confidence has improved markedly and industrial sector prospects also are up.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061009c.jpg" width="353">
The Italian leading index fell sharply again. The 0.7% August decline lowered the series&#39; six month growth rate to a negative 2.0%, the worst since 2003. Worsening terms of trade &amp; higher interest rates account the weakness and have offset improved consumer confidence.
The UK leaders fell 0.2% for the second down month in the last three. That lowered the six month growth rate 0.8%, its worst since January. During the last ten years there has been a 36% correlation between the leaders&#39; growth rate and U.K. real GDP growth.
The Canadian leaders also fell 0.2% after an upwardly revised 1.1% July spike. The index&#39;s six month growth rate held at a much improved 3.9%, its best in two years. The correlation of the leaders&#39; growth with Canadian real GDP has been 49% during the last ten years.
The leading index in Japan fell 0.5%, the sixth consecutive monthly decline which dropped the index&#39;s six month growth rate to -3.6%. Share prices (recently), interest rate spreads and construction starts all are down from their highs. The leaders&#39; correlation with Japan&#39;s real economic growth has been a meaningful 41% during the last ten years.
The latest OECD Leading Indicator report can be found <a href="http://www.oecd.org/dataoecd/4/59/37499069.pdf">here</a>.
Do Inflation Targeters Outperform Non-targeters from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/review/06/09/Dueker.pdf"> here</a>.
The Exchange Rate-Consumer Price Puzzle from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-23.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/OECDMEI/OECDMEI.HTM">OECD</a></th>
<th scope="col">August</th>
<th scope="col">July</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">Composite Leading Index&nbsp;</td>
<td>104.82</td>
<td>104.97</td>
<td>1.8%</td>
<td>102.97</td>
<td>102.49</td>
<td>98.10</td>
</tr>
<tr>
<td class="firstcol">&nbsp;6 Month Growth Rate</td>
<td>0.5%</td>
<td>1.1%</td>
<td>--</td>
<td>0.7%</td>
<td>3.5%</td>
<td>2.6%</td>
</tr>
</tbody>
</table>
 German Industrial Production Is the Big News But There's Also News on Industrial Production in Emerging Economies  
by <a href="/comment/Curley.html">Louise Curley</a> October 9, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061009e.jpg" width="353">
A diverse group of countries reported Industrial Production data for August. Most important was that of Germany, the largest European economy. The other reporting countries were relatively small nations among the emerging economies of Eastern Europe, the Middle East and the Pacific Rim, namely, Slovakia, Jordan and Turkey and Malaysia.
We have adjusted all the indexes to a common base 1999=100. The choice of base was limited to 1999 because data for Jordan, which has a base of 1999=100, were not available for any of the other base years--2000 for Germany and Slovakia, 1997 for Turkey and 1993 for Malaysia.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061009f.jpg" width="353">
German Industrial Production rose almost 2% from July and was over &amp;% above August, 2005. The rise exceeded consensus estimates and suggests a solid increase in GDP in the third quarter. In terms of magnitude, which cannot be discerned from index numbers, Germany far outweighs the other nations reporting today. But in terms of growth rates, which can be derived from index numbers, the smaller nations doubled or tripled Germany&#39;s growth during this period. Industrial production in Germany is only 17% above the average of 1999, while the comparable figure for Slovakia, for example, is 61%. The first chart compares the growth in industrial production in Germany and in Slovakia.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061009d.jpg" width="353">
Among the small nations reporting today, Malaysia and Slovakia have been the fastest growers.Malaysian industrial production in August was 66% above the 1999 average and, as noted above, the comparable figure for Slovakian industrial production was 61%. The second chart shows that Malaysia and Slovakia have experienced similar trends in industrial production since 1999.
While industrial production in Turkey and Jordan is currently about 40% above the average of 1999, Jordan reported a decline of almost 8% in August from July and a 2.7% decline from August 2005. Economic conditions in Jordan, have probably been affected by the turmoil in the Middle East during the summer months. Turkey, on the other hand reported a 1.% increase in industrial production in July and almost a 5% increase over August, 2005. Since, January 2002, the first date that data for Jordan are available, both Jordan and Turkey have shown similar growth rates, as shown in the third chart. Currently, industrial production in Jordan is 38% above the average of 1999 while that of Turkey is 41%. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">INDUSTRIAL PRODUCTION (1999=100)</th>
<th scope="col">Jul&nbsp; 06</th>
<th scope="col">Jun 06</th>
<th scope="col">Jul 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %&nbsp;</th>
<th scope="col">2005&nbsp;&nbsp;</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Germany&nbsp;</td>
<td>116.6</td>
<td>114.4</td>
<td>108.7</td>
<td>1.92</td>
<td>7.34</td>
<td>107.7</td>
<td>105.8</td>
<td>103.2</td>
</tr>
<tr>
<td class="firstcol">Slovakia&nbsp;</td>
<td>161.1</td>
<td>152.0</td>
<td>141.5</td>
<td>5.98</td>
<td>13.25</td>
<td>139.8</td>
<td>134.9</td>
<td>129.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Jordan</td>
<td>138.8</td>
<td>150.3</td>
<td>142.7</td>
<td>-7.68</td>
<td>-2.74</td>
<td>143.1</td>
<td>130.0</td>
<td>115.9</td>
</tr>
<tr>
<td class="firstcol">Turkey</td>
<td>141.3</td>
<td>139.8</td>
<td>134.8</td>
<td>1.10</td>
<td>4.89</td>
<td>133.3</td>
<td>126.5</td>
<td>115.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Malaysia</td>
<td>165.7</td>
<td>157.7</td>
<td>157.6</td>
<td>5.06</td>
<td>5.14</td>
<td>151.9</td>
<td>146.0</td>
<td>130.6</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/061006c.jpg" width="353">
Three Central and Eastern European nations reported September CPI data today. There are hints throughout of easing inflation pressures, although these performances remain uneven.
In Estonia, the CPI, seasonally adjusted by Haver Analytics, actually fell in the month, by 0.3%. This followed at 1.1% increase in August and helped pull the year-on-year rate from 5.0% in August to 3.8% for September. Transportation and recreation were the main contributors to the softening. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006d.jpg" width="353">
Slovenia&#39;s CPI rose 0.3%, but this was notably less than August&#39;s 1.5% advance. The weaker September result pulled the year/year pace down to 2.5%, after stronger figures in four of the previous five months. Here too, transportation contributed to the slowing.
In the Ukraine, inflation remains strong and accelerated through last year, when it was up 13.5% on average over 2004&#39;s level. In September, the CPI was up 2.2%, hardly a slower pace at 29.2% annualized, but the year-on-year rates have come down considerably from last year&#39;s amounts. The Ukraine experiences wide swings in individual CPI categories, so identifying major forces on the total is an indeterminate process. This country, however, is the one among these three that did not see fuel prices ease in September. They were still going up. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006e.jpg" width="353">
In Estonia and Slovenia, transportation costs declined outright; this included falling motor fuel prices in Slovenia and we assume also in Estonia. In Slovenia, which reports more detail (in the form of the EU&#39;s HICP array), airfares also fell. As oil prices begin to drop, we note that such declines benefit every energy-consuming country. We see already how this helps in these two small nations, which are among the earliest to publish their September CPI data. A week ago, Eurostat published its &quot;flash&quot; estimate for the entire EuroZone, and at 1.8% year-on-year, it indicated a notable slowing from prior months, which have been well over 2%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGECW/@EQ/@EQ5/@EQ501/@EQ501.HTM">Consumer Price Indexes</a></th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</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">Estonia, SA, 1997=100</td>
<td>146.2</td>
<td>146.6</td>
<td>138.4</td>
<td>133.0</td>
<td>129.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Mo/Mo</td>
<td>-0.3</td>
<td>1.1</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr*</td>
<td>3.8</td>
<td>5.0</td>
<td>4.1</td>
<td>3.0</td>
<td>1.3</td>
</tr>
<tr>
<td class="firstcol">Slovenia, SA, 2005=100</td>
<td>103.8</td>
<td>103.5</td>
<td>100.0</td>
<td>97.6</td>
<td>94.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mo/Mo</td>
<td>0.3</td>
<td>1.5</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr*</td>
<td>2.5</td>
<td>3.3</td>
<td>2.5</td>
<td>3.6</td>
<td>5.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Ukraine, SA, 2005= 100</td>
<td>112.4</td>
<td>110.0</td>
<td>100.0</td>
<td>88.1</td>
<td>80.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Mo/Mo</td>
<td>2.2</td>
<td>1.3</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr*</td>
<td>9.1</td>
<td>7.4</td>
<td>13.5</td>
<td>9.0</td>
<td>5.2</td>
</tr>
</tbody>
</table>
</body>
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Three Central and Eastern European nations reported September CPI data today. There are hints throughout of easing inflation pressures, although these performances remain uneven. In Estonia, the CPI, seasonally adjusted by Haver [...]

Eastern Europe CPI Uneven, but Coming Under Control; Energy Plays a Part

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006a.jpg" width="353">
Nonfarm payrolls last month rose just 51,000. The gain fell well below Consensus expectations for a 121,000 rise and the increase was the slowest since last October, when Hurricane Katrina hit the jobs figures.
Salvaging the dim report was an upward revision to August&#39;s gain to 188,000 from 128,000, reported initially. That left the three month average increase in jobs at 121,000, down just modestly from the nine month average of 137,000. Nevertheless, the recent increases are below an average monthly gain of 165,000 last year and an average 175,000 during 2004.
From the household survey the unemployment rate fell again to 4.6%, a level recently hit in May &amp; June. Employment rose 271,000 (1.7% y/y) after a 250,000 increase during August. The labor force increased 101,000 (1.1% y/y) and the labor force participation rate held for the fourth month at 66.2%.
Suggestive of moderation in hiring activity, the breadth of one month gain in private payrolls fell to 51.4% in September from 55.6% in August. The three month diffusion index also fell to 53.2%, the lowest level in nearly one year. In the factory sector the one month breadth of gain fell further below break even to 40.5% from 43.5% in August. The three month diffusion index fell to 36.9%, also it&#39;s lowest in nearly a year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006b.jpg" width="353">
Factory sector payrolls dropped 19,000 for the sixth m/m decline this year. Job declines in machinery (+2.4% y/y), electrical equipment (+3.0% y/y), furniture (-3.2% y/y), primary metals (0.3% y/y) and nondurables (-0.9% y/y) were offset by m/m increases in the motor vehicle &amp; parts industries (-2.3% y/y) and computers &amp; electronics (+0.6 y/y).
Private service-producing jobs rose just 62,000 (1.3%) after an August gain that was taken up to 170,000 from 101,000 reported last month. Financial sector jobs were firm and rose 16,000 (2.1% y/y) while professional &amp; business services employment rose 12,000 (2.4% y/y). Temporary help services jobs fell 11,300 (0.7% y/y) and retail trade sector jobs continued weak, falling another 11,900 (-0.5% y/y). Government sector jobs fell 8,000 (+0.6% y/y).
Construction employment increased 8,000 (2.9% y/y) after a 23,000 gain during August.
Average hourly earnings rose the same 0.2% as during an upwardly revised August but fell short of expectations for a 0.3% rise. Factory sector earnings fell 0.1% (+1.3% y/y).
The workweek was stable m/m but the index of aggregate weekly hours worked in private industries fell 0.1% for the second month. During 3Q the average level of the index rose 0.9% (AR) after a 2.6% gain during 2Q. During the last ten years there has been an 81% correlation between the y/y change in aggregate hours worked and real GDP growth.
The Price Puzzle: An Update and a Lesson from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20061001/cover.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/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>51,000</td>
<td>188,000</td>
<td>1.3%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-19,000</td>
<td>-7,000</td>
<td>0.2%</td>
<td>-0.6%</td>
<td>-1.3%</td>
<td>-4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.8</td>
<td>33.8</td>
<td>33.8 (Sept. &#39;05)</td>
<td>33.8</td>
<td>33.7</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.2%</td>
<td>0.2%</td>
<td>4.0%</td>
<td>2.8%</td>
<td>2.1%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.6%</td>
<td>4.7%</td>
<td>5.1% (Sept. &#39;05)</td>
<td>5.1%</td>
<td>5.5%</td>
<td>6.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

Nonfarm payrolls last month rose just 51,000. The gain fell well below Consensus expectations for a 121,000 rise and the increase was the slowest since last October, when Hurricane Katrina hit the jobs figures. Salvaging the dim [...]

Upward Revision Salvages Weak September U.S. Payroll Report

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006a.jpg" width="353">
Nonfarm payrolls last month rose just 51,000. The gain fell well below Consensus expectations for a 121,000 rise and the increase was the slowest since last October, when Hurricane Katrina hit the jobs figures.
Salvaging the dim report was an upward revision to August&#39;s gain to 188,000 from 128,000, reported initially. That left the three month average increase in jobs at 121,000, down just modestly from the nine month average of 137,000. Nevertheless, the recent increases are below an average monthly gain of 165,000 last year and an average 175,000 during 2004.
From the household survey the unemployment rate fell again to 4.6%, a level recently hit in May &amp; June. Employment rose 271,000 (1.7% y/y) after a 250,000 increase during August. The labor force increased 101,000 (1.1% y/y) and the labor force participation rate held for the fourth month at 66.2%.
Suggestive of moderation in hiring activity, the breadth of one month gain in private payrolls fell to 51.4% in September from 55.6% in August. The three month diffusion index also fell to 53.2%, the lowest level in nearly one year. In the factory sector the one month breadth of gain fell further below break even to 40.5% from 43.5% in August. The three month diffusion index fell to 36.9%, also it&#39;s lowest in nearly a year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006b.jpg" width="353">
Factory sector payrolls dropped 19,000 for the sixth m/m decline this year. Job declines in machinery (+2.4% y/y), electrical equipment (+3.0% y/y), furniture (-3.2% y/y), primary metals (0.3% y/y) and nondurables (-0.9% y/y) were offset by m/m increases in the motor vehicle &amp; parts industries (-2.3% y/y) and computers &amp; electronics (+0.6 y/y).
Private service-producing jobs rose just 62,000 (1.3%) after an August gain that was taken up to 170,000 from 101,000 reported last month. Financial sector jobs were firm and rose 16,000 (2.1% y/y) while professional &amp; business services employment rose 12,000 (2.4% y/y). Temporary help services jobs fell 11,300 (0.7% y/y) and retail trade sector jobs continued weak, falling another 11,900 (-0.5% y/y). Government sector jobs fell 8,000 (+0.6% y/y).
Construction employment increased 8,000 (2.9% y/y) after a 23,000 gain during August.
Average hourly earnings rose the same 0.2% as during an upwardly revised August but fell short of expectations for a 0.3% rise. Factory sector earnings fell 0.1% (+1.3% y/y).
The workweek was stable m/m but the index of aggregate weekly hours worked in private industries fell 0.1% for the second month. During 3Q the average level of the index rose 0.9% (AR) after a 2.6% gain during 2Q. During the last ten years there has been an 81% correlation between the y/y change in aggregate hours worked and real GDP growth.
The Price Puzzle: An Update and a Lesson from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/net/20061001/cover.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/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>51,000</td>
<td>188,000</td>
<td>1.3%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-19,000</td>
<td>-7,000</td>
<td>0.2%</td>
<td>-0.6%</td>
<td>-1.3%</td>
<td>-4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.8</td>
<td>33.8</td>
<td>33.8 (Sept. &#39;05)</td>
<td>33.8</td>
<td>33.7</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.2%</td>
<td>0.2%</td>
<td>4.0%</td>
<td>2.8%</td>
<td>2.1%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.6%</td>
<td>4.7%</td>
<td>5.1% (Sept. &#39;05)</td>
<td>5.1%</td>
<td>5.5%</td>
<td>6.0%</td>
</tr>
</tbody>
</table>
Eastern Europe CPI Uneven, but Coming Under Control; Energy Plays a Part 
by <a href="/comment/Stone.html">Carol Stone</a> October 6, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006c.jpg" width="353">
Three Central and Eastern European nations reported September CPI data today. There are hints throughout of easing inflation pressures, although these performances remain uneven.
In Estonia, the CPI, seasonally adjusted by Haver Analytics, actually fell in the month, by 0.3%. This followed at 1.1% increase in August and helped pull the year-on-year rate from 5.0% in August to 3.8% for September. Transportation and recreation were the main contributors to the softening. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006d.jpg" width="353">
Slovenia&#39;s CPI rose 0.3%, but this was notably less than August&#39;s 1.5% advance. The weaker September result pulled the year/year pace down to 2.5%, after stronger figures in four of the previous five months. Here too, transportation contributed to the slowing.
In the Ukraine, inflation remains strong and accelerated through last year, when it was up 13.5% on average over 2004&#39;s level. In September, the CPI was up 2.2%, hardly a slower pace at 29.2% annualized, but the year-on-year rates have come down considerably from last year&#39;s amounts. The Ukraine experiences wide swings in individual CPI categories, so identifying major forces on the total is an indeterminate process. This country, however, is the one among these three that did not see fuel prices ease in September. They were still going up.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061006e.jpg" width="353">
In Estonia and Slovenia, transportation costs declined outright; this included falling motor fuel prices in Slovenia and we assume also in Estonia. In Slovenia, which reports more detail (in the form of the EU&#39;s HICP array), airfares also fell. As oil prices begin to drop, we note that such declines benefit every energy-consuming country. We see already how this helps in these two small nations, which are among the earliest to publish their September CPI data. A week ago, Eurostat published its &quot;flash&quot; estimate for the entire EuroZone, and at 1.8% year-on-year, it indicated a notable slowing from prior months, which have been well over 2%.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/EMERGECW/@EQ/@EQ5/@EQ501/@EQ501.HTM">Consumer Price Indexes</a></th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</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">Estonia, SA, 1997=100</td>
<td>146.2</td>
<td>146.6</td>
<td>138.4</td>
<td>133.0</td>
<td>129.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Mo/Mo</td>
<td>-0.3</td>
<td>1.1</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr*</td>
<td>3.8</td>
<td>5.0</td>
<td>4.1</td>
<td>3.0</td>
<td>1.3</td>
</tr>
<tr>
<td class="firstcol">Slovenia, SA, 2005=100</td>
<td>103.8</td>
<td>103.5</td>
<td>100.0</td>
<td>97.6</td>
<td>94.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Mo/Mo</td>
<td>0.3</td>
<td>1.5</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr*</td>
<td>2.5</td>
<td>3.3</td>
<td>2.5</td>
<td>3.6</td>
<td>5.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Ukraine, SA, 2005= 100</td>
<td>112.4</td>
<td>110.0</td>
<td>100.0</td>
<td>88.1</td>
<td>80.8</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Mo/Mo</td>
<td>2.2</td>
<td>1.3</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Yr/Yr*</td>
<td>9.1</td>
<td>7.4</td>
<td>13.5</td>
<td>9.0</td>
<td>5.2</td>
</tr>
</tbody>
</table>
</body>
</html>

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005c.jpg" width="353">
Industrial production in Brazil rose 0.7% in August, according to the official Institute for Brazilian Geography and Statistics (IBGE), in a report out this morning. This followed a similar 0.7% gain in July, more than offsetting a 1.1% decline in June.
In the August result, capital goods and consumer durables were the sources of strength, the former up 2.8% and the latter, 1.6%. Intermediate goods output increased 0.6% as did the combined semi-durable and nondurable consumer goods.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005d.jpg" width="353">
Press coverage of these data was contradictory, giving an almost comedic vision of the &quot;two-handed economist&quot;. One news service, which conducts a forecast survey, said the 0.7% total increase was &quot;stronger than expected&quot; by its survey, which looked to a 0.5% rise. This service highlighted the favorable impact on the real economy of much lower interest rates. Indeed, the overnight &quot;Selic&quot; interest rate averaged 14.66% in August, down from 19.75% a year ago and the lowest in the 20-year history of this money-market rate.
&quot;On the other hand&quot;, another prominent wire-service bemoaned &quot;slowing growth&quot;, noting that the year-on-year gain in August IP was &quot;just&quot; 3.2%, less than July&#39;s 3.5%. Various other time span comparisons can also be construed as suggesting the onset of less vigorous growth. This news service &quot;blamed&quot; the strengthening of the currency which makes Brazil&#39;s products less competitive; indeed, the JP Morgan real effective exchange rate averaged 141.1 (2000=100) in September, among the highest single monthly values in the series, which extends back to 1970.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005e.jpg" width="353">
Differing interpretations can support either of these views. What does seem apparent to us is that Brazilian output swings widely: the recent pattern in industrial production can be seen as slow relative to double-digit gains in mid-2004 or stronger than the nearly stagnant performance in mid-2005. However, through this recent period, interest rates have been declining, the currency has been stronger (albeit with smaller gains than last year), and the stock market has corrected modestly after a steep run-up. This financial backdrop is yielding an inflow of capital funds for investment even as the current account remains in comfortable surplus. This sounds fairly attractive to us. The Brazilian people seem to agree: the National Confederation of Industry released its quarterly consumer confidence survey this morning as well. Its index of consumer expectations surged 5.8 points to a record in Q3 as respondents&#39; assessments of nearly every macroeconomic measure were increasingly favorable. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Aug 2006</th>
<th scope="col">July 2006</th>
<th scope="col">June 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">Total</td>
<td>116.12</td>
<td>115.30</td>
<td>114.48</td>
<td>112.63</td>
<td>111.71</td>
<td>108.36</td>
<td>100.05</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.7</td>
<td>0.7</td>
<td>-1.1</td>
<td>3.2</td>
<td>3.1</td>
<td>8.3</td>
<td>0.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Goods</td>
<td>2.8</td>
<td>1.2</td>
<td>-0.5</td>
<td>7.4</td>
<td>3.6</td>
<td>19.7</td>
<td>2.2</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>0.6</td>
<td>1.2</td>
<td>-1.5</td>
<td>3.4</td>
<td>0.9</td>
<td>7.4</td>
<td>2.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Durable Goods</td>
<td>1.6</td>
<td>-0.2</td>
<td>-0.9</td>
<td>5.4</td>
<td>11.4</td>
<td>21.8</td>
<td>3.0</td>
</tr>
<tr>
<td class="firstcol">Consumer Semi- durable &amp; Nondurable Goods</td>
<td>0.6</td>
<td>3.0</td>
<td>1.7</td>
<td>1.2</td>
<td>4.6</td>
<td>4.0</td>
<td>-3.9</td>
</tr>
</tbody>
</table>
</body>
</html>

Industrial production in Brazil rose 0.7% in August, according to the official Institute for Brazilian Geography and Statistics (IBGE), in a report out this morning. This followed a similar 0.7% gain in July, more than offsetting a [...]

Brazil's Industry Strengthening or Slowing, Depending on Who You Ask, But Consumer Expectations at High

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005a.jpg" width="353">
Initial claims for jobless insurance dropped 17,000 to 302,000, following the 3,000 decline the prior week which was slightly shallower than initially reported. Consensus expectations had been for 315,000 claims.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims fell slightly to 313,500 (-20.4% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005b.jpg" width="353">
Continuing claims for unemployment insurance fell 8,000 after a 38,000 drop the prior week that was deeper than initially reported.
The insured rate of unemployment was steady at 1.9% where it has been since February.
Economic Outlook, last night&#39;s remarks by Fed Vice Chairman Donald L. Kohn, can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/200610042/default.htm"> here</a>. Chairman Bernanke&#39;s comments on The Coming Demographic Transition can be found with yesterday&#39;s ADP write-up.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">9/30/06</th>
<th scope="col">9/23/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>302</td>
<td>319</td>
<td>-20.3%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,448</td>
<td>-13.9%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for jobless insurance dropped 17,000 to 302,000, following the 3,000 decline the prior week which was slightly shallower than initially reported. Consensus expectations had been for 315,000 claims. During the last ten [...]

Initial Claims for Jobless Insurance At Ten Week Low

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005a.jpg" width="353">
Initial claims for jobless insurance dropped 17,000 to 302,000, following the 3,000 decline the prior week which was slightly shallower than initially reported. Consensus expectations had been for 315,000 claims.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims fell slightly to 313,500 (-20.4% y/y). <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005b.jpg" width="353">
Continuing claims for unemployment insurance fell 8,000 after a 38,000 drop the prior week that was deeper than initially reported.
The insured rate of unemployment was steady at 1.9% where it has been since February.
Economic Outlook, last night&#39;s remarks by Fed Vice Chairman Donald L. Kohn, can be found <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/200610042/default.htm"> here</a>. Chairman Bernanke&#39;s comments on The Coming Demographic Transition can be found with yesterday&#39;s ADP write-up.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">9/30/06</th>
<th scope="col">9/23/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>302</td>
<td>319</td>
<td>-20.3%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,448</td>
<td>-13.9%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
Brazil's Industry Strengthening or Slowing, Depending on Who You Ask, But Consumer Expectations at High 
by <a href="/comment/Stone.html">Carol Stone</a> October 5, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005c.jpg" width="353">
Industrial production in Brazil rose 0.7% in August, according to the official Institute for Brazilian Geography and Statistics (IBGE), in a report out this morning. This followed a similar 0.7% gain in July, more than offsetting a 1.1% decline in June.
In the August result, capital goods and consumer durables were the sources of strength, the former up 2.8% and the latter, 1.6%. Intermediate goods output increased 0.6% as did the combined semi-durable and nondurable consumer goods.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005d.jpg" width="353">
Press coverage of these data was contradictory, giving an almost comedic vision of the &quot;two-handed economist&quot;. One news service, which conducts a forecast survey, said the 0.7% total increase was &quot;stronger than expected&quot; by its survey, which looked to a 0.5% rise. This service highlighted the favorable impact on the real economy of much lower interest rates. Indeed, the overnight &quot;Selic&quot; interest rate averaged 14.66% in August, down from 19.75% a year ago and the lowest in the 20-year history of this money-market rate.
&quot;On the other hand&quot;, another prominent wire-service bemoaned &quot;slowing growth&quot;, noting that the year-on-year gain in August IP was &quot;just&quot; 3.2%, less than July&#39;s 3.5%. Various other time span comparisons can also be construed as suggesting the onset of less vigorous growth. This news service &quot;blamed&quot; the strengthening of the currency which makes Brazil&#39;s products less competitive; indeed, the JP Morgan real effective exchange rate averaged 141.1 (2000=100) in September, among the highest single monthly values in the series, which extends back to 1970.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061005e.jpg" width="353">
Differing interpretations can support either of these views. What does seem apparent to us is that Brazilian output swings widely: the recent pattern in industrial production can be seen as slow relative to double-digit gains in mid-2004 or stronger than the nearly stagnant performance in mid-2005. However, through this recent period, interest rates have been declining, the currency has been stronger (albeit with smaller gains than last year), and the stock market has corrected modestly after a steep run-up. This financial backdrop is yielding an inflow of capital funds for investment even as the current account remains in comfortable surplus. This sounds fairly attractive to us. The Brazilian people seem to agree: the National Confederation of Industry released its quarterly consumer confidence survey this morning as well. Its index of consumer expectations surged 5.8 points to a record in Q3 as respondents&#39; assessments of nearly every macroeconomic measure were increasingly favorable. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">&nbsp;</th>
<th scope="col">Aug 2006</th>
<th scope="col">July 2006</th>
<th scope="col">June 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">Total</td>
<td>116.12</td>
<td>115.30</td>
<td>114.48</td>
<td>112.63</td>
<td>111.71</td>
<td>108.36</td>
<td>100.05</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>0.7</td>
<td>0.7</td>
<td>-1.1</td>
<td>3.2</td>
<td>3.1</td>
<td>8.3</td>
<td>0.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Capital Goods</td>
<td>2.8</td>
<td>1.2</td>
<td>-0.5</td>
<td>7.4</td>
<td>3.6</td>
<td>19.7</td>
<td>2.2</td>
</tr>
<tr>
<td class="firstcol">Intermediate Goods</td>
<td>0.6</td>
<td>1.2</td>
<td>-1.5</td>
<td>3.4</td>
<td>0.9</td>
<td>7.4</td>
<td>2.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Consumer Durable Goods</td>
<td>1.6</td>
<td>-0.2</td>
<td>-0.9</td>
<td>5.4</td>
<td>11.4</td>
<td>21.8</td>
<td>3.0</td>
</tr>
<tr>
<td class="firstcol">Consumer Semi- durable &amp; Nondurable Goods</td>
<td>0.6</td>
<td>3.0</td>
<td>1.7</td>
<td>1.2</td>
<td>4.6</td>
<td>4.0</td>
<td>-3.9</td>
</tr>
</tbody>
</table>
</body>
</html>

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

PMIs show still-elevated but slowing US inflation

AI boosting US investment in data centers

US productivity growth has been significantly faster than in other major economies

Consumers' short-term US inflation expectations still elevated while longer-term expectations of financial markets are steady

US financial markets have gotten used to elevated policy uncertainty

FOMC now expects more rate cuts going forward than in June

China gaining ASEAN exports while US exports slump

Job openings less than the number unemployed in July for first time since 2021

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

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

Equity market exuberance outpacing macroeconomic data

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

US production rebounded in Q2, but demand continued to slow

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

Negative US inflation surprises leading G10 down

Deflation continues in China

Incoming data surprising on downside in US; positive surprises elsewhere

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Andrew Cates

**Faster-than-Expected Monetary Easing**
Our first potential upside risk for 2026 is that monetary policy across most major advanced economies is loosened further and by more than markets and forecasters currently anticipate. Monetary policy cycles have a history of being underestimated in both length and magnitude—in large part because of the powerful feedback loops between interest rates, inflation, and economic behaviour. On the way up, higher policy rates feed into mortgage costs, debt-service burdens, rents, and the general cost of doing business, reinforcing wage pressures and inflation persistence. But these same channels work in reverse on the way down. As rates fall, debt servicing eases, housing and rental inflation softens, and cost pressures across the economy unwind more rapidly than expected—allowing inflation to decelerate faster and creating scope for further easing. A risk, therefore, is that if disinflation becomes self-reinforcing, central banks find themselves cutting rates more aggressively than currently priced, not because of economic distress, but because restrictive policy proves increasingly unnecessary.

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**Energy Supply Dynamics Prove More Supportive**
The second chart reinforces the message from the first: easing monetary policy may be accompanied—and amplified—by a more benign energy backdrop. Recent projections from the EIA point to a renewed build-up in OECD crude oil and liquids inventories over the year ahead, a dynamic that has historically been associated with downward pressure on oil prices. If inventories continue to rise as supply growth outpaces demand, spot prices for crude could undershoot current forecasts, keeping energy inflation subdued. That, in turn, would reinforce disinflationary forces already in play—lowering headline CPI, easing cost pressures for firms and households, and giving central banks greater confidence to loosen policy further. In that sense, softer oil prices would not just be a standalone positive shock, but part of a reinforcing feedback loop alongside rate cuts, supporting real incomes, financial conditions, and global growth into 2026.


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**AI-Driven Productivity Gains Materialise More Quickly** 
The third chart shows a clear pickup in US nonfinancial productivity growth, reviving the debate around whether AI-driven efficiency gains may arrive sooner than many forecasters expect. While the longer-term productivity potential of AI remains uncertain and uneven across sectors, there are reasons to think that at least some near-term gains could prove more tangible than currently assumed. Rather than transformative breakthroughs, early benefits are likely to come from incremental improvements—automation of routine processes, better scheduling and logistics, more efficient use of capital and labour, and modest reductions in overhead costs—areas where US firms are already well positioned to implement new technologies quickly. If these gains accumulate and diffuse more broadly, the implications would still be meaningful. Even a modest, sustained uplift in productivity would help contain unit labour costs, support real income growth, and raise the economy’s speed limit without generating renewed inflation pressure. In that scenario, productivity would not need to “revolutionise” the economy to matter: incremental efficiency gains could nonetheless provide a supportive backdrop for growth, earnings, and policy easing into 2026—representing a genuine upside risk to the outlook.


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**The US Economy Proves Resilient Again**
The next chart highlights a further upside risk to the 2026 outlook: the possibility that the US economy once again outperforms its peers. Unlike the typical pre-recession backdrop, there is little evidence of meaningful financial stress in the US private sector. After a prolonged period of balance-sheet repair, private-sector debt ratios have been trending lower in recent years, while the sector as a whole is running a healthy financial surplus. This stands in stark contrast to previous late-cycle episodes, which were characterised by rising leverage, widening deficits, and growing dependence on credit expansion. The absence of private-sector excesses reduces the economy’s vulnerability to higher rates and external shocks, and helps explain why growth has remained more durable than expected. If households and firms continue to prioritise balance-sheet strength rather than forced deleveraging, the usual mechanisms that tip the economy into recession may fail to materialise. In that environment, even modest easing in financial conditions could translate into renewed spending and investment, allowing the US to sustain above-trend growth into 2026—representing another upside risk to the global outlook.


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**India’s Growth Engine Accelerates Further** 
Chart 5 points to another potential upside risk for 2026 emanating from India’s economy. After a period of relative pessimism earlier in the year, consensus growth forecasts for 2026 have been revised modestly higher, even as inflation projections have continued to drift lower. This combination—firmer growth expectations alongside easing inflation pressures—creates scope for a more supportive policy backdrop than markets currently assume. With real interest rates no longer rising and financial conditions stabilising, India’s investment cycle, already underpinned by public infrastructure spending and improving corporate balance sheets, could prove more durable than forecast. If these trends persist, India may deliver growth that is both stronger and more internally driven than expected, providing a meaningful demand impulse to the broader global economy. Given India’s increasing weight in global growth, even small upside surprises would have outsized effects on trade, commodity demand, and regional activity—reinforcing the case that the global outlook for 2026 may be skewed to the upside.


251218Z5.jpg

**The Global South Becomes a More Independent Source of Demand** 
The final chart points to a broader upside risk for the global economy in 2026: that economies across the so-called Global South generate more durable momentum than currently assumed. With a few notable exceptions—such as China and Thailand—many emerging economies continue to benefit from stronger growth in their working-age populations and/or faster real GDP per capita growth than their advanced-economy counterparts. These demographic and income dynamics are helping to underpin domestic consumption, support labour-force expansion, and attract capital inflows, as reflected in the pattern of net FDI across countries. In contrast, much of the advanced world faces binding demographic constraints and lower steady-state growth rates, limiting the scope for demand to re-accelerate organically. If growth in the Global South proves more resilient and internally driven—rather than overly dependent on exports to advanced economies—it could provide a more stable and geographically diversified source of global demand. In that scenario, global growth in 2026 would be less reliant on a narrow set of advanced economies, reinforcing the case that risks to the outlook may be skewed to the upside.


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_This marks our final Charts of the Week publication for 2025 The next edition will be released on Thursday 8 January._

Last week’s Charts of the Week focused on the darker tail risks hanging over the 2026 outlook: the possibility of monetary policy mis-calibration, that geopolitics and trade fragmentation further disrupt supply chains, and that elevated debt levels—particularly in the public sector—reassert themselves as a drag on growth. This week’s charts take a deliberately different tack. Taken together, they highlight a set of upside risks that are possibly underappreciated in current forecasts. For example, policy easing across advanced economies may extend further than expected as disinflation feeds on itself (chart 1); oil prices could surprise on the downside as inventories rebuild (chart 2); US productivity may deliver incremental but meaningful gains sooner than assumed (chart 3); the US economy itself could continue to benefit from an absence of private-sector financial stress (chart 4); India’s growth momentum might firm again as inflation pressures recede (chart 5); and, more broadly, parts of the Global South appear increasingly capable of generating their own demand impulse, supported by favourable demographics and income growth (chart 6). None of these forces is guaranteed, and each carries its own caveats—but together they suggest that, having spent much of the past year fixated on downside risks, the risks to global growth in 2026 may be more evenly balanced than is widely assumed.

<iframe data-testid="embed-iframe" style="border-radius:12px" src="https://open.spotify.com/embed/episode/6tL5l7g70DuLWxKOokuRit?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: The Upside Risks

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance dropped 13,000 to 224,000 during the week of December 13, from 237,000 during the week of December 6, revised from 236,000. The four-week moving average of initial claims was 217,500, an increase of 500 from the previous week, which was revised to 217,000 from 216,750.

Federal government employees initially filed 1091 (NSA) jobless insurance claims in the week ended December 6, after filing 643 claims in the week ended November 29.

Continuing claims for unemployment insurance rose 67,000 to 1,897,000 in the week ending December 6, following a sharp decline of 107,000 to 1,830,000 in the prior week, revised from 1,838,000. The four-week moving average was 1,902,000 in the week ending December 6, a decrease of 14,000 from 1,916,00 in the week ended November 29, revised from 1,918,000. The insured unemployment rate stood at 1.2% in the week of December 6, unchanged from the prior week.

Federal government employees’ continuing benefits rose to 14,077 (NSA) in the week of November 29 from 12,732 (NSA) in the week ended November 22.

The insured unemployment rate varied greatly across individual states and territories. In the week ending November 29, the highest unemployment rates were in Washington (2.48%), New Jersey (2.42%), California (2.26%), Minnesota (2.16%), and Massachusetts (2.10%). The lowest rates were in Florida (0.34%), South Dakota (0.40%), North Carolina (0.41%), Louisiana (0.44%), Alabama (0.46%), Virginia (0.47%), and Tennessee (0.49%). Rates in other notable states include New York (1.81%), Illinois and Pennsylvania (both 1.67%), and Texas (1.22%). 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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- Initial claims dropped from the prior week.
- Continuing claims rebounded from the prior week sharp decline.
- The insured unemployment rate was unchanged.


U.S. Initial Claims for Unemployment Insurance Eased in Latest Week

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Mortgage applications dropped 3.8% w/w (+40.9% y/y) in the week of December 12 after a rise of 4.8% w/w (45.4% y/y) in the week of December 5, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house fell 2.8% w/w (+12.3% y/y) in the latest week after declining 2.4% w/w (+17.2% y/y) in the week of December 5. Applications for loan refinancing dropped 3.6% w/w (+86.0% y/y) in the week of December 12, following the 14.3% (87.8% y/y) jump in the week ended December 5.

The effective interest rate on a 30-year fixed-rate loan rose 6bps to 6.56% in the week ending December 12, from 6.50% in the week ending December 5. The rate on 15-year fixed-rate mortgages rose 4bps to 5.91% in the latest week from 5.87% in the December 5 week. The rate on 30-year jumbo edged down 2bps to 6.55% in the December 12 week from 6.57% in the prior week. The rate on a 5-year ARM eased 4bps to 5.76% in the latest week from 5.80% in the December 5 week.

The share of applications for refinancing an existing loan rose to 59.0% of total applications in the December12 week from 58.2% in the week ending December 5. The adjustable-rate mortgage (ARM) share of activity rose to 7.2% in the latest week from 7.0% in the December 5 week.

The average size of a mortgage loan rose 1.5% (6.4% y/y) to $400,000 in the December 12 week, following a decline of 0.7% (+7.1% y/y) to $394,200 in the December 5 week. The average size of a purchase loan edged up 0.6% (-0.3% y/y) to $424,200 in the latest week, after dropping 0.4% (+1.3% y/y) to $421,700 in the December 5 week. The average size of a loan to refinance a mortgage rose 2.4% (19.8% y/y) to $383,300 in the week ending December 12 after rising 0.2% (19.4% y/y) to $374,500 in the December 5 week.

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

- Purchase applications fell 2.8% w/w; refinancing loan applications fell 3.6% w/w.
- Effective interest rate on 30-year fixed loans rose to 6.56%.
- Average loan size rose moderately.

U.S. Mortgage Applications Retreated in the Week of December 12

Robert Brusca

251217E.jpg

U.K. inflation has moderated in November, posting a 0.1% drop on the HICP, a 0.1% gain in the CPI-H headline measure as well as a 0.1% gain in the CPI-H core (excluding energy, food, alcohol, and tobacco). The sequential trend in core inflation points lower and is eroding but continues to run over the 2% mark set as a target by the Bank of England for overall inflation (over 12 months). The headline is excessive as well but also eroding.

Sequentially the CPI-H gains 3.5% over 12 months, slows to a 2.8% annual rate over six months and then dips to 1.4% annual rate over three months. The CPI-H core rises by 3.6% over 12 months, ticks down to a 3.0% pace over six months, and then runs at a 2.4% annualized pace over three months.

The trend for the CPI core, and for the headline, both are quite good and would be completely consistent with the Bank of England cutting rates, a move that is widely expected – although the 12-month pace for each is excessive.

Not only is inflation showing signs of falling into the Bank of England's target zone, but the economy has been weak although the unemployment rate currently is only hovering around the 4% mark. Still, recent economic data have been weak, and the recent monthly GDP report posted a negative reading, further unsettling the outlook. The October monthly GDP change was estimated at -0.1% while the year-over-year increase in GDP in October produced a gain of just 1.1%. These metrics have put the U.K. economy on recession watch at a time when there has been a sharp revision in the budget process that will be much more constrictive. A sharp pullback in the manufacturing of motor vehicles is blamed for the sudden weakness in GDP in October. The three-month drop in GDP is the first such drop since December 2023.

Meanwhile, the headline and the core inflation statistics are progressing. The table calculates breadth statistics on how widespread inflation acceleration has been and we see that it has not been prevalent (over 50%) in September or November, although breadth did touch the 58% mark in October. Sequentially, inflation acceleration has been tamed: over 12 months (when it is neutral), six months, and three months. Over 12 months, inflation accelerated in only 50% of the categories. And inflation according to the CPI headline and in the core over six months continues to show deceleration to accompany narrowing breadth - only 8.3%. That reading indicates that there was more inflation deceleration than acceleration by a wide margin over six months. At 50%, inflation acceleration and deceleration forces are balanced. Readings below 50% indicate relatively more deceleration, and that is now the more common condition. Inflation acceleration is extremely rare across categories over six months and three months.

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On balance, inflation by the headline and by the core measures is well disciplined and falling into line although still excessive over 12 months. The breadth statistics reinforce the view that inflation is broadly coming to heel at the same time the real economy data are showing a cooling in the economy- and perhaps an excessive slowing at that. The new budget should put the economy under additional downward pressure, further restraining inflation and causing growth to moderate. In this situation, a rate cut from the Bank of England is the odds-on bet. Perhaps the only question now is how large a cut? How much will the Bank think that circumstance have changed and that key trends have been altered in a significant way? Will policy react mostly to lower trend tempered by an excessive 12-month pace, or will it be willing to look farther forward and weight heavily the deteriorating economic trend as well?

United Kingdom

U.K. Inflation Moderates Open Door for BOE Rate Cut

Sandy Batten

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The Bureau of Labor Statistics released establishment survey data for both October and November today. With the government shutdown during the month of October, there was no household survey for that month. Today’s release contained only November data for households. Nonfarm payrolls (from the establishment survey) increased 64,000 in November but fell 105,000 in October. The 119,000 increase previously reported for September was revised down to a 108,000 rise. The Action Economics Forecast Survey had expected an 80,000 decrease in October and a 35,000 increase in November. The three-month average change in payrolls rebounded to 22,000 in November from -8,000 in October. However, this figure has trended down since early this year, pointing to a modest softening of labor-market conditions. 

This softening was reinforced by a 0.2%-point jump in the unemployment rate, measured in the household survey, to 4.6% in November from 4.4% in September. (As already noted, there was no household survey in October.) The unemployment rate, including employees working part-time for economic reasons plus all marginally attached workers, surged to 8.7% in November from 8.0% in September. For both series, these were the highest readings since September 2021.

Average hourly earnings (AHE), a key variable for the Federal Reserve, showed a further slowing in wage growth. AHE edged up 0.1% m/m in November after a 0.4% monthly jump in October. Importantly, the y/y rate slowed to 3.5%, the slowest since May 2021, from 3.7% in both September and October. The annual pace of the rise in service-producing wages slowed to 3.4% in November from 3.7% in both September and October while the annual growth of goods-producing wages was unchanged at 4.0%. Depending on your estimate of productivity growth, the current pace of total AHE growth is likely still a little too fast to be consistent with the Fed’s 2% inflation target. But clearly, it is moving in the desired direction.

In the **establishment survey**, much of the recent softening reflects declines in federal government employment. Federal government employment fell again in November (-6,000). This follows a sharp decline of 162,000 in October, as some federal employees who accepted a deferred resignation offer came off federal payrolls. Federal government employment is down by 271,000 since reaching a peak in January. (Note however that federal employees on furlough during the government shutdown were counted as employed in the establishment survey because they received pay, even if later than usual, for the pay period that included the 12th of the month. Employees on paid leave or receiving ongoing severance pay are counted as employed in the establishment survey.)

Private-sector employment rose 69,000 in November and 52,000 in October following an upwardly revised 104,000 increase in September (previously 97,000). Goods sector employment rebounded in November, rising 19,000 after a 9,000 fall in October. Construction jobs increased 28,000 in November, their largest monthly gain in more than a year, but slipped 1,000 in October. Manufacturing jobs continued to decline, falling 5,000 in November and 9,000 in October. They have now declined for seven consecutive months, not the result that the Trump Administration new tariff policy had intended.

Private-sector service-producing jobs gained 50,000 in November on top of a 61,000 increase in October and an 87,000 rise in September. A 46,000 increase in healthcare jobs on top of a 44,000 increase in October and an 18,000 gain in social assistance jobs in November after a 21,000 increase in October led the overall increases in the past two months. Other major sectors mostly experienced either job declines or minimal gains in October and November.

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The length of the workweek increased to 34.3 hours in November from 34.2 hours in August, September and October. The goods-producing workweek edged up to 39.8 hours in November from 39.6 hours in October while the private service-producing workweek was unchanged at 33.2 hours in November.

In the **household survey**, the unemployment rate jumped to 4.6% in November, the highest since September 2021 and up from a recent low of 3.4% in April 2023, from 4.4% in September (again, no data for October). The labor force increased 323,000 in November from September after a 470,000 monthly gain in September. The gain in employment slowed in November with the number of employed rising only 96,000 from September following a 251,000 monthly increase in September. The number of unemployed increased 228,000 in November from September following a 219,000 monthly increase in September. The labor force participation rate rose to 62.5% in November, its highest since April, from 62.4% in September. On a slightly brighter note, the average duration of unemployment slipped to 23.0 weeks in November from 24.1 weeks in September while the median duration of unemployment fell to 9.5 weeks, the lowest since May, from 10.0 weeks in September.

The employment/population ratio for all workers slipped to 59.6% in November from 59.7% in September. It remained below the recent peak reading of 61.1% in February 2020 just prior to the pandemic. For men, the rate slipped to 64.6% in November from 64.8% in September and 65.0% in August, and for women, the rate was unchanged at 54.8% in November.

The employment and earnings data are collected from surveys taken each month during the week containing the 12th day of the month. The labor market data are contained in Haver's **USECON** database. Detailed figures are in the **EMPL** and **LABOR** databases. The expectations figures are in the **AS1REPNA** database.

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- Total payrolls rose 64k in November but fell 105k in October
- The October decline was more than accounted for by a 157k decline in government employment
- The unemployment rate jumped to 4.6% in November from 4.4% in September.
- There were no household survey data collected for October.

Economy in Brief

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OECD Leaders: Four Months Down

OECD Leaders: Four Months Down

Eastern Europe CPI Uneven, but Coming Under Control; Energy Plays a Part

Upward Revision Salvages Weak September U.S. Payroll Report

Upward Revision Salvages Weak September U.S. Payroll Report

Brazil's Industry Strengthening or Slowing, Depending on Who You Ask, But Consumer Expectations at High

Initial Claims for Jobless Insurance At Ten Week Low

Initial Claims for Jobless Insurance At Ten Week Low