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/061004j.jpg" width="353">
Unlike in the US, the property market in the UK is still strong. Home prices published today by the Halifax Royal Bank of Scotland (HBOS) showed a 1.0% monthly increase in September, seasonally adjusted. August was revised upward to 1.3% from 1.0% reported initially. September&#39;s price stood 8.2% above a year ago; the growth rate in the three-month moving average most frequently cited by the bank was 8.0%. This is less than in the prior four months, but firmer than what prevailed across 2005.
For comparison, we can look at the price in US dollars; it was $342,000. A slight firming in the dollar diminished September&#39;s sterling price gain in to 0.4% in the US currency, but that followed a 4.0% surge in August when the dollar had fallen 2.6% again the pound.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004k.jpg" width="353">
The firmness in UK house prices is presently accompanying firm demand for houses in the UK, suggested by the positive readings in the RICS housing market survey. Data on actual counts of home sales transactions lag a couple of months. But this survey by Chartered Surveyors gives the balance of respondents showing more &quot;newly agreed sales&quot; over fewer sales at +21% in August, the second highest since early 2004.
Analysts were impressed with the strength in home prices, even as interest rates are also moving up. In early August, the Bank of England raised its base rate 25 basis points to 4.75%. This appears not yet fully reflected in available data on mortgage rates, which show the &quot;standard variable rate&quot; inching up just 2 basis points in August to 6.50% from 6.48% in July. The &quot;base-rate tracker&quot; mortgage rate rose in August to 5.30% from 5.16% in July. The higher house prices suggest that rising mortgage rates didn&#39;t discourage buyers in September -- or perhaps they stimulated buyers in the reverse way: &quot;let&#39;s get our house and our mortgage now before rates go up more&quot;, they may have thought, which circumstance would point to a slowdown in coming months.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U4/@U4.HTM">UK House Prices</a></th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</th>
<th scope="col">July 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">Average House Price (SA*, &pound;000)</td>
<td>181.2</td>
<td>179.5</td>
<td>177.2</td>
<td>167.5</td>
<td>165.3</td>
<td>157.0</td>
<td>132.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Chg</td>
<td>1.0</td>
<td>1.3</td>
<td>0.3</td>
<td>8.2</td>
<td>5.3</td>
<td>18.8</td>
<td>19.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; US $ (000)</td>
<td>341.5</td>
<td>340.0</td>
<td>326.9</td>
<td>302.9</td>
<td>300.7</td>
<td>287.6</td>
<td>216.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; % Chg</td>
<td>0.4</td>
<td>4.0</td>
<td>0.4</td>
<td>12.8</td>
<td>4.6</td>
<td>32.9</td>
<td>29.2</td>
</tr>
<tr class="odd">
<td class="firstcol">RICS Newly Agreed Sales**</td>
<td>--</td>
<td>+21%</td>
<td>+12%</td>
<td>+12%</td>
<td>+2%</td>
<td>-9%</td>
<td>-2%</td>
</tr>
<tr>
<td class="firstcol">Mortgage Rate***</td>
<td>--</td>
<td>6.50%</td>
<td>6.48%</td>
<td>6.71%</td>
<td>6.63%</td>
<td>6.25%</td>
<td>5.61%</td>
</tr>
</tbody>
</table>
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Unlike in the US, the property market in the UK is still strong. Home prices published today by the Halifax Royal Bank of Scotland (HBOS) showed a 1.0% monthly increase in September, seasonally adjusted. August was revised upward to [...]

UK House Prices Still Strong in September

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004e.jpg" width="353">
According to the Mortgage Bankers Association. the total number of mortgage applications surged 11.9% last week. It was the strongest w/w increase since June 2005. The gain lifted applications for the month 5.6% above the August average.
Applications to refinance surged 17.5% after the prior week&#39;s 4.1% decline. The average level of refis in September rose 8.7% from August which surged 13.3% m/m from July.
Purchase applications recovered 7.6% after the prior week&#39;s 5.5% decline. The increase raised the month&#39;s average 3.2% from August, only the first rise in the last five months. The latest level was 23.1% below the peak during May of 2005.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004d.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose six basis points to 6.39% to 6.45% and averaged 6.50% last month versus 6.64% in August. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing ticked just slightly w/w to 6.11% and averaged 6.20% last month. The peak rate was 6.75%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">here</a>.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYW/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">09/29/06</th>
<th scope="col">09/22/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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</thead>
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<tr class="odd">
<td class="firstcol">Total Market Index</td>
<td>633.9</td>
<td>566.5</td>
<td>-11.2%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>404.6</td>
<td>375.9</td>
<td>-14.6%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,970.8</td>
<td>1,677.5</td>
<td>-6.5%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
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According to the Mortgage Bankers Association. the total number of mortgage applications surged 11.9% last week. It was the strongest w/w increase since June 2005. The gain lifted applications for the month 5.6% above the August [...]

Mortgage Applications Surged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004g.jpg" width="353">
Factory inventories rose 0.4% last month, half the upwardly revised gain during July. Nevertheless, the y/y rate of accumulation was at its highest since early 2005.
Primary metals inventories again were firm and rose 1.4% (11.7% y/y) after an upwardly revised 2.1% increase during July. Growth in inventories of computers &amp; electronic products slowed to 0.4% (8.5% y/y) from a 0.9% July gain but inventories of electrical equipment jumped another 1.5% (12.9% y/y). Machinery inventories rose 0.3% (4.5% y/y).
Total factory orders fell slightly after a deepened 1.0% July decline. Durable goods orders fell just slightly and that was a bit better than the 0.5% decline that was in the advance report of a 0.5% drop. Factory orders less transportation fell 0.7% (+5.5% y/y) after a 0.6% July gain.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004f.jpg" width="353">
Factory shipments surged 1.1%on the strength of a 6.0% jump in transportation. Less transportation shipments rose 0.4% (6.9% y/y) despite lower petroleum shipments. Factory shipments less transportation &amp; petroleum rose a strong 0.9% (6.7% y/y).
Unfilled orders rose 0.4% last month and less the transportation sector backlogs rose 0.3% (13.8% y/y).<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </a>

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</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 class="odd">
<td class="firstcol">Inventories</td>
<td>0.4%</td>
<td>0.8%</td>
<td>6.5%</td>
<td>4.0%</td>
<td>6.9%</td>
<td>-7.4%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>-0.0%</td>
<td>-1.0%</td>
<td>4.6%</td>
<td>8.5%</td>
<td>7.5%</td>
<td>0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>1.1%</td>
<td>-0.1%</td>
<td>6.1%</td>
<td>7.1%</td>
<td>6.8%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.4%</td>
<td>1.2%</td>
<td>18.5%</td>
<td>16.3%</td>
<td>4.5%</td>
<td>-1.0%</td>
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</tbody>
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Factory inventories rose 0.4% last month, half the upwardly revised gain during July. Nevertheless, the y/y rate of accumulation was at its highest since early 2005. Primary metals inventories again were firm and rose 1.4% (11.7% y/y) [...]

U.S. Factory Inventory Gain Slowed

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004h.jpg" width="353">
The September Business Activity Index for the non-manufacturing sector from the Institute for Supply Management (ISM) fell unexpectedly to its lowest level in over three years. The decline to 52.9 compared to Consensus expectations for a lesser drop to 56.0.
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 rose to 57.2, recovering a sharp drop in August, and the employment index also recovered most of its August decline. 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/061004i.jpg" width="353">
Pricing power dropped to its lowest level in three years. 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.

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<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">September</th>
<th scope="col">August</th>
<th scope="col">Sept. &#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>52.9</td>
<td>57.0</td>
<td>53.7</td>
<td>60.1</td>
<td>62.5</td>
<td>58.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>56.7</td>
<td>72.4</td>
<td>78.4</td>
<td>67.9</td>
<td>68.8</td>
<td>56.6</td>
</tr>
</tbody>
</table>


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The September Business Activity Index for the non-manufacturing sector from the Institute for Supply Management (ISM) fell unexpectedly to its lowest level in over three years. The decline to 52.9 compared to Consensus expectations [...]

ISM Nonmanufacturing Index Down, Components Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004b.jpg" width="353">
U.S. sales of light vehicles in September rose 3.5% to 16.63M units, according to the Autodata Corporation. The gain recovered a piece of the prior month&#39;s 6.5% decline and during the first nine months of 2006 vehicle sales averaged 16.63M, down 3.8% from the comparable period during.
A forty cent m/m decline in retail gasoline prices to an average $2.56 per gallon helped lift overall light truck sales 7.5% last month after a 6.6% decline during August. Nevertheless, higher gasoline prices versus last year have prompted an 8.3% decline in light truck sales year to date versus the first nine months of last year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004c.jpg" width="353">
Sales of the relatively fuel efficient imported light trucks surged a strong 14.4% last month (29.8% y/y) and advanced 9.8% year to date. Domestic truck sales also rose 6.3% (1.0% y/y) during September, however, during the first nine months of this year domestic light truck sales fell 10.8% from the first nine months of 2005 to an average of 7.48M.
Auto sales slipped 0.8% last month after a 6.4% decline during August. Sales of imported autos fell 5.0% (+3.4% y/y) after a 10.1% August decline. Still, year to date sales of imported autos were up 9.2% versus 2005. Domestic car sales rose 1.2% (-6.6% y/y) after a 4.5% August decline. Year to date sales of domestic autos were down 1.2% versus last year.
Imports&#39; share of the US light vehicle market fell m/m to 23.0% during September. Last year, imports&#39; share of the U.S. vehicle market totaled 20.4%
Inflation Targets and Inflation Expectations: Some Evidence from the Recent Oil Shocks from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-22.pdf"> here</a>

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</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>
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</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.63</td>
<td>16.06</td>
<td>0.7%</td>
<td>16.96</td>
<td>16.87</td>
<td>16.63</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.63</td>
<td>7.69</td>
<td>-3.6%</td>
<td>7.65</td>
<td>7.49</td>
<td>7.62</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>9.00</td>
<td>8.37</td>
<td>4.6%</td>
<td>9.32</td>
<td>9.37</td>
<td>9.01</td>
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</tbody>
</table>
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U.S. sales of light vehicles in September rose 3.5% to 16.63M units, according to the Autodata Corporation. The gain recovered a piece of the prior month's 6.5% decline and during the first nine months of 2006 vehicle sales averaged [...]

Lower Gasoline Prices Fueled U.S. Vehicle (Truck) Sales

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004a.jpg" width="353">
The Nat&#39;l Employment Report, published by the payroll processor ADP, indicated that private nonfarm payrolls rose 78,000 last month. The September figure from BLS will be published this Friday.
During August, ADP&#39;s measure of private nonfarm payrolls rose 107,000 and that gain was accompanied by a 111,000 rise in private nonfarm payrolls, as published by the Bureau of Labor Statistics.
ADP compiled the estimate from its database of individual companies&#39; payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator.
According to ADP and Macro Advisers, the correlation between the monthly percentage change in the ADP estimate and that in the BLS data is 0.90.
The ADP National Employment Report data is maintained in Haver&#39;s USECON database; historical data go back to December 2000. The figures in this report cover only private sector jobs and exclude employment in the public sector, which grew an average of 11,333 per month over the last year.
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/report_analysis.aspx">here</a>, and the ADP methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf">here</a>.
The Coming Demographic Transition: Will We Treat Future Generations Fairly?, today&#39;s speech by Fed Chairman Bernanke is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20061004/default.htm"> here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</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>
<td class="firstcol">Nonfarm Private Payroll Employment (Chg.)</td>
<td>78,000</td>
<td>107,000</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.3%</td>
<td>-0.4%</td>
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The Nat'l Employment Report, published by the payroll processor ADP, indicated that private nonfarm payrolls rose 78,000 last month. The September figure from BLS will be published this Friday. During August, ADP's measure of private [...]

ADP Reports Less Hiring During September

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004a.jpg" width="353">
The Nat&#39;l Employment Report, published by the payroll processor ADP, indicated that private nonfarm payrolls rose 78,000 last month. The September figure from BLS will be published this Friday.
During August, ADP&#39;s measure of private nonfarm payrolls rose 107,000 and that gain was accompanied by a 111,000 rise in private nonfarm payrolls, as published by the Bureau of Labor Statistics.
ADP compiled the estimate from its database of individual companies&#39; payroll information. Macroeconomic Advisers, LLC, the St. Louis economic consulting firm, developed the methodology for transforming the raw data into an economic indicator.
According to ADP and Macro Advisers, the correlation between the monthly percentage change in the ADP estimate and that in the BLS data is 0.90.
The ADP National Employment Report data is maintained in Haver&#39;s USECON database; historical data go back to December 2000. The figures in this report cover only private sector jobs and exclude employment in the public sector, which grew an average of 11,333 per month over the last year.
The full ADP National Employment Report can be found <a href="http://www.adpemploymentreport.com/report_analysis.aspx">here</a>, and the ADP methodology is explained <a href="http://www.adpemploymentreport.com/PDF/ADPNERMethodology.pdf">here</a>.
The Coming Demographic Transition: Will We Treat Future Generations Fairly?, today&#39;s speech by Fed Chairman Bernanke is available <a href="http://www.federalreserve.gov/boarddocs/speeches/2006/20061004/default.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/USECON/@EB/@EB25/@EB25.HTM">LAXEPA@USECON</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>
<td class="firstcol">Nonfarm Private Payroll Employment (Chg.)</td>
<td>78,000</td>
<td>107,000</td>
<td>1.9%</td>
<td>1.7%</td>
<td>1.3%</td>
<td>-0.4%</td>
</tr>
</tbody>
</table>
Lower Gasoline Prices Fueled U.S. Vehicle (Truck) Sales 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 4, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004b.jpg" width="353">
U.S. sales of light vehicles in September rose 3.5% to 16.63M units, according to the Autodata Corporation. The gain recovered a piece of the prior month&#39;s 6.5% decline and during the first nine months of 2006 vehicle sales averaged 16.63M, down 3.8% from the comparable period during.
A forty cent m/m decline in retail gasoline prices to an average $2.56 per gallon helped lift overall light truck sales 7.5% last month after a 6.6% decline during August. Nevertheless, higher gasoline prices versus last year have prompted an 8.3% decline in light truck sales year to date versus the first nine months of last year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004c.jpg" width="353">
Sales of the relatively fuel efficient imported light trucks surged a strong 14.4% last month (29.8% y/y) and advanced 9.8% year to date. Domestic truck sales also rose 6.3% (1.0% y/y) during September, however, during the first nine months of this year domestic light truck sales fell 10.8% from the first nine months of 2005 to an average of 7.48M.
Auto sales slipped 0.8% last month after a 6.4% decline during August. Sales of imported autos fell 5.0% (+3.4% y/y) after a 10.1% August decline. Still, year to date sales of imported autos were up 9.2% versus 2005. Domestic car sales rose 1.2% (-6.6% y/y) after a 4.5% August decline. Year to date sales of domestic autos were down 1.2% versus last year.
Imports&#39; share of the US light vehicle market fell m/m to 23.0% during September. Last year, imports&#39; share of the U.S. vehicle market totaled 20.4%
Inflation Targets and Inflation Expectations: Some Evidence from the Recent Oil Shocks from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-22.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/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</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">Total</td>
<td>16.63</td>
<td>16.06</td>
<td>0.7%</td>
<td>16.96</td>
<td>16.87</td>
<td>16.63</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.63</td>
<td>7.69</td>
<td>-3.6%</td>
<td>7.65</td>
<td>7.49</td>
<td>7.62</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>9.00</td>
<td>8.37</td>
<td>4.6%</td>
<td>9.32</td>
<td>9.37</td>
<td>9.01</td>
</tr>
</tbody>
</table>
ISM Nonmanufacturing Index Down, Components Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 4, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004h.jpg" width="353">
The September Business Activity Index for the non-manufacturing sector from the Institute for Supply Management (ISM) fell unexpectedly to its lowest level in over three years. The decline to 52.9 compared to Consensus expectations for a lesser drop to 56.0.
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 rose to 57.2, recovering a sharp drop in August, and the employment index also recovered most of its August decline. 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/061004i.jpg" width="353">
Pricing power dropped to its lowest level in three years. 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">September</th>
<th scope="col">August</th>
<th scope="col">Sept. &#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>52.9</td>
<td>57.0</td>
<td>53.7</td>
<td>60.1</td>
<td>62.5</td>
<td>58.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>56.7</td>
<td>72.4</td>
<td>78.4</td>
<td>67.9</td>
<td>68.8</td>
<td>56.6</td>
</tr>
</tbody>
</table>
U.S. Factory Inventory Gain Slowed 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 4, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004g.jpg" width="353">
Factory inventories rose 0.4% last month, half the upwardly revised gain during July. Nevertheless, the y/y rate of accumulation was at its highest since early 2005.
Primary metals inventories again were firm and rose 1.4% (11.7% y/y) after an upwardly revised 2.1% increase during July. Growth in inventories of computers &amp; electronic products slowed to 0.4% (8.5% y/y) from a 0.9% July gain but inventories of electrical equipment jumped another 1.5% (12.9% y/y). Machinery inventories rose 0.3% (4.5% y/y).
Total factory orders fell slightly after a deepened 1.0% July decline. Durable goods orders fell just slightly and that was a bit better than the 0.5% decline that was in the advance report of a 0.5% drop. Factory orders less transportation fell 0.7% (+5.5% y/y) after a 0.6% July gain.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004f.jpg" width="353">
Factory shipments surged 1.1%on the strength of a 6.0% jump in transportation. Less transportation shipments rose 0.4% (6.9% y/y) despite lower petroleum shipments. Factory shipments less transportation &amp; petroleum rose a strong 0.9% (6.7% y/y).
Unfilled orders rose 0.4% last month and less the transportation sector backlogs rose 0.3% (13.8% y/y).<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </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/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</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 class="odd">
<td class="firstcol">Inventories</td>
<td>0.4%</td>
<td>0.8%</td>
<td>6.5%</td>
<td>4.0%</td>
<td>6.9%</td>
<td>-7.4%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>-0.0%</td>
<td>-1.0%</td>
<td>4.6%</td>
<td>8.5%</td>
<td>7.5%</td>
<td>0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>1.1%</td>
<td>-0.1%</td>
<td>6.1%</td>
<td>7.1%</td>
<td>6.8%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>0.4%</td>
<td>1.2%</td>
<td>18.5%</td>
<td>16.3%</td>
<td>4.5%</td>
<td>-1.0%</td>
</tr>
</tbody>
</table>
Mortgage Applications Surged 
by <a href="/comment/Moeller.html">Tom Moeller</a> October 4, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004e.jpg" width="353">
According to the Mortgage Bankers Association. the total number of mortgage applications surged 11.9% last week. It was the strongest w/w increase since June 2005. The gain lifted applications for the month 5.6% above the August average.
Applications to refinance surged 17.5% after the prior week&#39;s 4.1% decline. The average level of refis in September rose 8.7% from August which surged 13.3% m/m from July.
Purchase applications recovered 7.6% after the prior week&#39;s 5.5% decline. The increase raised the month&#39;s average 3.2% from August, only the first rise in the last five months. The latest level was 23.1% below the peak during May of 2005.
During the last ten years there has been a 58% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004d.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose six basis points to 6.39% to 6.45% and averaged 6.50% last month versus 6.64% in August. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing ticked just slightly w/w to 6.11% and averaged 6.20% last month. The peak rate was 6.75%. Interest rates on 15 and 30 year mortgages are closely correlated (&gt;90%) with the rate on 10 year Treasury securities.
During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage.
The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey accounts for more than 40% of all applications processed each week by mortgage lenders. Visit the Mortgage Bankers Association site <a href="http://www.mbaa.org">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/@S5/@S5.HTM">MBA Mortgage Applications (3/16/90=100)</a></th>
<th scope="col">09/29/06</th>
<th scope="col">09/22/06</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 class="odd">
<td class="firstcol">Total Market Index</td>
<td>633.9</td>
<td>566.5</td>
<td>-11.2%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>404.6</td>
<td>375.9</td>
<td>-14.6%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,970.8</td>
<td>1,677.5</td>
<td>-6.5%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
UK House Prices Still Strong in September 
by <a href="/comment/Stone.html">Carol Stone</a> October 4, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004j.jpg" width="353">
Unlike in the US, the property market in the UK is still strong. Home prices published today by the Halifax Royal Bank of Scotland (HBOS) showed a 1.0% monthly increase in September, seasonally adjusted. August was revised upward to 1.3% from 1.0% reported initially. September&#39;s price stood 8.2% above a year ago; the growth rate in the three-month moving average most frequently cited by the bank was 8.0%. This is less than in the prior four months, but firmer than what prevailed across 2005.
For comparison, we can look at the price in US dollars; it was $342,000. A slight firming in the dollar diminished September&#39;s sterling price gain in to 0.4% in the US currency, but that followed a 4.0% surge in August when the dollar had fallen 2.6% again the pound.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061004k.jpg" width="353">
The firmness in UK house prices is presently accompanying firm demand for houses in the UK, suggested by the positive readings in the RICS housing market survey. Data on actual counts of home sales transactions lag a couple of months. But this survey by Chartered Surveyors gives the balance of respondents showing more &quot;newly agreed sales&quot; over fewer sales at +21% in August, the second highest since early 2004.
Analysts were impressed with the strength in home prices, even as interest rates are also moving up. In early August, the Bank of England raised its base rate 25 basis points to 4.75%. This appears not yet fully reflected in available data on mortgage rates, which show the &quot;standard variable rate&quot; inching up just 2 basis points in August to 6.50% from 6.48% in July. The &quot;base-rate tracker&quot; mortgage rate rose in August to 5.30% from 5.16% in July. The higher house prices suggest that rising mortgage rates didn&#39;t discourage buyers in September -- or perhaps they stimulated buyers in the reverse way: &quot;let&#39;s get our house and our mortgage now before rates go up more&quot;, they may have thought, which circumstance would point to a slowdown in coming months.

<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/UK/@U4/@U4.HTM">UK House Prices</a></th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 2006</th>
<th scope="col">July 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">Average House Price (SA*, &pound;000)</td>
<td>181.2</td>
<td>179.5</td>
<td>177.2</td>
<td>167.5</td>
<td>165.3</td>
<td>157.0</td>
<td>132.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Chg</td>
<td>1.0</td>
<td>1.3</td>
<td>0.3</td>
<td>8.2</td>
<td>5.3</td>
<td>18.8</td>
<td>19.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; US $ (000)</td>
<td>341.5</td>
<td>340.0</td>
<td>326.9</td>
<td>302.9</td>
<td>300.7</td>
<td>287.6</td>
<td>216.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; % Chg</td>
<td>0.4</td>
<td>4.0</td>
<td>0.4</td>
<td>12.8</td>
<td>4.6</td>
<td>32.9</td>
<td>29.2</td>
</tr>
<tr class="odd">
<td class="firstcol">RICS Newly Agreed Sales**</td>
<td>--</td>
<td>+21%</td>
<td>+12%</td>
<td>+12%</td>
<td>+2%</td>
<td>-9%</td>
<td>-2%</td>
</tr>
<tr>
<td class="firstcol">Mortgage Rate***</td>
<td>--</td>
<td>6.50%</td>
<td>6.48%</td>
<td>6.71%</td>
<td>6.63%</td>
<td>6.25%</td>
<td>5.61%</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/061003d.jpg" width="353">
Comparisons of retail sales among countries are beset by different definitions and by different units. Some countries report sales only in index form, others only in their national currencies. Some countries include sales of motor vehicle and parts; others do not. Some counties report sales both including and excluding motor vehicles and parts.
Today three countries--France, Australia and Hong Kong--reported retail sales. Yesterday Germany reported. The easiest comparison to make is between Germany and France. The volume of retail sales is reported in the EUROSTAT data base where concepts are harmonized. One can be reasonably certain that the difference in trends of retail sales in the two countries, shown in Chart 1, is a substantive one and not due to statistical quirks.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061003f.jpg" width="353">
If one wishes to compare retail sales in Germany with those in Hong Kong one should note that the German concept excludes motor vehicles and parts while the Hong Kong concept includes them. Fortunately, however in the GERMANY data base, there is a memorandum item--Retail Sales including motor vehicle and parts. This series has a base of 2003 and the retail sales series in Hong Kong from the EMERGEPR data base has a base of October, 2004-September, 2005. One could change the Hong Kong index to base 2003=100 or, as we did change both to 2000=100 to be comparable with the other charts. The two series with base 2000=100 are shown in Chart 2.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061003e.jpg" width="353">
Another problem comes up when one series is in local currency and another in index form. Such is the case if one want to compare retail sales in France and Australia. The Australian data are given in millions of Australian Dollars, while the French data are given in terms of value and volume indexes. Both concepts, fortunately, exclude motor vehicles and parts. One simple approach is to take the Australian data from the ANZ data base, and, by using the advanced function, put the data in index form with 2000=100, the same base as the French value index that is found in the FRANCE data base.This comparison is shown in Chart 3.
The second and third charts, like the first show comparisons that reflect substantive differences and not statistical quirks. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Retail Sales</th>
<th scope="col">Aug&nbsp; 06</th>
<th scope="col">Jul 06</th>
<th scope="col">Aug 05</th>
<th scope="col">M/M %&nbsp;&nbsp;</th>
<th scope="col">Y/Y %&nbsp;&nbsp;&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></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Vol Retail Sales, ex motor vehicles &amp; pts (2000=100)</td>
<td>104.3</td>
<td>104.3</td>
<td>104.1</td>
<td>0.00</td>
<td>0.19</td>
<td>103.2</td>
<td>101.6</td>
<td>100.2</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Val Retail Sales, ex motor vehicles &amp; pts&nbsp; (2000=100)</td>
<td>105.6</td>
<td>105.5</td>
<td>104.5</td>
<td>0.09</td>
<td>1.05</td>
<td>103.7</td>
<td>101.6</td>
<td>100.2</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Val Retail Sales, incl&nbsp; motor vehicles &amp; pts (2000=100)</td>
<td>107.1</td>
<td>106.3</td>
<td>104.4</td>
<td>0.75</td>
<td>2.59</td>
<td>103.9</td>
<td>101.8</td>
<td>100.2</td>
</tr>
<tr class="odd">
<td class="firstcol"> FRANCE</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol"> &nbsp; Val Retail Sales, ex motor vehicles &amp; pts (2000=100)</td>
<td>116.3</td>
<td>116.1</td>
<td>114.1</td>
<td>0.68</td>
<td>2.25</td>
<td>114.7</td>
<td>113.2</td>
<td>109.7</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;Vol Retail Sales, ex motor vehicles &amp; pts&nbsp; (2000=100)&nbsp;</td>
<td>n.a.</td>
<td>123.5</td>
<td>120.6</td>
<td>n.a</td>
<td>n.a</td>
<td>121.3</td>
<td>119.3</td>
<td>115.0</td>
</tr>
<tr>
<td class="firstcol">AUSTRALIA</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;Retail Sales (Mil A$)</td>
<td>18.176</td>
<td>18031</td>
<td>17212.3</td>
<td>0.25</td>
<td>5.60</td>
<td>217396</td>
<td>198214</td>
<td>175956</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Retail Sales 2000=100)</td>
<td>146.4</td>
<td>146.0</td>
<td>138.6</td>
<td>0.25</td>
<td>5.60</td>
<td>137.2</td>
<td>133.1</td>
<td>124.5 vA</td>
</tr>
<tr class="odd">
<td class="firstcol">HONG KONG</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp;Val Retail Sales (2000=100)</td>
<td>118.8</td>
<td>117.4</td>
<td>109.4</td>
<td>1.20</td>
<td>8.61</td>
<td>109.6</td>
<td>102.7</td>
<td>92.6</td>
</tr>
</tbody>
</table>
</body>
</html>

Comparisons of retail sales among countries are beset by different definitions and by different units. Some countries report sales only in index form, others only in their national currencies. Some countries include sales of motor [...]

Avoiding Pitfalls in Comparing Retail Sales Among Countries

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.


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**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

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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

Jump to:

UK House Prices Still Strong in September

Mortgage Applications Surged

U.S. Factory Inventory Gain Slowed

ISM Nonmanufacturing Index Down, Components Up

Lower Gasoline Prices Fueled U.S. Vehicle (Truck) Sales

ADP Reports Less Hiring During September

ADP Reports Less Hiring During September

Avoiding Pitfalls in Comparing Retail Sales Among Countries