Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921a.jpg" width="353">
Initial claims for unemployment insurance rose 7,000 last week to 318,000 reversing two weeks of moderate decline. Consensus expectations had been for 310,000 claims. Last year, claims surged in the aftermath of Hurricane Katrina.
The latest figure covers the survey period for September nonfarm payrolls and filings rose 4,000 (1.3%) from the August period.
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 was unchanged at 315,000 (-15.0% y/y).
Continuing claims for unemployment insurance fell 29,000 after a 9,000 increase the prior week that was half the rise initially reported.
The insured rate of unemployment was steady at 1.9% where it has been since February.
Would an Inflation Target Help Anchor U.S. Inflation Expectations? from the Federal Reserve Bank of San Francisco can be found <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-20.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
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<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">9/16/06</th>
<th scope="col">9/09/06</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>318</td>
<td>311</td>
<td>-24.5%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,461</td>
<td>-6.9%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
Leading Economic Indicators Fell 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921b.jpg" width="353">
The composite index of leading economic indicators fell 0.2% in August for the second month. It was the fifth m/m decline in the index reported by the Conference Board this year and matched Consensus expectations.
During the last ten years there has been a 59% correlation between the y/y change in the leading indicators and the lagged change in real GDP.
The breadth of one month gain amongst the 10 components of the leading index fell to 30%, the lowest level since May but the percentage of components that rose over a six month span improved marginally to 50%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921c.jpg" width="353">
The method of calculating the contribution to the leading index from the spread between 10 year Treasury securities and the Fed funds rate has been revised. A negative contribution will now occur only when the spread inverts rather than when declining as in the past. More details can be found <a href="http://www.conference-board.org/pdf_free/economics/bci/lei0705.pdf">here</a>.
The leading index is based on eight previously reported economic data series. Two series, orders for consumer goods and orders for capital goods, are estimated.
The coincident indicators increased 0.1% after an unrevised 0.2% July gain. During the last six months all of the coincident series rose but in August the one month percentage increasing slipped to 75%. Over the last ten years there has been a 91% correlation between the y/y change in the coincident indicators and real GDP growth.
The lagging indicators rose 0.3% as C&amp;I loans rose. Nevertheless, the ratio of coincident to lagging indicators which is a measure of actual economic performance versus excess fell.
Visit the Conference Board&#39;s <a href="http://www.conference-board.org">site</a> for coverage of leading indicator series from around the world.
Do Households Benefit from Financial Deregulation and Innovation? The Case of the Mortgage Market from the Federal Reserve Bank of Boston is available <a href="http://www.bos.frb.org/economic/ppdp/2006/ppdp066.pdf"> 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/BCI/BCI.HTM">Business Cycle Indicators</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 class="odd">
<td class="firstcol">Leading</td>
<td>-0.2%</td>
<td>-0.2%</td>
<td>0.4%</td>
<td>2.3%</td>
<td>7.4%</td>
<td>5.0%</td>
</tr>
<tr>
<td class="firstcol">Coincident</td>
<td>0.1%</td>
<td>0.2%</td>
<td>3.2%</td>
<td>2.2%</td>
<td>2.5%</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Lagging</td>
<td>0.3%</td>
<td>-0.2%</td>
<td>2.6%</td>
<td>3.5%</td>
<td>0.0%</td>
<td>-0.0%</td>
</tr>
</tbody>
</table>
Mass Layoffs Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921d.jpg" width="353">
In August, the number of mass layoff events rose for the third consecutive month. The 6.0% m/m increase pulled the y/y comparison positive for the first time since December.
During the last ten years there has been a (negative) 85% correlation between the three month average level of layoff announcements and the y/y change in payroll employment.
The number of persons affected last month by mass layoffs surged 11.4% m/m but were up just 0.3% y/y. The number of persons affected by mass layoffs during the first eight months of this year fell 12.6% from the first eight months of 2005.
Increased layoffs in manufacturing (21.2% y/y) and information (-35.0% y/y) dominated the increase in claimants for unemployment insurance last month. Declines elsewhere were widespread.
The Mass Layoff Statistics (MLS) program collects reports on mass layoff actions that result in workers being separated from their jobs. Monthly mass layoff numbers are from establishments which have at least 50 initial claims for unemployment insurance (UI) filed against them during a 5-week period.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Mass Layoffs</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">All US Industries (# Events, SA)</td>
<td>1,193</td>
<td>1,125</td>
<td>4.2%</td>
<td>15,699</td>
<td>15,926</td>
<td>19,220</td>
</tr>
<tr>
<td class="firstcol">Total (# Persons, SA)</td>
<td>127,944</td>
<td>114,895</td>
<td>0.3%</td>
<td>1,722,452</td>
<td>1,591,081</td>
<td>1,946,548</td>
</tr>
</tbody>
</table>
Chicago Fed Nat'l Activity Index Negative Again 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921e.jpg" width="353">
The August National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago at -0.18 was negative for the third month in the last four and that was enough to pull the three-month moving average of the CFNAI fell to 0.05, its lowest level in over a year.
A zero value of the CFNAI indicates that the economy is expanding at its historical trend rate of growth and during the last twenty years there has been a 68% correlation between the level of the CFNAI and q/q growth in real GDP.
The CFNAI is a weighted average of 85 indicators of economic activity. The indicators reflect activity in the following categories: production and income, the labor market, personal consumption and housing, manufacturing and trade sales, and inventories &amp; orders.
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_September2006.pdf">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/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></th>
<th scope="col">August</th>
<th scope="col">July</th>
<th scope="col">August &#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">CFNAI</td>
<td>-0.18</td>
<td>-0.07</td>
<td>0.13</td>
<td>0.20</td>
<td>0.35</td>
<td>-0.15</td>
</tr>
</tbody>
</table>
Philadelphia Fed Index Negative 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921f.jpg" width="353">
The Philadelphia Federal Reserve Bank&#39;s September Index of General Business Conditions in the manufacturing sector was negative for the first month since April 2003. The figure fell to -0.4 from an unrevised, very firm 18.5 in August. Consensus expectations had been for a slight decline to 14.8.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three month growth in factory sector industrial production. There has been a 49% correlation with q/q growth in real GDP.
With the exceptions of inventories and employment, each of the sub indexes turned negative in September. The employment index, in fact, rose back into the middle of its range of the last year. During the last ten years there has been a 75% correlation between the employment index and the three month growth in factory payrolls.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921g.jpg" width="353">
The business conditions index reflects a separate survey question, not the sub indexes.
The prices paid index dropped further m/m to the lowest level since April. During the last ten years there has been a 76% correlation between the prices paid index and the three month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months also was negative for the first month since January 2001, though expectations for orders, shipments and employment remained positive.
The latest Business Outlook survey from the Philadelphia Federal Reserve Bank can be found <a href="http://www.phil.frb.org/files/bos/bos0906.html">here</a>.

<table border="0" cellspacing="0" width="100%">
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<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</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">General Activity Index</td>
<td>-0.4</td>
<td>18.5</td>
<td>7.0</td>
<td>12.4</td>
<td>28.0</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>38.1</td>
<td>45.3</td>
<td>50.6</td>
<td>43.5</td>
<td>51.2</td>
<td>16.8</td>
</tr>
</tbody>
</table>
Israel's Economy Sees Slower Growth in the Face of War in Lebanon; Lebanon's Economy Falls Dramatically 
by <a href="/comment/Stone.html">Carol Stone</a> September 21, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921h.jpg" width="353">
The Israel&#39;s Central Statistics Bureau today reported its &quot;State of the Economy Index&quot; for August, along with its available components. When we last checked in on the Israeli economy, about six weeks ago, the war in Lebanon was still in full swing and in describing Q2 GDP, we wondered out loud what the war would do to the economy in Q3. Today&#39;s report gives a bit of an indication. The overall index is estimated to have risen 0.3% in each July and August, marginally less than June&#39;s 0.4%, but noticeably less than the 0.6%/month in each of the prior four months. So some slowdown is clearly in process.
The index has five components covering industry, domestic and foreign trade and employment in the business sector (about 70% of total employment). Only exports and imports are published yet for August, and both of these are more than keeping up with their average of the past year. Imports grew 5.2% in August compared with a 12-month average gain of 1.4% and exports were up 3.5% versus an average of 1.1%. Industrial production through July was continuing with some strength as well, with monthly increases well over 1% then and in June, compared with 0.9% monthly for the last 12 months.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921i.jpg" width="353">
The slowing is more evident in demand and employment indicators. The employment data lag, with the latest values only covering June and a detailed industrial breakdown only through Q2. But business sector employment by this monthly indicator peaked in March and fell slightly in each of the following months. Since this information is all prior to the Lebanon war, there is no impact evident here. Further, employment had expanded with some vigor since early in 2004. So perhaps there is nothing more in the recent pattern than a pause after a strong uptrend.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060921j.jpg" width="353">
Domestic sales, however, seem to be a different story. Revenues from trade and services dropped 2.5% in June and another 2.6% in July, erasing almost all of a nice rise over the nine months beginning last September. People could well hold back purchases or at least take a cautionary stance as political tensions mount. Fortuitously for their welfare, a truce was called quickly, and this likely helps the general economy as well.
In dramatic contrast, the impact of the war showed quickly and distinctly in Lebanon. Data offerings are fairly sparse, but a quick look at imports and exports, which were reported Monday by the Bank of Lebanon, shows a clear picture of significant economic damage. The third graph here tells the whole story.

<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/EMERGEMA/@M7/@M7.HTM">Israel: SA, % Chg</a></th>
<th scope="col">Weight (%)</th>
<th scope="col">Aug 2006</th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">Yr Ago (Mo. Avg)</th>
Yearly % Change
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">2005</td>
<td>2004</td>
<td>2003</td>
</tr>
<tr>
<td class="firstcol">Total Index</td>
<td>100</td>
<td>0.3</td>
<td>0.3</td>
<td>0.4</td>
<td>0.5</td>
<td>7.1</td>
<td>6.9</td>
<td>-0.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Industrial Production</td>
<td>28</td>
<td>--</td>
<td>1.3</td>
<td>1.6</td>
<td>0.9</td>
<td>4.6</td>
<td>7.2</td>
<td>-0.3</td>
</tr>
<tr>
<td class="firstcol">Imports</td>
<td>15</td>
<td>5.2</td>
<td>2.4</td>
<td>-2.3</td>
<td>1.4</td>
<td>2.3</td>
<td>14.6</td>
<td>-4.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Trade &amp; Services Revenues</td>
<td>28</td>
<td>--</td>
<td>-2.6</td>
<td>-2.5</td>
<td>0.1</td>
<td>8.1</td>
<td>8.0</td>
<td>-0.6</td>
</tr>
<tr>
<td class="firstcol">Employees in Business Sector</td>
<td>19</td>
<td>--</td>
<td>--</td>
<td>-0.3</td>
<td>0.2</td>
<td>4.7</td>
<td>2.4</td>
<td>-0.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Exports</td>
<td>10</td>
<td>3.5</td>
<td>-10.2</td>
<td>9.4</td>
<td>1.1</td>
<td>7.1</td>
<td>17.4</td>
<td>4.4</td>
</tr>
</tbody>
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Initial claims for unemployment insurance rose 7,000 last week to 318,000 reversing two weeks of moderate decline. Consensus expectations had been for 310,000 claims. Last year, claims surged in the aftermath of Hurricane Katrina. The [...]

Initial Jobless Insurance Claims Rose More Than Expected

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/060920g.jpg" width="353">
Spain&#39;s National Institute of Statistics (INE) reported on labor costs today for Q2 2006. These costs, measured as monthly compensation per worker, picked up to a 3.5% growth rate year-on-year from 3.4% in Q1 and at or near 3.0% for the previous two calendar years. The data are in a simple format: in Haver&#39;s SPAIN database, they are available in euros and an index of 2000=100, for three sectors of the economy, industry, construction and services, and for the total and two components, earnings and &quot;other&quot;. So there are 12 numbers in each quarterly report for each the euro amount and the index level. Could such a small array be interesting? Indeed.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920h.jpg" width="353">
In Q2, while labor costs accelerated in total, they slowed in basic industry and construction and not by small increments. The industry sector increased 3.5% following 4.5% in Q1. Construction gained 3.9% in the latest quarter, after 4.3% in Q1. But the rapidly expanding service sector had 3.8% growth in Q2, well more than the 3.2% in Q1. So labor compensation in services gained visibly even as it slowed in more traditional sectors. However, this may have been a transitory shift, as the average annual gains over the prior five years had the reverse pattern: industry and construction both had vigorous increases, 4.1% annually for industry and 4.7% for construction, with services at 3.6%. So it&#39;s hard to tell if the old-line economy is moving to a slower trend or just pausing after sizable gains in earlier periods. In fact, if anything, these data show how consistent the service sector has been, hovering all the while in a range around 3-1/2% average yearly gains.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920i.jpg" width="353">
Another significant point in this little array of data concerns the split between wages and &quot;other&quot; labor costs. Over the period 2000-2005, earnings grew at an average annual rate of 3.3%. But other labor compensation advanced at a 5.0% pace. These costs cover the same general items referred to in the US as &quot;supplements to wages and salaries&quot; or &quot;benefits&quot;: disability and unemployment, and also in Spain compensation for tools, uniforms and transportation, and similar job-related expenses. In both countries, these also cover employers&#39; payments into the social security system. And in Spain as in the US, to continue the parallel, these &quot;other&quot; costs are growing as a portion of total compensation: in 2000, &quot;other&quot; labor costs were 24.6% of compensation in Spain and by the first half of this year, they absorbed 26.7%. For the US, comparable shares were 16.5% in 2000 and 19.3% this year.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Spain: Monthly Labor Cost/ Worker (&#128;, NSA)</th>
<th scope="col">Q2 2006</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q2 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>2197</td>
<td>2114</td>
<td>2122</td>
<td>2110</td>
<td>2058</td>
<td>1992</td>
<td>1758</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>3.5</td>
<td>3.4</td>
<td>3.4</td>
<td>2.9</td>
<td>3.0</td>
<td>4.2</td>
<td>3.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Earnings</td>
<td>1624</td>
<td>1538</td>
<td>1575</td>
<td>1560</td>
<td>1521</td>
<td>1480</td>
<td>1326</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>3.1</td>
<td>3.0</td>
<td>3.4</td>
<td>2.6</td>
<td>2.8</td>
<td>3.8</td>
<td>3.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Other&quot;</td>
<td>574</td>
<td>575</td>
<td>547</td>
<td>550</td>
<td>531</td>
<td>512</td>
<td>432</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>4.9</td>
<td>4.4</td>
<td>3.5</td>
<td>3.6</td>
<td>3.6</td>
<td>5.4</td>
<td>5.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Other&quot; as % of Total</td>
<td>26.1</td>
<td>27.2</td>
<td>25.8</td>
<td>26.1</td>
<td>25.9</td>
<td>25.7</td>
<td>24.6</td>
</tr>
<tr>
<td class="firstcol">Memo: Similar US Share</td>
<td>19.3</td>
<td>19.3</td>
<td>19.4</td>
<td>19.4</td>
<td>19.1</td>
<td>19.0</td>
<td>16.5</td>
</tr>
</tbody>
</table>
</body>
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Spain's National Institute of Statistics (INE) reported on labor costs today for Q2 2006. These costs, measured as monthly compensation per worker, picked up to a 3.5% growth rate year-on-year from 3.4% in Q1 and at or near 3.0% for [...]

Spain's Labor Costs Pick Up in Q2; Benefits Outstrip Wage Gains

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920f.jpg" width="353">
The target interest rate for Federal funds was again held steady at 5.25% at today&#39;s meeting of the Federal Open Market Committee. Voting against the decision for the second time was Richmond Federal Reserve Bank President Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target.
The discount rate also was held steady at 6.25%.
Today&#39;s decision was widely expected by analysts.
The Fed&#39;s rationale for leaving rates unchanged indicated that &quot;The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market.&quot;
Need for further rate increases was stressed by the Fed. &quot;The extent and timing of any additional firming that may be needed to address these (inflation) risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920e.jpg" width="353">
For the complete text of the Fed&#39;s latest press release please follow this <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2006/20060920/default.htm">link</a>.
The accompanying chart plots the U.S. economy&#39;s actual rate of growth during the last two quarters versus its so called &quot;potential&quot;, i.e., growth in the labor force plus the growth in labor productivity. The economy&#39;s potential for 4% growth was exceeded slightly in the first half due to the 5.6% surge in 1Q&#39;06 growth.
Knut Wicksell: The Birth of Modern Monetary Policy from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/ei/ei0401.pdf">here</a>.
Modern Macroeconomics in Practice: How Theory is Shaping Policy from the Federal Reserve Bank of Minneapolis is available <a href="http://www.minneapolisfed.org/research/SR/SR376.pdf">here</a>.

</body>
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The target interest rate for Federal funds was again held steady at 5.25% at today's meeting of the Federal Open Market Committee. Voting against the decision for the second time was Richmond Federal Reserve Bank President Jeffrey M. [...]

Federal Funds Rate Again Held at 5.25%

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920c.jpg" width="353">
After two weeks of respectable gain, the number of mortgage applications for purchase fell last week by 3.0%, according to the Mortgage Bankers Association. For the month so far, applications in September are 4.2% above the August average which fell 3.5% from July.
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.
Overall mortgage applications nevertheless rose 2.0% last week and the gain lifted the average level this month 4.3% above August.
Applications to refinance surged 9.5% after three weeks of slight decline. The average level of refis in September is up 4.2% from August which surged 13.3% m/m from July.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920d.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose to 6.59 from 6.53% the week earlier and has averaged 6.55% this month versus 6.64% in August. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also rose w/w to 6.30% and 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">09/15/06</th>
<th scope="col">09/08/06</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>595.8</td>
<td>584.2</td>
<td>-22.8%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>397.9</td>
<td>410.2</td>
<td>-20.5%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,748.7</td>
<td>1,597.0</td>
<td>-25.7%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
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After two weeks of respectable gain, the number of mortgage applications for purchase fell last week by 3.0%, according to the Mortgage Bankers Association. For the month so far, applications in September are 4.2% above the August [...]

Mortgage Purchase Application Recovery Stalled

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920b.jpg" width="353">
The net worth of the US household sector inched up just 0.1% last quarter versus 1Q&#39;06 to $53.3 trillion. The gain totaled, however, 7.9% versus the second quarter of last year.
On the asset side of the ledger, total assets of households and nonprofit organizations rose 8.4% y/y. Households&#39; ownership of real estate rose 10.5% in value to over $20 trillion. Mutual fund share holdings rose 18.0% though the value of corporate equities held directly by households fell 1.5%. The value of money market shares rose 14.6% after a 6.0% gain last year and Treasury security holdings rose 20.6% y/y in value after a 2.2% decline during 2005.
Credit market debt outstanding held by all sectors of the economy grew 8.9%, about steady with last year&#39;s pace. The federal government&#39;s debt grew 5.9% y/y but U.S. households increased their borrowing at nearly twice that rate, 11.0%. Home mortgage liabilities grew 12.6% y/y after 14% gains during the prior three years. Consumer credit increased 3.9% y/y, the same as last year&#39;s growth rate, but households&#39; obligations in the form of bank loans more than doubled versus 2Q of last year and also doubled during all of 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920a.jpg" width="353">
Borrowing by nonfinancial corporations continued strong, up 11.9%, following double digit growth during 2004 &amp; 2005. During the last forty years there has been a 40% correlation between the y/y growth in corporate borrowing and the growth in nonresidential fixed investment.
Foreign sector holdings of US assets continued to surge, by 13.3% y/y. That was stable with last year&#39;s growth rate but it raised foreigners&#39; ownership of U.S. credit outstanding to 14.1% versus 10.0% ten years ago.
Intangible Capital and Economic Growth from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/pubs/feds/2006/200624/200624pap.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/FFUNDS/@F2/@F201/@F201.HTM">Flow of Funds</a> (Y/Y Chg.)</th>
<th scope="col">% of Total</th>
<th scope="col">2Q&#39;06</th>
<th scope="col">1Q&#39;06</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 Credit Market Debt Outstanding</td>
<td></td>
<td>8.9%</td>
<td>9.2%</td>
<td>8.9%</td>
<td>8.9%</td>
<td>9.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Federal Government</td>
<td>12%</td>
<td>5.9%</td>
<td>6.5%</td>
<td>7.0%</td>
<td>9.0%</td>
<td>10.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Households</td>
<td>27%</td>
<td>11.0%</td>
<td>11.8%</td>
<td>11.7%</td>
<td>11.7%</td>
<td>11.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfinancial Corporate Business</td>
<td>14%</td>
<td>6.8%</td>
<td>6.1%</td>
<td>5.5%</td>
<td>3.6%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>32%</td>
<td>9.1%</td>
<td>8.9%</td>
<td>8.2%</td>
<td>8.1%</td>
<td>9.9%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Net Worth: Households &amp; Nonprofit Organizations (Trillions)</td>
<td></td>
<td>$53.3</td>
<td>$53.3</td>
<td>$51.8</td>
<td>$48.0</td>
<td>$44.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Tangible Assets: Households</td>
<td></td>
<td>$26.3</td>
<td>$25.8</td>
<td>$25.2</td>
<td>$22.5</td>
<td>$20.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Financial Assets: Households</td>
<td></td>
<td>$39.8</td>
<td>$39.9</td>
<td>$38.8</td>
<td>$36.4</td>
<td>$33.5</td>
</tr>
</tbody>
</table>
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The net worth of the US household sector inched up just 0.1% last quarter versus 1Q'06 to $53.3 trillion. The gain totaled, however, 7.9% versus the second quarter of last year. On the asset side of the ledger, total assets of [...]

US Flow of Funds: Households' Net Worth Stable

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920b.jpg" width="353">
The net worth of the US household sector inched up just 0.1% last quarter versus 1Q&#39;06 to $53.3 trillion. The gain totaled, however, 7.9% versus the second quarter of last year.
On the asset side of the ledger, total assets of households and nonprofit organizations rose 8.4% y/y. Households&#39; ownership of real estate rose 10.5% in value to over $20 trillion. Mutual fund share holdings rose 18.0% though the value of corporate equities held directly by households fell 1.5%. The value of money market shares rose 14.6% after a 6.0% gain last year and Treasury security holdings rose 20.6% y/y in value after a 2.2% decline during 2005.
Credit market debt outstanding held by all sectors of the economy grew 8.9%, about steady with last year&#39;s pace. The federal government&#39;s debt grew 5.9% y/y but U.S. households increased their borrowing at nearly twice that rate, 11.0%. Home mortgage liabilities grew 12.6% y/y after 14% gains during the prior three years. Consumer credit increased 3.9% y/y, the same as last year&#39;s growth rate, but households&#39; obligations in the form of bank loans more than doubled versus 2Q of last year and also doubled during all of 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920a.jpg" width="353">
Borrowing by nonfinancial corporations continued strong, up 11.9%, following double digit growth during 2004 &amp; 2005. During the last forty years there has been a 40% correlation between the y/y growth in corporate borrowing and the growth in nonresidential fixed investment.
Foreign sector holdings of US assets continued to surge, by 13.3% y/y. That was stable with last year&#39;s growth rate but it raised foreigners&#39; ownership of U.S. credit outstanding to 14.1% versus 10.0% ten years ago.
Intangible Capital and Economic Growth from the Federal Reserve Board is available <a href="http://www.federalreserve.gov/pubs/feds/2006/200624/200624pap.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/FFUNDS/@F2/@F201/@F201.HTM">Flow of Funds</a> (Y/Y Chg.)</th>
<th scope="col">% of Total</th>
<th scope="col">2Q&#39;06</th>
<th scope="col">1Q&#39;06</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 Credit Market Debt Outstanding</td>
<td></td>
<td>8.9%</td>
<td>9.2%</td>
<td>8.9%</td>
<td>8.9%</td>
<td>9.1%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Federal Government</td>
<td>12%</td>
<td>5.9%</td>
<td>6.5%</td>
<td>7.0%</td>
<td>9.0%</td>
<td>10.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp;&nbsp; Households</td>
<td>27%</td>
<td>11.0%</td>
<td>11.8%</td>
<td>11.7%</td>
<td>11.7%</td>
<td>11.8%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Nonfinancial Corporate Business</td>
<td>14%</td>
<td>6.8%</td>
<td>6.1%</td>
<td>5.5%</td>
<td>3.6%</td>
<td>2.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Financial Sectors</td>
<td>32%</td>
<td>9.1%</td>
<td>8.9%</td>
<td>8.2%</td>
<td>8.1%</td>
<td>9.9%</td>
</tr>
<tr>
<td class="firstcol"></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">Net Worth: Households &amp; Nonprofit Organizations (Trillions)</td>
<td></td>
<td>$53.3</td>
<td>$53.3</td>
<td>$51.8</td>
<td>$48.0</td>
<td>$44.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Tangible Assets: Households</td>
<td></td>
<td>$26.3</td>
<td>$25.8</td>
<td>$25.2</td>
<td>$22.5</td>
<td>$20.4</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;&nbsp; Financial Assets: Households</td>
<td></td>
<td>$39.8</td>
<td>$39.9</td>
<td>$38.8</td>
<td>$36.4</td>
<td>$33.5</td>
</tr>
</tbody>
</table>
Mortgage Purchase Application Recovery Stalled 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 20, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920c.jpg" width="353">
After two weeks of respectable gain, the number of mortgage applications for purchase fell last week by 3.0%, according to the Mortgage Bankers Association. For the month so far, applications in September are 4.2% above the August average which fell 3.5% from July.
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.
Overall mortgage applications nevertheless rose 2.0% last week and the gain lifted the average level this month 4.3% above August.
Applications to refinance surged 9.5% after three weeks of slight decline. The average level of refis in September is up 4.2% from August which surged 13.3% m/m from July.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920d.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage rose to 6.59 from 6.53% the week earlier and has averaged 6.55% this month versus 6.64% in August. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also rose w/w to 6.30% and 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">09/15/06</th>
<th scope="col">09/08/06</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>595.8</td>
<td>584.2</td>
<td>-22.8%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>397.9</td>
<td>410.2</td>
<td>-20.5%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,748.7</td>
<td>1,597.0</td>
<td>-25.7%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
Federal Funds Rate Again Held at 5.25% 
by <a href="/comment/Moeller.html">Tom Moeller</a> September 20, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920f.jpg" width="353">
The target interest rate for Federal funds was again held steady at 5.25% at today&#39;s meeting of the Federal Open Market Committee. Voting against the decision for the second time was Richmond Federal Reserve Bank President Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target.
The discount rate also was held steady at 6.25%.
Today&#39;s decision was widely expected by analysts.
The Fed&#39;s rationale for leaving rates unchanged indicated that &quot;The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market.&quot;
Need for further rate increases was stressed by the Fed. &quot;The extent and timing of any additional firming that may be needed to address these (inflation) risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920e.jpg" width="353">
For the complete text of the Fed&#39;s latest press release please follow this <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2006/20060920/default.htm">link</a>.
The accompanying chart plots the U.S. economy&#39;s actual rate of growth during the last two quarters versus its so called &quot;potential&quot;, i.e., growth in the labor force plus the growth in labor productivity. The economy&#39;s potential for 4% growth was exceeded slightly in the first half due to the 5.6% surge in 1Q&#39;06 growth.
Knut Wicksell: The Birth of Modern Monetary Policy from the Federal Reserve Bank of Dallas can be found <a href="http://dallasfed.org/research/ei/ei0401.pdf">here</a>.
Modern Macroeconomics in Practice: How Theory is Shaping Policy from the Federal Reserve Bank of Minneapolis is available <a href="http://www.minneapolisfed.org/research/SR/SR376.pdf">here</a>.

Spain's Labor Costs Pick Up in Q2; Benefits Outstrip Wage Gains 
by <a href="/comment/Stone.html">Carol Stone</a> September 20, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920g.jpg" width="353">
Spain&#39;s National Institute of Statistics (INE) reported on labor costs today for Q2 2006. These costs, measured as monthly compensation per worker, picked up to a 3.5% growth rate year-on-year from 3.4% in Q1 and at or near 3.0% for the previous two calendar years. The data are in a simple format: in Haver&#39;s SPAIN database, they are available in euros and an index of 2000=100, for three sectors of the economy, industry, construction and services, and for the total and two components, earnings and &quot;other&quot;. So there are 12 numbers in each quarterly report for each the euro amount and the index level. Could such a small array be interesting? Indeed.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920h.jpg" width="353">
In Q2, while labor costs accelerated in total, they slowed in basic industry and construction and not by small increments. The industry sector increased 3.5% following 4.5% in Q1. Construction gained 3.9% in the latest quarter, after 4.3% in Q1. But the rapidly expanding service sector had 3.8% growth in Q2, well more than the 3.2% in Q1. So labor compensation in services gained visibly even as it slowed in more traditional sectors. However, this may have been a transitory shift, as the average annual gains over the prior five years had the reverse pattern: industry and construction both had vigorous increases, 4.1% annually for industry and 4.7% for construction, with services at 3.6%. So it&#39;s hard to tell if the old-line economy is moving to a slower trend or just pausing after sizable gains in earlier periods. In fact, if anything, these data show how consistent the service sector has been, hovering all the while in a range around 3-1/2% average yearly gains.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060920i.jpg" width="353">
Another significant point in this little array of data concerns the split between wages and &quot;other&quot; labor costs. Over the period 2000-2005, earnings grew at an average annual rate of 3.3%. But other labor compensation advanced at a 5.0% pace. These costs cover the same general items referred to in the US as &quot;supplements to wages and salaries&quot; or &quot;benefits&quot;: disability and unemployment, and also in Spain compensation for tools, uniforms and transportation, and similar job-related expenses. In both countries, these also cover employers&#39; payments into the social security system. And in Spain as in the US, to continue the parallel, these &quot;other&quot; costs are growing as a portion of total compensation: in 2000, &quot;other&quot; labor costs were 24.6% of compensation in Spain and by the first half of this year, they absorbed 26.7%. For the US, comparable shares were 16.5% in 2000 and 19.3% this year.

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<thead>
<tr>
<th scope="col" class="firstcol">Spain: Monthly Labor Cost/ Worker (&#128;, NSA)</th>
<th scope="col">Q2 2006</th>
<th scope="col">Q1 2006</th>
<th scope="col">Q2 2005</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
<th scope="col">2000</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>2197</td>
<td>2114</td>
<td>2122</td>
<td>2110</td>
<td>2058</td>
<td>1992</td>
<td>1758</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>3.5</td>
<td>3.4</td>
<td>3.4</td>
<td>2.9</td>
<td>3.0</td>
<td>4.2</td>
<td>3.7</td>
</tr>
<tr class="odd">
<td class="firstcol">Earnings</td>
<td>1624</td>
<td>1538</td>
<td>1575</td>
<td>1560</td>
<td>1521</td>
<td>1480</td>
<td>1326</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>3.1</td>
<td>3.0</td>
<td>3.4</td>
<td>2.6</td>
<td>2.8</td>
<td>3.8</td>
<td>3.3</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Other&quot;</td>
<td>574</td>
<td>575</td>
<td>547</td>
<td>550</td>
<td>531</td>
<td>512</td>
<td>432</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Yr/Yr % Chg</td>
<td>4.9</td>
<td>4.4</td>
<td>3.5</td>
<td>3.6</td>
<td>3.6</td>
<td>5.4</td>
<td>5.0</td>
</tr>
<tr class="odd">
<td class="firstcol">&quot;Other&quot; as % of Total</td>
<td>26.1</td>
<td>27.2</td>
<td>25.8</td>
<td>26.1</td>
<td>25.9</td>
<td>25.7</td>
<td>24.6</td>
</tr>
<tr>
<td class="firstcol">Memo: Similar US Share</td>
<td>19.3</td>
<td>19.3</td>
<td>19.4</td>
<td>19.4</td>
<td>19.1</td>
<td>19.0</td>
<td>16.5</td>
</tr>
</tbody>
</table>
</body>
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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/060919f.jpg" width="353">
More German investors and analysts participating in the ZEW surveys continue to attest to improved economic conditions, but have grave doubts concerning economic conditions six months ahead.
The balance between those saying current conditions were improving and those saying current conditions were deteriorating rose from 33.6% in August to 38.9% in September and was 92.0 percentage points above the -58.1% of September, 2005. It has only been since April of this year that more people believed that current conditions were improving than those who believed they were deteriorating. The current balance is close to the most recent peak of 45.8% in September, 2000 as can be seen n the first chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060919g.jpg" width="353">
While feeling better about the current situation, the participants in the September ZEW survey have become decidedly more wary about the future. The balance between optimists and pessimists went from -5.6% in August to -22.2% in September and was 60.8 percentage points lower than that of September, 2005 when the balance favored the optimists to the extent of 38.6%. The sharp decline in sentiment is probably a reflection of the increasing probability of a slowdown in the United States economy and hence a reduced demand for German exports, plus the likely negative effect on consumer spending with the three point scheduled increase on January 1, 2007 of the VAT, and the uncertainty of other reforms. The contrast between opinions of current conditions and the future are shown in the second chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060919h.jpg" width="353">
While the ZEW measure of expectations has often been an indicator of the future trend of the economy, it has not been a particularly good indicator of the magnitude of change in the economy. In the third chart we show the quarterly values of the expectations balances and the year to year change in real, seasonally unadjusted Gross National Product. As can be seen, there is only a small correlation (0.26) between the expectations balances and the year to year change in GDP. Moreover, the R2 suggests that only 6.76% of the change in the year to year GDP is accounted for by the expectations balance.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/GERMANY/@D8/@D82/@D82.HTM">Germany ZEW Survey</a></th>
<th scope="col">Sep&nbsp; 06</th>
<th scope="col">Aug 06</th>
<th scope="col">Sep 05</th>
<th scope="col">M/M&nbsp; dif&nbsp;</th>
<th scope="col">Y/Y&nbsp; dif &nbsp;&nbsp;</th>
<th scope="col">2005&nbsp;&nbsp;</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Balance on Current Situation (%)&nbsp;</td>
<td>38.9</td>
<td>33.6</td>
<td>-58.1</td>
<td>5.3</td>
<td>92.0</td>
<td>-34.8</td>
<td>44.6</td>
<td>38.4</td>
</tr>
<tr>
<td class="firstcol">Balance on Situation Six Months Ahead&nbsp;(%)</td>
<td>-22.2</td>
<td>-5.6</td>
<td>38.6</td>
<td>-16.6</td>
<td>-60.8</td>
<td>34.8</td>
<td>44.6</td>
<td>38.4</td>
</tr>
</tbody>
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</body>
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More German investors and analysts participating in the ZEW surveys continue to attest to improved economic conditions, but have grave doubts concerning economic conditions six months ahead. The balance between those saying current [...]

German Investors and Analysts Confident of the Present but Wary of the Future

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060919e.jpg" width="353">
The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales fell a hard 1.1% last week. The second consecutive w/w drop pulled the average sales level in September about even with August.
During the last ten years there has been a 47% correlation between the y/y change in chain store sales and the change in nonauto retail sales less gasoline.
The retail price for a gallon of regular unleaded gasoline dropped twelve cents w/w to an average $2.50 (-10.4% y/y), the lowest level since early March.
The ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS increased 0.8% (1.0% y/y) in the latest week and raised the y/y gain into positive territory for the first time since April.
Household Energy Expenditures, 1982-2005 from the Federal Reserve Bank of Chicago is available <a href="http://www.chicagofed.org/publications/fedletter/cfljune2006_227.pdf">here</a>
The latest Short-Term Energy Outlook from the U.S. Energy Information Administration is available <a href="http://www.eia.doe.gov/emeu/steo/pub/contents.html">here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/surveyw/@S2/@S2.HTM">ICSC-UBS (SA, 1977=100)</a></th>
<th scope="col">09/16/06</th>
<th scope="col">09/09/06</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>466.8</td>
<td>471.8</td>
<td>4.9%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
</tr>
</tbody>
</table>


</html>

The International Council of Shopping Centers (ICSC)-UBS survey indicated that chain store sales fell a hard 1.1% last week. The second consecutive w/w drop pulled the average sales level in September about even with August.

Chain Store Sales Fell Hard Along With Gasoline Prices

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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The Consumer Price Index increased 2.7% y/y during November, down from 2.8% in October. The 0.2% m/m increase fell short of the 0.3% gain expected in the Action Economics Forecast Survey. The y/y gain in the headline CPI was the weakest since April. It was down from September’s high of 3.0% and compared to 2.9% during 2024. The CPI excluding food & energy increased 0.1% (2.6% y/y) in November. Its y/y rise compared to 2.8% y/y in October and was the weakest rise since March 2021.	

Energy prices rose 1.6% (4.1% y/y in November. Gasoline prices strengthened 3.0% (0.9% y/y). Fuel oil prices increased 3.1% (11.3% y/y). Natural gas prices fell 2.1% (+9.1% y/y), and electricity prices strengthened 1.1% (6.9% y/y). 
Food prices rose 0.1% (2.6% y/y) during November. Egg prices declined 6.4% (-13.2% y/y). Meat, poultry & fish prices strengthened 0.8% (6.8% y/y), while dairy product prices fell 0.9% (-1.6% y/y). Cereal & bakery product costs held steady (+1.9% y/y). Fruit & vegetable prices fell 0.4% and were little changed y/y. Nonalcoholic beverage prices increased 0.9% and 4.3% y/y in November.

Goods prices less food and energy rose 0.2% and rose a steady 1.4% y/y during November. Prices of used cars and trucks increased 0.3% (3.6% y/y), and new vehicle costs rose 0.2% (0.6% y/y). Appliance prices fell 0.6% (+0.5% y/y) while home furnishings prices rose 0.4% (2.6% y/y). Recreation product costs fell 0.3% but increased 0.7% y/y in November. Apparel prices increased 0.6% (0.1% y/y) in November. Education & communication product costs declined 0.3% (-3.1% y/y). Medical care goods prices rose 0.1% (1.1% y/y) in November. 

Services prices less energy edged 0.1% higher but increased 3.0% y/y in November, down from 7.0% y/y in 2022. Shelter prices (35.5% of the CPI) rose 0.1% (3.0% y/y), as owners’ equivalent rent of primary residences also rose 0.1% (3.4% y/y). Transportation service prices fell 0.3% (1.7% y/y). The cost of medical services edged 0.1% and rose 3.3% y/y, and the cost of recreation services fell 0.3% (+2.4% y/y). Education & communication services prices increased 0.4% m/m and 2.2% y/y.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

For the release of CPI on December 18, 2025, the BLS was able to retroactively acquire most nonsurvey data for October and will publish October 2025 values where possible. However, the majority of the CPI series rely on survey data which was not collected for October 2025 due to the government shutdown. Accordingly, the BLS will not publish October values for those series. Haver Analytics has created a second set of CPI indexes and relative importance series in **USECON**. These series will contain any published BLS values for October and interpolated values for unpublished detailed indexes. We will then calculate higher aggregate series such as the All Items index and All Items less food and energy using any published indexes along with our interpolated indexes and relative importance. 


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- Year-to-year comparison is slowest in four months.
- Core price gain exhibits weakest y/y increase since 2021. 
- Services price inflation tumbles y/y; core goods price gain is stable.


U.S. Consumer Price Inflation Moderates in November

Sandy Batten

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Existing home sales rose 0.5% m/m (-1.0% y/y) in November to 4.13 million homes (SAAR) following a 1.5% monthly gain in October and a 1.3% monthly rise in September, according to the National Association of Realtors (NAR). It was the highest level of sales since February and matched expectations in the Action Economics Forecast Survey. The average effective 30-year mortgage interest rate was unchanged at 6.54% last month, but this is down markedly from 7.10% in May and accounts for some of the revival in home sales over the past several months. The sales figures are based on closings of sales contracts signed over the past couple of months.

Existing single-family home sales rose 0.8% m/m (-0.8% y/y) in November to 3.75 million units after a 1.1% m/m rise in October and a 1.4% monthly gain in September. Sales of condos and co-ops slumped 2.6% m/m (-2.6% y/y) to 380,000 in November following a 5.4% monthly jump in October.

Compared to a month ago, sales rose 4.1% m/m in the Northeast, increased 1.1% m/m in the South, were unchanged in the West and fell 2.0% m/m in the Midwest. Compared to a year ago, sales were unchanged in both the Northeast and the South, fell 3.0% y/y in the Midwest and declined 1.3% y/y in the West.

The median price of all existing homes (NSA) declined 1.4% m/m (+1.2% y/y) to $409,200 in November. The median price of an existing single-family home fell 1.4% m/m (+1.2% y/y) to $414,300 in November. Prices of single-family homes in the Northeast edged up 0.9% from a year ago. Prices in the Midwest jumped 5.8% y/y; prices in the South rose 1.0% y/y. In contrast, prices in the West declined 0.8% from a year ago.

Inventories of homes for sale continued to weaken in November. The number of existing homes for sale (NSA) slumped 5.9% m/m (+7.5% y/y) to 1.43 million units in November. The supply of homes on the market at the current selling rate (NSA) slid to 4.2 months, its lowest reading since March.

The data on existing home sales, prices and affordability are compiled by the National Association of Realtors. The data on single-family home sales extend back to February 1968. Total sales and price data and regional sales can be found in Haver's **USECON** database. Regional price and affordability data and national inventory data are available in the **REALTOR** database. Mortgage interest rates can be found in the **WEEKLY** database. The expectations figure is from the Action Economics Forecast Survey, reported in the **AS1REPNA** database.


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- Existing home sales increased 0.5% m/m in November, the third consecutive monthly gain.
- Month-over-month sales increased in the Northeast and South, were unchanged in the West, and fell in the Midwest.
- Year-over-year sales were unchanged in the Northeast and South and decreased in the Midwest and West.


U.S. Existing Home Sales Edged Up in November

Robert Brusca

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The new UK Confederation of British Industry (CBI) survey on the distributive trades sector shows a sharp weakening of an already weak survey for December and for the outlook into January of 2026. 

The month-to-month deterioration from November was widespread across metrics for retailing as well as for wholesaling for the current month as well as for the outlook. The monthly degradation is without exception across the board - omitting the inventory metric which is a different animal in any event since inventory building is sometimes involuntary. 

**The Retail survey**
Current conditions: In December, the retail survey for sales compared to a year ago, orders compared to year ago, and sales for the time of year (a seasonal adjustment metric), all worsened month-to-month. The November readings were weak and in December sales compared to a year-ago worsened by 12 points, Orders compared to a year ago worsened by 17 points month-to-month and sales for the time of year worsened by 11 points. These metrics for December are below their respective 12-month average by 6 to 13 points, as well for these categories. The rankings tell a stark story, year-on-year sales have been lower only 5.3% of the time, Year-on-year orders have been weaker only 5.6% of the time, while time of the year sales have been lower only 13% of the time. These are all extremely low-ranking metrics.

Expected Conditions: In January expected conditions have weakened month-to-month by amounts ranging from 33 points to 16 points depending on the metric. And sales and orders compared to a year ago as well as sales for the time of year each are weaker than their respective 12-month average readings by amounts ranging from 4 points to 23 points. The rankings on expectations are even worse than for the current metrics. Expected sales compared to a year ago rank lower less than 1% of the time, the same is true of orders. While sales for the time of year have been weaker 7.7 percent of the time. 
 
**Wholesale survey** 
The rankings for wholesaling are even lower than for retailing across the current and expected metrics. The month-to-month degradation for the current readings ranges from 7 points to 17 points weaker while the reading degradation monthly ranges from 5 points to 16 points. Wholesale sales and orders compared to a year ago and sales for the time of year each rank below the 5% mark. The expectations for January shows expectations for the three categories each are at a 2.5 percentile standing or lower. 

**Summing up**
The distributive trades survey has all but crashed and burned in December. Over the last 26 years the average of the three current metrics’ rankings has been lower only 18 times. The average outlook ranking for the month ahead has been weaker only 5 times in the last 26 years (over 313 months). On a relative basis the expected sales/orders performance is more depressed than the Current results for January. The pooled rankings show current ranking over the past 26-years weaker only 5.8 percent of the time with expectations lower only 1.6 percent of the time. These are very weak metrics. It is surprising that the BOE is walking on eggshells to cut rates with mixed support for rate cuts amid such weakness. There is already a GDP decline in the monthly data for October. UK and inflation is still too high, but it is breaking lower at a relatively fast pace. Will the UK be the first economy down after Covid? 




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United Kingdom

CBI’s Distributive Trades Survey Weakens Sharply in December

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Belgian consumer confidence has been on the rise since early this year, however, in December the index has taken a step backwards with a reading of -1 compared to a November reading of +2 and then an October reading of zero. The confidence indicator, on data back to 1991 has a ranking in its 78.5 percentile, marking it as a reasonably strong reading on confidence compared to its values over that period. On the whole the trend is still solid, the month’s step-back is small. 

**The Economic Situation** 
Economic situation for the next 12 months is weaker in December on a reading of -28 compared to -26 in November. The assessment of the previous 12-months is weaker in December at -42 compared to a reading of -38 in November. The outlook is weaker and the recent legacy is assessed as being slightly weaker as well, than it was in November. The assessment of the economic situation for the next 12 months is weak at a 9.7 percentile standing and the assessment of the previous 12 months is also weak at a 23.4 percentile standing.

**Price Trends**
Price trends are seen as higher over the next 12-months at a reading of 38 compared to 27 in November. The backward-looking assessment of price trends also has them stronger in December than 
in November at a reading of 58 compared to 56 in November. Both of these price trend assessments 
are high with the outlook reading at its 94th percentile and the backward-looking assessment in its 81st percentile. Price expectations hit their low mid 2023-late 2023 and have been on the rise steadily ever since. The price metric of ‘12-months ahead’ was at zero in April of 2024 but climbed to +19 by February 2025 and currently sits at a level of 38. Price expectations are well in gear to the upside in Belgium despite relative price stability in the Euro-Area. 

**Unemployment**
Concerns about unemployment elevated slightly in December to -9 from -10 in November but these are significant readings compared to, say, the 12-month-ago reading which is at a level of +32. The sense of backtracking here is extremely weak. The sense of progress on the part of survey respondents becoming more confident about the future is clearly the prevalent feature here. The December reading for unemployment in fact has only a 2.5 percentile standing, indicating extremely weak concerns about the prospects of unemployment ahead despite the minor month-to-month step-back.

**Major Household purchase environment**
The environment for making major household purchases deteriorates slightly in December at -15 compared to -13 in November. This only puts the index back to where it was in October. The response to the question, ‘is it favorable to buy at present’ is unchanged from its November value at -19 and it has been stuck there for three months in a row. The outlook to make major household purchases in the next 12-months logs a weaker reading at -15 than its 12-month value of -13but is stronger than its 12-month level of -18. The reading for the ‘favorable to buy at present’ question, however, is weaker at a -19 compared to -14, logged 12-months ago. The environment for making a household purchase over the next 12-months has a 55.6 percentile ranking which is above its median, however, the assessment of ‘favorable to buy at present’ has only a 20th percentile standing significantly below its median reading (median readings occur at a ranking of 50%)..

**The Financial situation**
The financial situation for the next 12-months is assessed weaker at -3 in December, compared to zero in November; it compares to a - 2 in October. The assessment 12-months ago was also -2 so this is a very minor deterioration comparing the financial situation of households with the last 12-months produces another deterioration at -8 in December compared to -6 in November and that compares to 12-months ago at -5 another deterioration. However, the backward-looking assessment has a 52-percentile standing which is above its median while the outlook reading of -3 has a 23-percentile standing which puts it in the lower quarter of all expectations on data back to 1991. The current situation is appraised at 20 a step-back from November and October levels as well as from 12-months ago. But the current appraisal also has a queue standing in its 65.7 percentile which has a comfortable margin above its median reading. Households clearly have concerns about their financial situation even though their outlook for making household purchases is above median and their concerns about unemployment are low. Currently, conditions appear to be construed as solid.

**Savings**
Household savings over the next 12-months are weaker in December at a reading of 20 compared to 26 in November; they are closer to their 12-month ago reading of 21. December is still a relatively high reading, in any event, with a 91-percentile standing. The question, ‘is it favorable to save at present’ is unchanged in November compared to December at a reading of -28 although it is weaker than it was 12-months ago and the percentile standing at its 78th percentile, again, a firm reading for this metric.

**Summing up - assessment** 
The consumer confidence reading from the Belgian National Bank this month shows a slight set back month-to-month, however, there is a significant an improvement that has been underway that is quite clear from the chart. The concerns that consumers have seemed to be about their financial situation haven't translated into concerns about unemployment or their willingness to make major household purchases, with unemployment concerns very low and their willingness to make household purchases for the period ahead at essentially normal levels. Still, there is more concern about inflation that is percolating, which is interesting considering that overall inflation has been relatively stable and muted in the European monetary area. 




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Belgium

Belgian Consumer Confidence - On the Rise, but Weaker Month-to-Month

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.

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Economy in Brief

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Initial Jobless Insurance Claims Rose More Than Expected

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