Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060810b.jpg" width="353">
The U.S. foreign trade deficit improved slightly in June to $64.8 billion from a revised $65.0 billion in May. Consensus expectations had been for a $65.7 billion deficit in June.
Total exports rose 2.0% in June (+14.0% y/y) after a downward revised 2.1% gain in May, while imports were 1.2% higher in June (+12.9% y/y) after an upward revised rise of 2.3% in the previous month.
The value of goods exports was $86.6 billion (+3.0% in June) with the largest increases in capital goods (+2.6%), industrial supplies and materials (+3.2%) and automotive vehicles and parts (+4.7%). June imports of goods rose 1.2% from May to $156.9 billion with gains in consumer goods (+3.4%), and in automotive vehicles and parts (+5.8%). Decreases were evident in imports of industrial supplies and materials (-1.2%) and in capital goods (-0.3%).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060810c.jpg" width="353">
While the goods deficit decreased by $0.7 billion to $70.4 billion in June, the services surplus was $0.5 billion lower than in May at $5.6 billion. Services exports for the month (mostly in travel and other private services) were down by $0.2 billion and imports of services advanced $0.3 billion (largely in royalties, license fees and passenger fares.
The U.S. trade deficit in goods with China rose to $19.7 billion in June (the third highest on record) from $17.7 billion in May. The deficit with Mexico increased $0.6 billion to surpass $6 billion for the first time.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EE/@EE01/@EE01.HTM"> Foreign Trade&nbsp;</a></th>
<th scope="col">Jun</th>
<th scope="col">May</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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<td class="firstcol">Trade Deficit</td>
<td>$64.8B</td>
<td>$65.0B</td>
<td>$58.4B (6/05)</td>
<td>$716.7B</td>
<td>$611.3B</td>
<td>$494.9B</td>
</tr>
<tr>
<td class="firstcol">Exports - Goods &amp; Services</td>
<td>+2.0%</td>
<td>+2.1%</td>
<td>+14.0%</td>
<td>10.7%</td>
<td>13.4%</td>
<td>4.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">Imports - Goods &amp; Services</td>
<td>+1.2%</td>
<td>+2.3%</td>
<td>+12.9%</td>
<td>13.0%</td>
<td>16.7%</td>
<td>8.3%</td>
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The U.S. foreign trade deficit improved slightly in June to $64.8 billion from a revised $65.0 billion in May. Consensus expectations had been for a $65.7 billion deficit in June. Total exports rose 2.0% in June (+14.0% y/y) after a [...]

U.S. Foreign Trade Deficit Improved Slightly

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060810a.jpg" width="353">
Initial unemployment insurance claims increased 7,000 to 319,000 last week versus consensus expectations of 315,000 but the prior week was revised from 315,000 to 312,000. July claims averaged 314,000 while June averaged 308,000.
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, a less volatile measure, dropped to 308,750 (-1.91% y/y).
Continuing claims for unemployment insurance rose 48,000 following a 33,000 decline the previous week which was revised from an 11,000 increase reported initially.
The insured rate of unemployment is unchanged at 1.9% where it has been since February.

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<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">8/5/06</th>
<th scope="col">7/29/06</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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<td class="firstcol">Initial Claims</td>
<td>319</td>
<td>312</td>
<td>1.92%</td>
<td>332</td>
<td>343</td>
<td>403</td>
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<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,480</td>
<td>-3.91%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
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Initial unemployment insurance claims increased 7,000 to 319,000 last week versus consensus expectations of 315,000 but the prior week was revised from 315,000 to 312,000. July claims averaged 314,000 while June averaged 308,000. [...]

U.S. Initial Jobless Claims Up Again

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060809a.jpg" width="353">
The job openings rate in June as reported by the Bureau of Labor Statistics in the Job Openings &amp; Labor Turnover Survey (JOLTS) was about unchanged at 2.9%. The rate for the previous month was revised down to 2.8% from 2.9% . The job openings rate is the number of job openings on the last business day of the month as a percent of total employment plus job openings.
The actual number of job openings increased 1.5% to 4.004 million from a downwardly revised 3.945 million in May.
The hires rate fell to 3.5% from 3.7% in May. The hires rate is the number of hires during the month divided by employment. The actual number of hires fell 4.0% (-1.0% y/y) to 4.758 million from May&#39;s 4.949 million.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060809b.jpg" width="353">
The job separations rate fell to 3.4% from 3.6% in May. Separations include quits, layoffs, discharges, and other separations as well as retirements. The total separations, or turnover, rate is the total number of separations during the month divided by employment. The level of job separations dropped 5.43% (-0.87% y/y) to 4.550 million.
The survey dates only to December 2000 but has since followed the movement in nonfarm payrolls.
A description of the Jolts survey and the latest release from the U.S. Department of Labor is available <a href="http://www.bls.gov/news.release/jolts.nr0.htm">here</a>.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB14/@EB14.HTM">JOLTS</a> (Job Openings &amp; Labor Turnover Survey)</th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">Job Openings Rate: Total</td>
<td>2.9%</td>
<td>2.8%</td>
<td>2.6%</td>
<td>2.7%</td>
<td>2.4%</td>
<td>2.1%</td>
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<td class="firstcol">Hires Rate: Total</td>
<td>3.5%</td>
<td>3.7%</td>
<td>3.6%</td>
<td>3.6%</td>
<td>3.5%</td>
<td>3.2%</td>
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The job openings rate in June as reported by the Bureau of Labor Statistics in the Job Openings & Labor Turnover Survey (JOLTS) was about unchanged at 2.9%. The rate for the previous month was revised down to 2.8% from 2.9% . The job [...]

JOLTS: Job Hires and Separations Down

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060808j.jpg" width="353">
Contrary to expectations, industrial production in Germany fell 0.4% to 108.2 (2000=100) in June from 108.6 in May. While there is reason to believe that high oil prices and the strength of the euro will eventually, slow world demand for German goods and hence, production, the decline in production in June has not been large enough to change the underlying positive trend. The trend in production computed and published by the German Statistical Office is shown in the first chart together with the seasonally and working day adjusted data. The trend value for June is 108.3, compared with 107.9 for May.
In the emerging countries, Hungary, Slovakia and Turkey, industrial production continues to forge ahead. Production in Slovakia was up 0.21% in June from May, in Hungary, 1.78% and in Turkey, 2.20%. In all three countries, industrial production in June averaged 10-12% above June, 2005 in contrast with Germany&#39;s whose year over year growth in production was 4.5%. The contrast between the growth in industrial production in Turkey and in Germany is shown in the second chart and the similarity between the growth in production in Slovakia and Hungary is shown in the third chart.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060808f.jpg" width="353">
Indexes only tell us how a particular level of a series varies from a base value. Thus, the 108.2 of industrial production in Germany in June only tells us that production is 8.2% above whatever the average level of production in 2000 was. If we want absolute values that are comparable, we have to look elsewhere. To compare the sizes of these four countries we have chosen to use the GDP expressed in constant prices and constant exchange rates.. For the three emerging countries this value is listed in the National Account Section of each country in terms of 1995 prices and 1995 exchange rate. In the case of Germany, this value is given in the G10 Data Base and is in terms of 2000 prices and exchange rate.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060808g.jpg" width="353">
In 2005, the dollar value at constant exchange rates of real GDP in Germany was $1,972 billion; for Turkey, $259 billion; Hungary, $67 billion; and Slovakia, $26 billion. In 2000, the comparable dollar values were $1,904 billion for Germany; Turkey, $210 billion; Hungary, $55 billion; and Slovakia, $20 billion. The percentage changes between 2000 and 2005 were 3.6% for Germany, 23.5% for Turkey, 22.7% for Hungary and 23.2% for Slovakia. 

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<th scope="col" class="firstcol">Industrial Production (2000=100)</th>
<th scope="col">Jun&nbsp; 06</th>
<th scope="col">May 06</th>
<th scope="col">Jun 05</th>
<th scope="col">M/M %</th>
<th scope="col">Y/Y %</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
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<td class="firstcol">Germany&nbsp;</td>
<td>108.2</td>
<td>108.6</td>
<td>103.5</td>
<td>-0.37</td>
<td>4.54</td>
<td>103.7</td>
<td>100.8</td>
<td>98.4</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Trend</td>
<td>108.3</td>
<td>107.9</td>
<td>102.3</td>
<td>0.37</td>
<td>4.84</td>
<td>103.6</td>
<td>100.9</td>
<td>98.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Slovakia</td>
<td>142.6</td>
<td>142.3</td>
<td>127.4</td>
<td>0.21</td>
<td>11.93</td>
<td>129.1</td>
<td>124.6</td>
<td>119.6</td>
</tr>
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<td class="firstcol">Hungary</td>
<td>143.1</td>
<td>140.6</td>
<td>129.5</td>
<td>1.78</td>
<td>10.50</td>
<td>129.9</td>
<td>120.9</td>
<td>113.3</td>
</tr>
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<td class="firstcol">Turkey *</td>
<td>139.1</td>
<td>136.1</td>
<td>125.0</td>
<td>2.20</td>
<td>11.29</td>
<td>125.7</td>
<td>119.3</td>
<td>108.7</td>
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</tbody>
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Contrary to expectations, industrial production in Germany fell 0.4% to 108.2 (2000=100) in June from 108.6 in May. While there is reason to believe that high oil prices and the strength of the euro will eventually, slow world demand [...]

Industrial Production Falters in Germany: Forges Ahead in Turkey, Hungary and Slovakia

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060808i.jpg" width="353">
The Federal Open Market Committee held steady the target interest rate for Federal funds at 5.25% at today&#39;s meeting. Voting against the decision, after seventeen 25 basis point increases since June 2004, was Jeffrey M. Lacker who preferred an increase of 25 basis points in the federal funds rate target.
The discount rate also held steady at 6.25%.
Today&#39;s decision was widely expected by analysts.
The Fed&#39;s rationale for leaving rates unchanged was that &quot;Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.&quot;<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060808h.jpg" width="353">
Moreover, &quot;... inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.&quot;
For the complete text of the Fed&#39;s latest press release please follow this <a href="http://www.federalreserve.gov/boarddocs/press/monetary/2006/20060808/default.htm">link</a>.
The accompanying chart plots the U.S. economy&#39;s actual rate of growth versus its so called &quot;potential&quot;, i.e., growth in the labor force plus the growth in labor&#39;s productivity. The figures are updated for this morning&#39;s downward revisions to recent productivity and indicate that GDP growth of 3.5% trailed its potential of 4.0%.
The Taylor Rule: A Guidepost for Monetary Policy? from the Federal Reserve Bank of Cleveland can be found <a href="http://www.clevelandfed.org/Research/Com2003/0703.pdf">here</a>.
Monetary Policy in a Global Environment from the Federal Reserve Bank of San Francisco is available <a href="http://www.frbsf.org/publications/economics/letter/2006/el2006-12-13.html">here</a>.

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The Federal Open Market Committee held steady the target interest rate for Federal funds at 5.25% at today's meeting. Voting against the decision, after seventeen 25 basis point increases since June 2004, was Jeffrey M. Lacker who [...]

Federal Funds Rate Steady at 5.25%

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<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060808e.jpg" width="353">
Weekly chain store sales slipped 0.2% last week after two weeks of moderate increase, according to the International Council of Shopping Centers (ICSC)-UBS survey.
Sales in early August started the month 0.4% above the July average which fell 0.6% from June.
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 ICSC-UBS retail chain-store sales index is constructed using the same-store sales (stores open for one year) reported by 78 stores of seven retailers: Dayton Hudson, Federated, Kmart, May, J.C. Penney, Sears and Wal-Mart.
The leading indicator of chain store sales from ICSC-UBS fell another 0.4% (-2.2% y/y) in the latest week. It was the third decline in the last four weeks.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060808d.jpg" width="353">
Retail gasoline prices opened the month with a three cent rise to $3.04 (28.3% y/y) for regular unleaded gas compared to a July average of $2.98. In spot market trading yesterday, gasoline prices fell moderately but the shutdown of supplies from Prudhoe Bay lifted Alaskan North Slope prices $2.22 to $75.68 per barrel (22.4% y/y).
The new 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>.

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<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">08/05/06</th>
<th scope="col">07/29/06</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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<td class="firstcol">Total Weekly Chain Store Sales</td>
<td>470.2</td>
<td>471.2</td>
<td>2.5%</td>
<td>3.6%</td>
<td>4.7%</td>
<td>2.9%</td>
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</tbody>
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Weekly chain store sales slipped 0.2% last week after two weeks of moderate increase, according to the International Council of Shopping Centers (ICSC)-UBS survey. Sales in early August started the month 0.4% above the July average [...]

Weekly Chain Store Sales Slipped As Gasoline Prices Rose

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060808c.jpg" width="353">
Small business optimism last month recovered most of the June decline with a 1.4% rise, according to the National Federation of Independent Business (NFIB). Nevertheless, the average level of the NFIB index this year remained 2.5% below the 2005 average.
During the last ten years there has been a 70% correlation between the level of the NFIB index and the two quarter change in real GDP.
Respondents expecting the economy to improve rose modestly m/m but remained near the lowest level since early 2001.
The percentage of firms planning to increase employment improved markedly m/m but the number of firms currently with one or more job openings slipped. During the last ten years there has been a 72% correlation between the NFIB percentage and the y/y change in nonfarm payrolls.
The percent planning to raise capital expenditures rose to 31%, about the same as last year..The percentage of firms planning to raise average selling prices rose back to 30% and the percentage of firms actually raising prices was stable m/m at 23%. During the last ten years there has been a 60% correlation between the change in the producer price index and the level of the NFIB price index.
About 24 million businesses exist in the United States. Small business creates 80% of all new jobs in America.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S7/@S7.HTM">Nat&#39;l Federation of Independent Business</a></th>
<th scope="col">July</th>
<th scope="col">June</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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<td class="firstcol">Small Business Optimism Index (1986=100)</td>
<td>98.1</td>
<td>96.7</td>
<td>-3.0%</td>
<td>101.6</td>
<td>104.6</td>
<td>101.3</td>
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Small business optimism last month recovered most of the June decline with a 1.4% rise, according to the National Federation of Independent Business (NFIB). Nevertheless, the average level of the NFIB index this year remained 2.5% [...]

Small Business Optimism Recovered

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060808a.jpg" width="353">
Non-farm labor productivity growth last quarter slowed to 1.1% from the heady, upwardly revised 4.3% growth rate during 1Q. The gain was slightly ahead of Consensus expectations for 0.8% growth.
Revisions extended back to 2003. Due to less output growth, as highlighted by the downward revision to GDP reported in July, productivity also was lowered to 2.3% in 2005 from 2.7% estimated initially, to 3.0% in 2004 from 3.4% and to 3.7% in 2003 from 3.9%.
Upward pressure on unit labor costs intensified due to slower productivity growth and faster growth in compensation per hour. Unit labor costs grew 4.2% last quarter, up from a 2.5% increase during 1Q. The 3.3% average rate of advance so far this year rose from 2.0% growth last year. Revisions actually lowered slightly the annual growth in costs from 2004 to 2005.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060808b.jpg" width="353">
Compensation jumped 5.4% after a 6.4% 1Q gain and the 6.1% two-quarter average rate of increase is the fastest in three years. Part of the acceleration is due to downward revisions to compensation growth during 2005 and 2004.
Factory sector productivity grew 3.0% (3.8% y/y) after a 3.7% 1Q increase. Revisions to factory sector productivity also were downward. Compensation growth also was strong last quarter after downward revision to prior years&#39; growth. Factory sector compensation per hour rose 1.7% (3.6% y/y) after a 5.2% 1Q increase that was more than double last month&#39;s estimate.
Unit labor costs in the factory sector nevertheless remained under control. Costs fell 1.2% (-0.2% y/y) after a 1.4% 1Q rise. The stability of recent labor cost pressures compares with a 0.5% gain during 2005 revised from 1.7%, and a 0.1% gain during 2004 revised from -3.1%.
Colleges Need To Learn about Productivity a speech by Fed Bank President William Poole is available <a href="http://stlouisfed.org/publications/re/2006/a/pages/pres_message.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/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">2Q&#39; 06</th>
<th scope="col">1Q &#39;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">Output per Hour</td>
<td>1.1%</td>
<td>4.3%</td>
<td>2.4%</td>
<td>2.3%</td>
<td>3.0%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>5.4%</td>
<td>6.4%</td>
<td>5.7%</td>
<td>4.4%</td>
<td>3.6%</td>
<td>4.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>4.2%</td>
<td>2.5%</td>
<td>3.2%</td>
<td>2.0%</td>
<td>0.7%</td>
<td>0.3%</td>
</tr>
</tbody>
</table>


</html>

Non-farm labor productivity growth last quarter slowed to 1.1% from the heady, upwardly revised 4.3% growth rate during 1Q. The gain was slightly ahead of Consensus expectations for 0.8% growth. Revisions extended back to 2003. Due to [...]

2Q U.S. Productivity Up 1.1%, Costs Accelerated

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

FOMC expects more inflation and less growth than in March

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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.

U.S. Employment and the Unemployment Rate Rose in November

Winnie Tapasanun

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The Empire State Manufacturing Index of General Business Conditions dropped more than expected to -3.9 in December, down from 18.7 in November and 10.7 in October, according to the Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. A reading of 10.7 for December had been expected in the Action Economics Forecast Survey. The December negative reading indicated that the business activity in New York State contracted for the first time since September; it was also down from 2.1 in December 2024 and a high of 20.2 in November 2024. The percentage of respondents reporting an increase in general business conditions was 31.8% in December, down from 38.7% in November; the percentage reporting a decrease was 35.7%, up from November’s 20.0%. The latest survey was conducted between December 2 and December 9.

The headline index reflects the answer to a single question concerning the state of economic activity and is not calculated from the components. Haver Analytics calculates a composite index from the five major components, which is comparable to the ISM manufacturing index. This calculated index fell to the neutral-level 50.0 in December—the lowest level since September—down from 55.4 in November, 52.7 in October, and 51.0 in December 2024 but up from a low of 42.5 in January 2024. The index is the average of five diffusion indexes: new orders, shipments, employment, supplier deliveries and inventories with equal weights (20% each).

In the latest survey, the new orders index fell to 0.0 in December after a 12.2-point gain to 15.9 in November, signaling steady orders this month and a marked improvement from a low of -35.0 in January 2024. The shipments index decreased to -5.7 in December, the lowest level in three months, following a 2.4-point increase to 16.8 in November, but it was up from a low of -22.7 in April 2024. The unfilled orders index dropped to -14.9 in December on top of a 1.9-point decrease to -5.8 in November, indicating unfilled orders contracted for the seventh straight month and to the weakest level since January 2024; the index reached a low of -24.2 in January 2024. The inventories index fell to 4.0 in December after a 7.7-point rise to 6.7 in November, suggesting that inventories expanded for two months following three consecutive months of contraction. Meanwhile, the delivery times index fell to -5.9 in December, the lowest reading since December 2024, from 7.7 in November, with 9.9% of respondents reporting higher delivery times and 15.8% reporting lower delivery times.

On the labor front, the number of employees index advanced to 7.3 in December after a 0.4-point increase to 6.6 in November, showing employment expanded for the sixth time in seven months and at the highest level since July. The index remained above a low of -9.7 in December 2023. A higher 16.2% of respondents reported an increase in employment in December while 8.9% reported a decline. The average workweek index slipped to 3.5 in December from 7.7 in November, remaining positive for a second month after two months in negative territory.

Inflation indicators eased this month but remained elevated. The prices paid index dropped to 37.6 in December, the lowest level since January, following a 3.4-point decrease to 49.0 in November. The index was up from a low of 21.1 in December 2024 and a low of 16.7 in December 2023 but significantly down from a high of 86.4 in April 2022. A 39.6% of respondents reported higher prices paid in December while only 2.0% reported lower prices paid. The prices received index fell to 19.8 in December, the lowest reading since February, following a 3.2-point decline to 24.0 in November. The index was up from a low of 4.2 in December 2024 and a low of 3.9 in July 2023 but well below a peak of 56.1 in March 2022. A 21.8% of respondents reported higher prices received in December while 2.0% reported lower prices received.

Firms grew more optimistic about the future business outlook in the latest survey. The index for future business conditions jumped to 35.7 in December, the strongest level since January, from 19.1 in November, with an increased 52.9% of respondents expecting business conditions to improve in the next six months. Future new orders rose to 38.0 in December, the highest figure since March 2022, from 23.3 in November and shipments rose to 33.3, the highest level since November 2024, from November’s 23.3. Growth in employment eased slightly to 8.8 in December from 11.9 in November but still showed continued employment expansion. Capital spending plans remained positive for the second successive month, with the future capital expenditures index at 6.9 in December compared with 11.5 in November. Expected prices paid fell to 55.4 in December, the lowest level since January, from 62.5 in November, while expected prices received rose to 46.5, the highest reading since April 2022, from November’s 41.3.

The indexes in this report are diffusion indexes and measure the percentage of respondents indicating an increase minus the percentage indicating a decrease with zero separating expansion from contraction.

The New York Fed survey data are contained in Haver’s **SURVEYS** database. The expectations series is in Haver’s **AS1REPNA** database.

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- December General Business Conditions Index down 22.6 pts. to -3.9.
- Unfilled orders (-14.9) and shipments (-5.7) negative; employment (7.3, highest since July) and inventories (4.0) positive; new orders flat (0.0).
- Prices paid at an 11-month-low 37.6 and prices received at a 10-month-low 19.8, still elevated.
- Firms optimistic: Future Business Conditions Index at an 11-month-high 35.7 and future prices paid at an 11-month-low 55.4.

U.S. Empire State Manufacturing Index Plunges in December to a Three-Month Low

Robert Brusca

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**Tankan overview:** Japan's Tankan report is an important quarterly assessment and outlook of the Japanese economy. Historically, the performance of manufacturers is considered to be the bellwether in this survey for performance of the economy. In the fourth quarter of 2025, the manufacturing index moved up to 15 from 14 in the third quarter. This compares to a value of 12 in the first quarter and a four-quarter average of 13.5. Since late-2006, the manufacturing index has averaged 5.3, marking the performance in 2025 as a substantial improvement from the long period where Japan struggled with deflation. On dated back to 2003, the manufacturing index has a standing in the queue of data in its 70.8 percentile, a reasonably firm reading. 

**Nonmanufacturers:** The index for nonmanufacturers logged a reading of 34 in the fourth quarter compared to 34 in the third quarter and a reading of 35 in the first quarter of 2025; the one-year average for nonmanufacturers is 34.3, marking that sector as little changed over the course of the year. Nonmanufacturing in the fourth quarter has an index standing at its 97.8 percentile, marking it as an extremely high standing on data back to late-2003. 

**Nonmanufacturing details:** Readings across the nonmanufacturing sector are above their respective one-year averages for all subsectors except transportation where the fourth quarter index backs down to 27 from an average of 30.5 and for restaurants & hotels that back down to a reading of 25 from an average of 39.3. The queue percentile standings for the subsectors show a good deal of strength with construction at a 98.9 percentile standing, services for businesses also at a 98.9 percentile standing, transportation - despite the back off from the average - is at a 94.4 percentile standing, and real estate and wholesaling are at 93.3 percentile standings on data back to 2003.  

**The Tankan outlook-** The survey also produces an outlook. For large manufacturers for the first quarter of 2026, the outlook metric moves up to 15 from what had been 12 for the fourth quarter of 2025. The outlook for nonmanufacturers is flat month-to-month at 28, the same as in the fourth quarter. The outlook for manufacturing has a queue standing in its 78.7 percentile on data back to 2003, while nonmanufacturing has a standing for the outlook reading at its 98.9 percentile marking these outlooks as quite good. 

**The BOJ is watching-** This is a survey the Bank of Japan will be looking at and assessing what policy should do and how strong the economy appears to be. On these data, the economy would appear to be firm, the outlook would appear to be solid, and if the Bank of Japan were to decide to pay more attention to inflation, the economy would seem to be in a position to absorb a rate hike without much difficulty.

**Other-sized enterprises-**
**Manufacturing:** The survey also produces results for medium-sized and small-sized firms, as well as outlooks for medium-sized and small-sized firms (that are not presented in the table). The fourth quarter assessments of performance, however, show improvements for manufacturing in both medium- and small-sized enterprises; they also show rankings of medium-sized firms in manufacturing in their 85th percentile, the same as for small sized enterprises. 

**Nonmanufacturing:** Nonmanufacturing for medium- and small-sized enterprises show improvements in the fourth quarter results and also demonstrates high rankings of those readings for those respective sectors.

**Summing up:**
On balance, it's a solid Tankan report for Japan's economy and should provide reassurance to the Bank of Japan and to the current government that the economy is on solid footing as each looks at the situation and tries to assess the best policy options. 

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Japan

Japan’s Tankan Ticks Higher for Large Manufacturers

Tian Yong Woon

This week, we assess Asia through a risk lens, given the recent flare-ups across the region. Japan–China tensions, following Japanese Prime Minister Takaichi’s recent remarks on Taiwan, have prompted some retaliatory measures from China, including travel advisories against visiting Japan. This raises the risk of a dent to Japan’s tourism income this year, given the significance of aggregate Chinese tourism expenditure (chart 1), although any such impact would come at a time when Japan is already grappling with the effects of overtourism. Beyond Japan–China relations, investors are also bracing for the Bank of Japan’s (BoJ) final scheduled policy decision of the year, where a rate hike is expected despite Takaichi’s pro-growth fiscal stance. This expectation reflects ongoing yen weakness (chart 2), alongside encouraging results from Japan’s Q3 Tankan survey, among other factors. While the anticipated hike is not, in itself, a risk, the associated increase in financing costs—coupled with the likelihood of higher government bond issuance to support growth objectives—adds to investor concerns.

Risks are also evident in China, particularly after the November data docket showed a continued deterioration in growth across multiple sectors (chart 3). While China’s 5% growth target for the year remains within reach, achieving it appears to hinge on a narrow set of growth drivers, notably trade. On this front, China has defied earlier investor concerns to record a substantial widening of its trade surplus this year, despite a worsening bilateral trade balance with the US (chart 4). However, while supportive of growth, this development risks drawing increased pushback from non-US trading partners that have been absorbing China’s excess capacity.

Elevated risks are also present elsewhere in Asia, particularly in Southeast Asia, where renewed military clashes between Thailand and Cambodia have once again pushed bilateral tensions to the fore (chart 5). Thailand additionally faces political uncertainty ahead of early elections, following Prime Minister Anutin’s dissolution of parliament last week. Lastly, we turn to semiconductor- and AI-related risks, which are especially pertinent to Asia given the dominance—and reliance—of Taiwan and South Korea in the sector. A key risk lies in the current extent of market optimism surrounding future AI-related earnings (chart 6), suggesting greater scope for disappointment than for further upside surprises.

**Japan-China tensions**
Geopolitics will likely remain front and centre in Asia heading into the new year,  with several flashpoints carrying the risk of broader regional spillovers. One such case is the recent flare-up in tensions between China and Japan, following new Japanese Prime Minister Takaichi’s parliamentary remarks on Taiwan. Since then, Chinese authorities have rolled out a series of measures — urging Chinese citizens to avoid travelling to or studying in Japan, reinstating an import ban on Japanese seafood, among others. While none of these steps are particularly substantial on their own, they underscore a rapidly deteriorating bilateral dynamic. The economic implications are not trivial. As shown in chart 1, spending by Chinese tourists has historically made up a significant share of Japan’s total inbound tourism receipts — roughly a quarter in recent quarters — with especially strong concentrations in certain regions such as Osaka. Although the absence of Mainland Chinese tourists has been keenly felt since tensions escalated, early indications suggest that increased arrivals from other countries have helped offset some of the shortfall. More recently, a series of close military encounters between China and Japan has further heightened concerns. The risk of miscalculation has grown, raising the possibility of an inadvertent escalation at a time when geopolitical sensitivities in the region are already elevated.


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**Japan**
Japan–China tensions aside, investors will also be focused on the Bank of Japan’s upcoming monetary policy meeting this week, the last of the year. After Governor Ueda’s recent remarks, markets are now expecting a 25 bps rate hike. This has been especially evident in the bond market, where yields have risen sharply in recent weeks (chart 2). The move partly reflects expectations of tighter policy, but also concerns Prime Minister Takaichi’s more expansionary fiscal stance. The recently submitted supplementary budget points to increased government bond issuance, adding supply pressure, weighing on bond prices, and pushing yields higher. The rise in yields also poses a risk when combined with increased bond issuance, as this implies higher financing costs for the government. A hike this month is still expected despite the government’s loose fiscal tilt, given yen weakness and recent readings of softer inflation. However, the outlook for any additional tightening beyond December remains uncertain. With the new year approaching and annual spring wage negotiations on the horizon, the BoJ will need further confirmation on wages and inflation before moving again. Meanwhile, the ongoing Japan–China frictions, while not yet generating major economic spillovers, remain a meaningful downside risk. Any material escalation could weigh on Japan’s outlook and complicate the case for further policy tightening.

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**China**
Moving to China, the latest monthly data point to a broad-based slowdown in growth in November. Year-on-year retail sales growth slowed to its weakest pace since 2022, while year-to-date year-on-year fixed asset investment growth fell to its lowest level since the outbreak of the COVID-19 pandemic in 2020 (chart 3). Industrial production growth also eased, albeit to a lesser extent. In addition, house price declines accelerated, reversing the easing trend seen in previous months. Overall, the latest data extend the pattern of deteriorating growth observed in recent months. That said, it remains to be seen whether the November readings will ultimately cause China to miss its 5% growth target for the year, given the substantial head start accumulated over the first three quarters. Moreover, China has enjoyed a bumper year in trade, which we discuss in the next section.

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Looking more closely at China’s trade performance, it has become clear that earlier fears of a trade-driven collapse in China’s growth have not materialised. Instead, China’s overall trade surplus has continued to widen, having topped $1 trillion this year, even as its bilateral surplus with the US has fallen sharply (chart 4). This suggests that China’s surplus expansion has been driven by other trading partners, which have effectively been absorbing China’s excess capacity. The stronger-than-expected trade outturn has also been a key factor behind the upward revisions to China’s GDP outlook for the year, with growth still on track to meet the 5% target barring any major setbacks. While this dynamic is not a direct risk in itself, surging exports to these partner economies could become problematic if domestic industries in the receiving countries are unable to absorb the inflow or begin to feel crowded out. Such pressures may eventually provoke a policy response. Still, it remains uncertain whether these countries — many of them smaller economies — would adopt measures similar to those taken by the US, given the asymmetric nature of their economic relationships with China.

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**Thailand-Cambodia tensions**
Moving beyond Japan and China, region-specific tensions elsewhere in Asia also warrant attention, though their broader impact remains limited. Notably, renewed military clashes between Thailand and Cambodia have resurfaced despite an earlier peace deal brokered by Malaysia and the US. While the likelihood of these clashes escalating into a wider regional conflict is low — given their primarily border-specific nature — external pressures on both countries remain a latent risk. The previous ceasefire appeared to have been secured only after US President Trump threatened to withhold trade deals unless fighting ceased, suggesting that a similar “carrot-and-stick” approach may be used again to encourage another ceasefire, although nothing is certain. Domestically, Thailand faces additional near-term uncertainties. Prime Minister Anutin must contend with a range of issues, including preparations for early elections following his dissolution of parliament just last week, adding another layer of unpredictability (chart 5). The Thai government’s popularity has also dipped recently, partly due to criticism over its handling of floods in southern Thailand.

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**Semiconductors and AI**
Lastly, we turn to semiconductor and AI-related risks in Asia. As in markets outside the region, this year’s tech rallies are increasingly seen as overextended (chart 6), with some arguing they have entered bubble territory. Many now believe that much of the upside in future earnings has already been priced in, leaving more room for disappointment than for positive surprises. Geopolitical and competitive considerations remain important too, as highlighted by the recent US approval to sell Nvidia’s high-end (though not top-tier) H200 chips to China. However, this approval may not generate the expected enthusiasm among Chinese consumers. If the reaction mirrors that seen after the earlier approval of Nvidia’s lower-end H20 chips, China may use these openings to promote domestic chipmakers such as Huawei. This could help local firms catch up to US peers and gradually reduce reliance on imported semiconductors. Also, if US chipmaker earnings disappoint due to a lukewarm reception of the H200 chips, while local Chinese chipmakers see increased upside potential, this could translate into a divergence in equity price trajectories between the sector’s stocks in the respective markets.

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Asia

Economic Letter from Asia: Balancing Risks

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The National Association of Realtors' Fixed Rate Mortgage Housing Affordability Index (HAI) improved 0.9% (3.6% y/y) to 106.2 in October after rising 4.7% in September, revised from 3.9%, following a 2.8% increase in August. The index level was the highest since February 2023. The level of home affordability was 18.1% higher than its low of 89.9 in October 2023, but 40.7% below the peak of 179.0 in April 2020.

The rise in October affordability occurred as the average mortgage rate fell to 6.33% from 6.43% in September. The fall in mortgage rates left them above their low of 6.26% in September of last year, though below a 7.70% high in October of 2023. They remained well above a December 2020 low of 2.73%. The median price of an existing single-family home rose 0.7% (2.2% y/y) to $420,600. That price compared to the record $438,600 in June 2025. In October, the principal plus interest payment eased 0.3% (+0.2% y/y) to $2,089 per month, down 9.6% from June’s record high of $2,311, but still well above the most recent low of $984 in February 2020. Monthly mortgage payments averaged a slightly lessened 23.5% of income during October, but remained well above a low of 14.0% of income in April 2020.

The change in housing costs in October was accompanied by a 0.5% rise (3.8% y/y) in median family income to $106,478 after falling 0.3% in September. Qualifying income declined 0.3% (+0.2% y/y) to $100,272, after falling for three straight months.

Housing affordability improved m/m in most of the country in October. The index in the Midwest, the country’s most affordable region, rose 1.5% (0.9% y/y) to 134.4. In the South, the index increased 0.7% (5.4% y/y) to 112.1, while the affordability index in the Northeast strengthened 1.1% (-1.4% y/y) to 93.7. Declining, however, was the affordability index in the West, where homes are the least affordable. The index eased 0.3% (+5.3% y/y) to 75.2 in October.

The Housing Affordability Index (HAI) equals 100 when a median-income borrower qualifies for an 80% mortgage on a median-priced existing single-family home. The HAI had exceeded 100 in each month since July 1990. It reached an all-time high of 213.3 in January 2013.

Data on Housing Affordability can be found in Haver’s **REALTOR** database. Median home sales prices are also available in **USECON**. Higher frequency interest rate data are found in **SURVEYS**, **WEEKLY**, and **DAILY**.

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- Mortgage rates continue to decline.
- Median income strengthens.
- Affordability improves in most of country.