Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727b.jpg" width="353">
New orders for durable goods surged 3.1% in June after an upwardly revised 0.3% increase during the prior month. Consensus expectations had been for a somewhat lesser 2.0% jump.
An 8.8% rise in orders for nondefense aircraft &amp; parts recovered not quite half of the 19.2% drop during May. Orders for defense aircraft jumped 12.9% (25.4% y/y).
Less the transportation sector altogether durable goods orders rose a firm 1.0%.
During the last ten years there has been a 69% correlation between the y/y change in durable goods orders and the change in output of durable goods.
Orders for nondefense capital goods recovered nearly all of the prior month&#39;s decline with a 1.3% gain. Less aircraft, orders rose a more moderate 0.4% during June but the prior month&#39;s increase was upwardly revised to 1.3%. During the last ten years there has been an 86% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment &amp; software from the GDP accounts.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727c.jpg" width="353">
Higher orders for computers &amp; electronic products led last month&#39;s strength with a 3.4% (0.8% y/y) spurt though computer orders alone rose just 1.5% (-2.3% y/y) after a downwardly revised 3.0% slip during May. Machinery orders slipped 0.3% (+10.5% y/y) after an upwardly revised 4.3% May increase. Orders for electrical equipment &amp; appliances fell 1.0% (+15.0% y/y) but the prior month was very much upwardly revised to show a 2.7% increase.
Shipments of durable goods ticked up 0.1% (8.4% y/y) after an upwardly revised 3.0% May jump. Shipments less the transportation sector rose 0.4% (9.9% y/y) but the May jump was revised up to 2.1%. During the last ten years there has been an 82% correlation between the y/y change in durable goods shipments and the change in industrial production of durable goods.
Order backlogs gained 1.7% (19.4% y/y) again reflecting the strength in nondefense aircraft &amp; parts (53.7% y/y). Unfilled orders less transportation gained another 1.3% (14.1% y/y).
Durable inventories rose 0.6% (4.9% y/y) after an upwardly revised 0.7% May rise. Less transportation inventories also rose 0.6% (5.4% y/y). The inventory to sales ratio outside of the transportation sector rose slightly.

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">June</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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>3.1%</td>
<td>0.3%</td>
<td>5.8%</td>
<td>9.0%</td>
<td>6.4%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>1.0%</td>
<td>1.5%</td>
<td>9.1%</td>
<td>9.4%</td>
<td>7.6%</td>
<td>-1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>1.3%</td>
<td>-1.9%</td>
<td>3.5%</td>
<td>21.4%</td>
<td>5.6%</td>
<td>-3.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>0.4%</td>
<td>1.3%</td>
<td>7.7%</td>
<td>12.3%</td>
<td>2.8%</td>
<td>-2.0%</td>
</tr>
</tbody>
</table>
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New orders for durable goods surged 3.1% in June after an upwardly revised 0.3% increase during the prior month. Consensus expectations had been for a somewhat lesser 2.0% jump. An 8.8% rise in orders for nondefense aircraft & parts [...]

U.S. Durable Goods Orders Surged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727d.jpg" width="353">
Sales of new single family home sales fell 3.0% during June to 1.131M (SAAR) and the prior month&#39;s increase was revised down sharply to just 0.5%. Consensus expectations had been for June sales of 1.17M.
New home sales during the first six months of this year fell 10.9% from the first six months of 2005 and during June were 17.3% below the monthly peak last July.
Sales in the Northeast were the weakest last month showing an 11.3% (-33.7% y/y) decline. Sales in the Midwest also fell, by 7.9% (-24.5% y/y) and sales in the South declined 6.0% (-5.2% y/y). Sales out West posted the only regional gain with an 8.2% increase but nevertheless were off 7.0% y/y.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727e.jpg" width="353">
The number of new homes for sale advanced 0.7% m/m in June and rose 24.4% y/y. The year to year breakdown by region is as follows: Northeast, 42.1%; West, 28.7%; South, 32.6%; Midwest, -1.9%.
The median sales price of a new single family home fell for the third month in the last four. The 1.6% decline to $231,300 followed a 7.4% drop during May.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@E9/@E904/@E904.HTM">U.S. New Homes</a></th>
<th scope="col">June</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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</thead>
<tbody>
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<td class="firstcol">Total Sales (AR, 000&#39;s)</td>
<td>1,131</td>
<td>1,166</td>
<td>-11.1%</td>
<td>1,280</td>
<td>1,201</td>
<td>1,091</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA)</td>
<td>$231,300</td>
<td>$235,000</td>
<td>2.3%</td>
<td>$234,208</td>
<td>$217,817</td>
<td>$191,383</td>
</tr>
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Sales of new single family home sales fell 3.0% during June to 1.131M (SAAR) and the prior month's increase was revised down sharply to just 0.5%. Consensus expectations had been for June sales of 1.17M. New home sales during the [...]

New Home Sales & Prices Fell

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727d.jpg" width="353">
Sales of new single family home sales fell 3.0% during June to 1.131M (SAAR) and the prior month&#39;s increase was revised down sharply to just 0.5%. Consensus expectations had been for June sales of 1.17M.
New home sales during the first six months of this year fell 10.9% from the first six months of 2005 and during June were 17.3% below the monthly peak last July.
Sales in the Northeast were the weakest last month showing an 11.3% (-33.7% y/y) decline. Sales in the Midwest also fell, by 7.9% (-24.5% y/y) and sales in the South declined 6.0% (-5.2% y/y). Sales out West posted the only regional gain with an 8.2% increase but nevertheless were off 7.0% y/y.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727e.jpg" width="353">
The number of new homes for sale advanced 0.7% m/m in June and rose 24.4% y/y. The year to year breakdown by region is as follows: Northeast, 42.1%; West, 28.7%; South, 32.6%; Midwest, -1.9%.
The median sales price of a new single family home fell for the third month in the last four. The 1.6% decline to $231,300 followed a 7.4% drop during May.

<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/USECON/@E9/@E904/@E904.HTM">U.S. New Homes</a></th>
<th scope="col">June</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>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Total Sales (AR, 000&#39;s)</td>
<td>1,131</td>
<td>1,166</td>
<td>-11.1%</td>
<td>1,280</td>
<td>1,201</td>
<td>1,091</td>
</tr>
<tr>
<td class="firstcol">Median Price (NSA)</td>
<td>$231,300</td>
<td>$235,000</td>
<td>2.3%</td>
<td>$234,208</td>
<td>$217,817</td>
<td>$191,383</td>
</tr>
</tbody>
</table>
U.S. Durable Goods Orders Surged 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 27, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727b.jpg" width="353">
New orders for durable goods surged 3.1% in June after an upwardly revised 0.3% increase during the prior month. Consensus expectations had been for a somewhat lesser 2.0% jump.
An 8.8% rise in orders for nondefense aircraft &amp; parts recovered not quite half of the 19.2% drop during May. Orders for defense aircraft jumped 12.9% (25.4% y/y).
Less the transportation sector altogether durable goods orders rose a firm 1.0%.
During the last ten years there has been a 69% correlation between the y/y change in durable goods orders and the change in output of durable goods.
Orders for nondefense capital goods recovered nearly all of the prior month&#39;s decline with a 1.3% gain. Less aircraft, orders rose a more moderate 0.4% during June but the prior month&#39;s increase was upwardly revised to 1.3%. During the last ten years there has been an 86% correlation between the y/y change in capital goods orders less aircraft and the y/y change in business fixed investment in equipment &amp; software from the GDP accounts.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727c.jpg" width="353">
Higher orders for computers &amp; electronic products led last month&#39;s strength with a 3.4% (0.8% y/y) spurt though computer orders alone rose just 1.5% (-2.3% y/y) after a downwardly revised 3.0% slip during May. Machinery orders slipped 0.3% (+10.5% y/y) after an upwardly revised 4.3% May increase. Orders for electrical equipment &amp; appliances fell 1.0% (+15.0% y/y) but the prior month was very much upwardly revised to show a 2.7% increase.
Shipments of durable goods ticked up 0.1% (8.4% y/y) after an upwardly revised 3.0% May jump. Shipments less the transportation sector rose 0.4% (9.9% y/y) but the May jump was revised up to 2.1%. During the last ten years there has been an 82% correlation between the y/y change in durable goods shipments and the change in industrial production of durable goods.
Order backlogs gained 1.7% (19.4% y/y) again reflecting the strength in nondefense aircraft &amp; parts (53.7% y/y). Unfilled orders less transportation gained another 1.3% (14.1% y/y).
Durable inventories rose 0.6% (4.9% y/y) after an upwardly revised 0.7% May rise. Less transportation inventories also rose 0.6% (5.4% y/y). The inventory to sales ratio outside of the transportation sector rose slightly.

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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED0101.HTM">NAICS Classification</a></th>
<th scope="col">June</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>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Durable Goods Orders</td>
<td>3.1%</td>
<td>0.3%</td>
<td>5.8%</td>
<td>9.0%</td>
<td>6.4%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp; Excluding Transportation</td>
<td>1.0%</td>
<td>1.5%</td>
<td>9.1%</td>
<td>9.4%</td>
<td>7.6%</td>
<td>-1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Nondefense Capital Goods</td>
<td>1.3%</td>
<td>-1.9%</td>
<td>3.5%</td>
<td>21.4%</td>
<td>5.6%</td>
<td>-3.4%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Excluding Aircraft</td>
<td>0.4%</td>
<td>1.3%</td>
<td>7.7%</td>
<td>12.3%</td>
<td>2.8%</td>
<td>-2.0%</td>
</tr>
</tbody>
</table>
Initial Jobless Insurance Claims Fell Further 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 27, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727a.jpg" width="353">
A 7,000 worker decline last week in initial claims for unemployment insurance to 298,000 followed a little revised 129,000 slide during the prior period and pulled claims to the lowest level in six weeks. Consensus expectations had been for 310,000 claims.
During the last ten years there has been a (negative) 78% correlation between the level of initial claims and the m/m change in nonfarm payroll employment.
The four-week moving average of initial claims fell to 312,750 (-2.7% y/y).
Continuing claims for unemployment insurance fell 23,000 after a little revised 78,000 jump the prior week.
The insured rate of unemployment held steady at 1.9% where it has been since February.
The latest Beige Book from the Federal Reserve Board can be found <a href="http://www.federalreserve.gov/FOMC/BeigeBook/2006/20060726/default.htm">here</a>.

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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">07/22/06</th>
<th scope="col">07/15/06</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>298</td>
<td>305</td>
<td>-4.8%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,475</td>
<td>-5.2%</td>
<td>2,663</td>
<td>2,923</td>
<td>3,530</td>
</tr>
</tbody>
</table>
Help-Wanted Advertising Remained Low 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 27, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727f.jpg" width="353">
The Conference Board&#39;s Index of Help-Wanted Advertising remained at its forty five year low of 33 in June.
During the last ten years there has been a 57% correlation between the level of help-wanted advertising and the three month change in non-farm payrolls.
The proportion of labor markets with rising want-ad volume improved to 49% from the low 27% in May and an average 48% last year.
The Conference Board surveys help-wanted advertising volume in 51 major newspapers across the country every month.
The latest help wanted report from the Conference Board is available <a href="http://www.conference-board.org/economics/helpwanted.cfm">here</a>.
Should the Decline in the Personal Saving Rate Be a Cause for Concern? from the federal Reserve Bank of Kansas City is available <a href="http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/2Q06garn.pdf"> here</a>. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/CBDB/@C3/@C3.HTM">Conference Board</a></th>
<th scope="col">June</th>
<th scope="col">May</th>
<th scope="col">June &#39;05</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">National Help Wanted Index</td>
<td>33</td>
<td>33</td>
<td>39</td>
</tr>
</tbody>
</table>
Low Unemployment in Nordic Countries 
by <a href="/comment/Stone.html">Carol Stone</a> July 27, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727g.jpg" width="353">
Unemployment is falling in Europe. With the notable exception of the UK, unemployment rates are moving lower in most European countries. In May, the rates in Germany and France were both at their lowest since late 2002. Today, the three Scandinavian countries reported their latest rates. Denmark&#39;s labor force survey set records. In the 18-1/2 years of the Danish data, June saw the smallest number unemployed, 123,100, and the lowest unemployment rate, 4.5%, which was first reached in May. The number unemployed is down 23.7% from a year ago, before seasonal adjustment. (The other monthly figures are seasonally adjusted by Denmarks Statistiks.)<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727h.jpg" width="353">
In Norway, the government&#39;s public employment service tallies its number of &quot;registered&quot; unemployed. These data are not seasonally adjusted, so they show a monthly increase for July. But the year-to-year comparisons are impressively favorable: the number unemployed is down more than 20,000 to 67,800 and the unemployment rate reached 2.8% from 3.7% in July 2005; this is the lowest July figure since 2001.
Sweden&#39;s data are a bit muddled, but they still show improvement. Statistics Sweden switched to the EU Harmonized structure of labor force data in April 2005, so data prior to that are not totally comparable with current results. Indeed, the graph shows a change in the pattern of the monthly evolution beginning at that time. However, we can still make a valid year-on-year comparison for June, and we see that the rate then was 6.5%, down from 7.0% in June 2005; the number unemployed is off 10.2%.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060727i.jpg" width="353">
A similar story can be told for Finland, which published its June data on Tuesday. The current unemployment rate is 8.1%, the lowest rate for June since 1991.
In all these countries, these rates are falling because employment is rising. The release of data for employment lags or is compiled only quarterly, so comparisons aren&#39;t so clear, but what is clear is that through the latest available data, however counted, the number of jobs is increasing faster than the number of people seeking work. As we point out often to highlight the important distinction, unemployment can fall if jobs are tight and people give up seeking work altogether. But this is not the case now: jobs are up and joblessness is down.

<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/G10/@GZ/@GZ6/@GZ601/@GZ601.HTM">Thous.</a></th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">Apr 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Denmark LFS*, Seas Adj</td>
<td>--</td>
<td>123.1</td>
<td>124.9</td>
<td>133.0</td>
<td>161.2</td>
<td>153.4</td>
<td>172.9</td>
<td>167.1</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>--</td>
<td>4.5</td>
<td>4.5</td>
<td>4.8</td>
<td>5.8</td>
<td>5.6</td>
<td>6.3</td>
<td>6.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Norway Reg.*, NSA</td>
<td>67.8</td>
<td>62.3</td>
<td>60.6</td>
<td>66.6</td>
<td>89.3</td>
<td>76.2</td>
<td>84.9</td>
<td>91.7</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>2.8</td>
<td>2.6</td>
<td>2.5</td>
<td>2.8</td>
<td>3.7</td>
<td>3.0</td>
<td>3.6</td>
<td>3.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Sweden LFS*, NSA</td>
<td>--</td>
<td>297.6</td>
<td>216.8</td>
<td>247.5</td>
<td>331.4</td>
<td>263.1</td>
<td>246.1</td>
<td>217.0</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Rate (%)</td>
<td>--</td>
<td>6.5</td>
<td>4.8</td>
<td>5.1</td>
<td>7.0</td>
<td>5.7</td>
<td>5.5</td>
<td>4.9</td>
</tr>
</tbody>
</table>
</body>
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Carol Stone, CBE

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<body>
 



<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726e.jpg" width="353">
Yesterday, Louise Curley wrote about improving business confidence in three European nations, France, Italy and the Netherlands. In the UK the situation is somewhat ambiguous, according to the July survey of the Confederation of British Industries (CBI). The key monthly series, the total order book in volume terms, improved modestly, as it moved to -11 for July from -12 in June and May. At the same time these are obviously still negative, but they are all better readings than prevailed during much of 2005, which averaged -20. Export orders faltered this month. They reached 0 in May, the first non-negative reading since February 1996, but have drifted off in the two succeeding months to -6 for July. This appears to reverse the situation that had seemed to be in place in which domestic demand was fading while the export sector improved.
The CBI also published their quarterly data, which query companies&#39; general sentiment and strategic plans. The measure on overall business sentiment deteriorated to -6 for Q3 from -2 in Q2. Even so, conditions are viewed less negatively than most of the time over the last five years. Sentiment about exports actually turned positive during last quarter and this, suggesting the downturn in orders reported above may be temporary.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726f.jpg" width="353">
Another favorable turn comes in the area of plant capacity. The proportion of companies that believe their capacity is adequate for their production plans in the coming year fell to 83%, the lowest reading since Q4 1997. In the interim, this share has run as high as 94% and that as recently as Q3 2003. When that many companies believe they have enough capacity, it&#39;s hard to anticipate there would be much capital expenditure. Now, as the adequacy ratio has fallen, the outlook for plant and equipment outlays has improved to a -9% balance in Q2 and -10% in Q3 from -23% back in 2003 when the adequacy ratio was near its recent peak. (The all-time high adequacy ratio was 99% during the 1980 recession.)<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726g.jpg" width="353">
Thus, British industry managers see their outlook in fairly murky terms. Orders are improved but still falling. Export markets look stronger, but then they fade. Capital spending plans look better, but they are still declining at more companies than rising. In the Q2 GDP report last week, we saw the manufacturing sector with its first year-on-year increase since late 2004. But there are still numerous questions about demand prospects, energy prices and other uncertainties to presume this outcome will improve further or even be sustained. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U9/@U9.HTM">UK: % Balance</a></th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">CBI Total Orders</td>
<td>-11</td>
<td>-12</td>
<td>-12</td>
<td>-20</td>
<td>-21</td>
<td>-9</td>
<td>-29</td>
</tr>
<tr>
<td class="firstcol">Export Orders</td>
<td>-6</td>
<td>-3</td>
<td>0</td>
<td>-17</td>
<td>-20</td>
<td>-13</td>
<td>-33</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Q3 2006</td>
<td>Q2 2006</td>
<td>Q1 2006</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Overall Business Optimism</td>
<td>-6</td>
<td>-2</td>
<td>-14</td>
<td>-16</td>
<td>-19</td>
<td>7</td>
<td>-17</td>
</tr>
<tr class="odd">
<td class="firstcol">Optimism re Exports</td>
<td>5</td>
<td>3</td>
<td>-5</td>
<td>-8</td>
<td>-6</td>
<td>7</td>
<td>-15</td>
</tr>
<tr>
<td class="firstcol">Adequate Capacity</td>
<td>83</td>
<td>86</td>
<td>90</td>
<td>88</td>
<td>90</td>
<td>89</td>
<td>93</td>
</tr>
<tr class="odd">
<td class="firstcol">Plant &amp; Machinery Expenditures next 12 months</td>
<td>-10</td>
<td>-9</td>
<td>-14</td>
<td>-15</td>
<td>-17</td>
<td>-3</td>
<td>-21</td>
</tr>
</tbody>
</table>
</body>
</html>

Yesterday, Louise Curley wrote about improving business confidence in three European nations, France, Italy and the Netherlands. In the UK the situation is somewhat ambiguous, according to the July survey of the Confederation of [...]

UK CBI Industrial Trends Survey Yields Mixed Picture

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726c.jpg" width="353">
The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago rose to the highest level (0.34) since March. The gain, nevertheless, failed to prevent the 2Q average from falling to 0.11 from 0.24 in 1Q.
The three-month moving average of the CFNAI remained stable with May at that 0.11 level which is the lowest since October.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726d.jpg" width="353">
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_July2006.pdf">here</a>.
The Federal Reserve Bank of Richmond reported that its July Composite Index from the manufacturing survey rose to the highest level (12) since April. During the last ten years there has been a 38% correlation between the diffusion index level and the one month change in U.S. manufacturing industrial production. The July report can be found <a href="http://www.richmondfed.org/research/regional_conditions/manufacturing_conditions/index.cfm"> here</a>.
The Richmond Fed&#39;s survey of the service sector, conversely, deteriorated in July. The percentage of firms reporting increasing revenues was negative (-3) for the first month in nearly two years. The latest report is available <a href="http://www.richmondfed.org/research/regional_conditions/service_sector/index.cfm"> here</a>.
Economy on cruise control through 2007 from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/fedletter/cflaugust2006_229a.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/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></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>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>0.34</td>
<td>-0.14</td>
<td>0.36</td>
<td>0.20</td>
<td>0.37</td>
<td>-0.11</td>
</tr>
</tbody>
</table>
</body>
</html>

The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago rose to the highest level (0.34) since March. The gain, nevertheless, failed to prevent the 2Q average from falling to 0.11 from 0.24 in 1Q. The three-month [...]

Chicago Fed Nat'l Activity & Richmond Fed Factory Indexes Up

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726b.jpg" width="353">
The total number of mortgage applications fell another 1.3% last week and pulled applications so far in July down 1.0% from the prior month&#39;s average. Applications in June fell 1.5% from May.
Purchase applications added 2.4% to the prior week&#39;s 6.2% steep decline. Therefore, in July the average number of applications are 0.3% below June which fell 0.8% from May.
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.
Applications to refinance recovered 0.6% of the 1.6% declines during the prior two weeks. The small increase left the July average 2.3% below the prior month and refis during all of June fell 3.1% from the May average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726a.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage fell five basis points w/w to 6.91%. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also fell six basis points to 6.57% 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">07/21/06</th>
<th scope="col">07/14/06</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>533.8</td>
<td>540.8</td>
<td>-29.2%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>389.0</td>
<td>398.5</td>
<td>-19.8%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,385.2</td>
<td>1,377.6</td>
<td>-40.3%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
</body>
</html>

The total number of mortgage applications fell another 1.3% last week and pulled applications so far in July down 1.0% from the prior month's average. Applications in June fell 1.5% from May. Purchase applications added 2.4% to the [...]

Mortgage Applications Wilt Under Summer Heat

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726b.jpg" width="353">
The total number of mortgage applications fell another 1.3% last week and pulled applications so far in July down 1.0% from the prior month&#39;s average. Applications in June fell 1.5% from May.
Purchase applications added 2.4% to the prior week&#39;s 6.2% steep decline. Therefore, in July the average number of applications are 0.3% below June which fell 0.8% from May.
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.
Applications to refinance recovered 0.6% of the 1.6% declines during the prior two weeks. The small increase left the July average 2.3% below the prior month and refis during all of June fell 3.1% from the May average.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726a.jpg" width="353">
The effective interest rate on a conventional 30-year mortgage fell five basis points w/w to 6.91%. The peak for 30 year financing was 7.08% late in June. The rate on 15-year financing also fell six basis points to 6.57% 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">07/21/06</th>
<th scope="col">07/14/06</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>533.8</td>
<td>540.8</td>
<td>-29.2%</td>
<td>708.6</td>
<td>735.1</td>
<td>1,067.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Purchase</td>
<td>389.0</td>
<td>398.5</td>
<td>-19.8%</td>
<td>470.9</td>
<td>454.5</td>
<td>395.1</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Refinancing</td>
<td>1,385.2</td>
<td>1,377.6</td>
<td>-40.3%</td>
<td>2,092.3</td>
<td>2,366.8</td>
<td>4,981.8</td>
</tr>
</tbody>
</table>
 Chicago Fed Nat'l Activity & Richmond Fed Factory Indexes Up 
by <a href="/comment/Moeller.html">Tom Moeller</a> July 26, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726c.jpg" width="353">
The National Activity Index (CFNAI) from the Federal Reserve Bank of Chicago rose to the highest level (0.34) since March. The gain, nevertheless, failed to prevent the 2Q average from falling to 0.11 from 0.24 in 1Q.
The three-month moving average of the CFNAI remained stable with May at that 0.11 level which is the lowest since October.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726d.jpg" width="353">
The latest CFNAI report is available <a href="http://www.chicagofed.org/economic_research_and_data/files/cfnai_July2006.pdf">here</a>.
The Federal Reserve Bank of Richmond reported that its July Composite Index from the manufacturing survey rose to the highest level (12) since April. During the last ten years there has been a 38% correlation between the diffusion index level and the one month change in U.S. manufacturing industrial production. The July report can be found <a href="http://www.richmondfed.org/research/regional_conditions/manufacturing_conditions/index.cfm"> here</a>.
The Richmond Fed&#39;s survey of the service sector, conversely, deteriorated in July. The percentage of firms reporting increasing revenues was negative (-3) for the first month in nearly two years. The latest report is available <a href="http://www.richmondfed.org/research/regional_conditions/service_sector/index.cfm"> here</a>.
Economy on cruise control through 2007 from the Federal Reserve Bank of Chicago can be found <a href="http://www.chicagofed.org/publications/fedletter/cflaugust2006_229a.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/SURVEYS/@S5/@S503/@S503.HTM">Chicago Fed</a></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>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">CFNAI</td>
<td>0.34</td>
<td>-0.14</td>
<td>0.36</td>
<td>0.20</td>
<td>0.37</td>
<td>-0.11</td>
</tr>
</tbody>
</table>
UK CBI Industrial Trends Survey Yields Mixed Picture 
by <a href="/comment/Stone.html">Carol Stone</a> July 26, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726e.jpg" width="353">
Yesterday, Louise Curley wrote about improving business confidence in three European nations, France, Italy and the Netherlands. In the UK the situation is somewhat ambiguous, according to the July survey of the Confederation of British Industries (CBI). The key monthly series, the total order book in volume terms, improved modestly, as it moved to -11 for July from -12 in June and May. At the same time these are obviously still negative, but they are all better readings than prevailed during much of 2005, which averaged -20. Export orders faltered this month. They reached 0 in May, the first non-negative reading since February 1996, but have drifted off in the two succeeding months to -6 for July. This appears to reverse the situation that had seemed to be in place in which domestic demand was fading while the export sector improved.
The CBI also published their quarterly data, which query companies&#39; general sentiment and strategic plans. The measure on overall business sentiment deteriorated to -6 for Q3 from -2 in Q2. Even so, conditions are viewed less negatively than most of the time over the last five years. Sentiment about exports actually turned positive during last quarter and this, suggesting the downturn in orders reported above may be temporary.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726f.jpg" width="353">
Another favorable turn comes in the area of plant capacity. The proportion of companies that believe their capacity is adequate for their production plans in the coming year fell to 83%, the lowest reading since Q4 1997. In the interim, this share has run as high as 94% and that as recently as Q3 2003. When that many companies believe they have enough capacity, it&#39;s hard to anticipate there would be much capital expenditure. Now, as the adequacy ratio has fallen, the outlook for plant and equipment outlays has improved to a -9% balance in Q2 and -10% in Q3 from -23% back in 2003 when the adequacy ratio was near its recent peak. (The all-time high adequacy ratio was 99% during the 1980 recession.)<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060726g.jpg" width="353">
Thus, British industry managers see their outlook in fairly murky terms. Orders are improved but still falling. Export markets look stronger, but then they fade. Capital spending plans look better, but they are still declining at more companies than rising. In the Q2 GDP report last week, we saw the manufacturing sector with its first year-on-year increase since late 2004. But there are still numerous questions about demand prospects, energy prices and other uncertainties to presume this outcome will improve further or even be sustained. 

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/UK/@U9/@U9.HTM">UK: % Balance</a></th>
<th scope="col">July 2006</th>
<th scope="col">June 2006</th>
<th scope="col">May 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">CBI Total Orders</td>
<td>-11</td>
<td>-12</td>
<td>-12</td>
<td>-20</td>
<td>-21</td>
<td>-9</td>
<td>-29</td>
</tr>
<tr>
<td class="firstcol">Export Orders</td>
<td>-6</td>
<td>-3</td>
<td>0</td>
<td>-17</td>
<td>-20</td>
<td>-13</td>
<td>-33</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp;</td>
<td>Q3 2006</td>
<td>Q2 2006</td>
<td>Q1 2006</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>--</td>
</tr>
<tr>
<td class="firstcol">Overall Business Optimism</td>
<td>-6</td>
<td>-2</td>
<td>-14</td>
<td>-16</td>
<td>-19</td>
<td>7</td>
<td>-17</td>
</tr>
<tr class="odd">
<td class="firstcol">Optimism re Exports</td>
<td>5</td>
<td>3</td>
<td>-5</td>
<td>-8</td>
<td>-6</td>
<td>7</td>
<td>-15</td>
</tr>
<tr>
<td class="firstcol">Adequate Capacity</td>
<td>83</td>
<td>86</td>
<td>90</td>
<td>88</td>
<td>90</td>
<td>89</td>
<td>93</td>
</tr>
<tr class="odd">
<td class="firstcol">Plant &amp; Machinery Expenditures next 12 months</td>
<td>-10</td>
<td>-9</td>
<td>-14</td>
<td>-15</td>
<td>-17</td>
<td>-3</td>
<td>-21</td>
</tr>
</tbody>
</table>
</body>
</html>

Louise Curley

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060725a.jpg" width="353">
Italy and the Netherlands reported today on surveys of business and consumer confidence and France reported on business confidence. Despite slight dips in consumer confidence in the Netherlands and in business confidence in Italy, confidence measures in these three countries show improving trends
Consumers are still not very confident. In the Netherlands, the balance of optimists over pessimists dropped from 5% in June to 2% in July. What improvement that has taken place in the Netherlands has been due largely to a decline in the number of pessimists rather than an increase in optimists. In July 2005, the balance was -23%. Although there was an improvement in consumer confidence in Italy in July as the index of consumer confidence rose 1.7% from 89.5 (2000=100) in June to 91.0 in July, confidence continues well below the levels of 2000. (We have used the index function in the advanced functions to change the reported index base of 1980 to 2000) The first chart shows consumer confidence in Italy and the Netherlands.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060725b.jpg" width="353">
Business confidence, in contrast to that of consumers, has improved significantly over the past year. Although confidence in Italy dropped 1.6% in July from June, it was 11.5% above July, 2005. In the Netherlands, business confidence increased by 2.8 percentage points in July to 9.2% from 6.4% in June and was 12.9 percentage points above July, 2005. This is the highest percent balance on record and is above the recent peak of 8.2% in October, 2000. Measures of business confidence in Italy and the Netherlands are shown in the second chart.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/060725c.jpg" width="353">
Business confidence also rose in France in July to 109 from 107 in June and from 101 in July, 2005. The French measure of business confidence is a composite of the balance of opinions on the following issues: production over the past three months, forecasts of production over the next three months, inventories, total order books, foreign order books and selling price expectations over the next three months. The indicator is constructed such that it has an average of 100 and a standard deviation of 10.
In addition to the business climate indicator INSEE (Institut Nationale de las Stastiques et des Etudes Economiques) also computes a qualitative indicator--Business Cycle Turning Point--that attempts to detect as soon as possible a turning point in the business cycle. The series tracks the difference between the probability that the economy is growing versus the probability that it is contracting. It is evaluated between -1 and +1. A value close to -1 suggests that the economy is contracting significantly; a value close to +1 suggests that the economy is expanding rapidly. A value close to 0 suggests that the economy is operating close to its long term growth rate. In July this indicator had a high value of .68, up from .36 in June and .17 in July, 2005. The Business Cycle Turning Point indicator and the Business Climate indicator are shown in the third chart.

<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/G10/@GZ/@GZ8/@GZ8.HTM">Measures of Confidence</a></th>
<th scope="col">Jul&nbsp; 06</th>
<th scope="col">Jun 06</th>
<th scope="col">Jul 05</th>
<th scope="col">M/M Dif</th>
<th scope="col">Y/Y Dif</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">The Netherlands&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Consumer % Balance</td>
<td>2</td>
<td>5</td>
<td>-23</td>
<td>-3</td>
<td>25</td>
<td>-22</td>
<td>-25</td>
<td>-35</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Business % Balance</td>
<td>9.2</td>
<td>6.4</td>
<td>-3.7</td>
<td>2.8</td>
<td>12.9</td>
<td>0.6</td>
<td>-0.1</td>
<td>-5.6</td>
</tr>
<tr>
<td class="firstcol">Italy&nbsp;</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Consumer (2000=100)</td>
<td>91.0</td>
<td>89.5</td>
<td>84.7</td>
<td>1.7*</td>
<td>7.52*</td>
<td>87.3</td>
<td>85.0</td>
<td>88.9</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business&nbsp; (2000=100)</td>
<td>96.7</td>
<td>98.3</td>
<td>86.7</td>
<td>-1.6*</td>
<td>11.5*</td>
<td>87.5</td>
<td>89.5</td>
<td>88.0</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td class="firstcol">&nbsp; Business Climate Indicator&nbsp;</td>
<td>109</td>
<td>107</td>
<td>101</td>
<td>2</td>
<td>8</td>
<td>101</td>
<td>104</td>
<td>95</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Business Cycle Turning Point&nbsp;</td>
<td>0.68</td>
<td>0.36</td>
<td>0.17</td>
<td>0.32</td>
<td>0.51</td>
<td>-0.02</td>
<td>0.36</td>
<td>-0.15</td>
</tr>
</tbody>
</table>
</body>
</html>

Italy and the Netherlands reported today on surveys of business and consumer confidence and France reported on business confidence. Despite slight dips in consumer confidence in the Netherlands and in business confidence in Italy, [...]

Consumer and Business Confidence Measures in France, Italy and the Netherlands

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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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.

U.S. Housing Affordability Edges Higher in October

Andrew Cates

**The Blue Chip Consensus**
Before turning to the risks that could unsettle the global outlook in 2026, it’s worth noting the backdrop against which those risks are emerging. The first chart shows that forecasters have, if anything, become more optimistic in recent months, raising their 2026 GDP projections across many major economies. The upgrades are most visible in Asia’s tech-focused economies, where the semiconductor and AI upturn is lifting expectations, but the US has also benefited from stronger-than-expected momentum and fading concerns that tariffs would deliver a major growth hit. In short, the starting point for the global outlook has improved—making the downside scenarios explored in the next few charts all the more important to test.

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**Policy divergence**
The second chart highlights one of the central risks to the 2026 outlook: monetary-policy calibration. Even as growth expectations have firmed, forecasters remain convinced that the major central banks still have a little further to go in their easing cycles. For both the Fed and the Bank of England, respondents expect additional rate cuts in early 2026, albeit with growing uncertainty about the exact timing and pace. The broader message is that the heavy lifting on disinflation is now largely done, and what remains are finer calibration risks—where cutting too slowly risks choking momentum, while cutting too aggressively risks undoing progress on inflation. The ECB outlook is far more fragmented. A large share of forecasters sees the next step as a cut—though not necessarily soon—but a meaningful minority lean toward a possible hike. At the opposite pole is the Bank of Japan. Unlike its peers, the BoJ is still expected to tighten policy, reflecting Japan’s firmer growth foundation and a more durable inflation process. This creates a notable US–Japan policy divergence, which has already influenced currency and bond-market behaviour and could become a larger global shock-transmission channel in 2026.

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**Financial market stress**
The third chart highlights another source of downside risk: the widening gap between financial-market calm and real-economy anxiety. The US VIX has spent most of the past year hovering near multi-decade lows, consistent with rich valuations, abundant liquidity and a broadly optimistic macro narrative. Yet measured global economic policy uncertainty remains unusually elevated, reflecting geopolitical fragmentation, shifting trade regimes, and highly uncertain fiscal trajectories. This disconnect matters. Periods in which markets price near-perfection while the policy environment deteriorates have often been precursors to sharp repricing episodes. With valuations stretched and volatility compressed, it would not take much—a policy misstep, a geopolitical shock, or a rapid shift in rate expectations—to trigger a correction big enough to destabilise confidence in 2026.

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**AI expectations**
Against that backdrop, our next chart highlights a more subtle but no less important vulnerability: expectations around AI-driven growth. While AI has undoubtedly been a powerful tailwind for market sentiment—and arguably a key reason why forecasters have nudged up 2026 growth projections—our survey suggests that most respondents believe financial markets are overestimating the likely economic gains. Only around a third think current expectations are broadly accurate; almost nobody believes markets are underestimating AI’s impact. This imbalance matters. When valuations are rich and optimism is heavily front-loaded, any disappointment in AI adoption, productivity gains or investment payoffs could unwind a meaningful chunk of the recent market strength. In other words, the same force lifting the outlook today could become a meaningful downside catalyst in 2026 if reality fails to keep pace with expectation.

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**Trade disruption** 
A further downside risk comes from the latent fragilities in global trade and logistics. The Baltic Dry Index has climbed sharply in recent months, hinting at firmer shipping demand and rising transport costs, even as the Global Supply Chain Pressure Index has edged lower. That combination is telling: headline congestion may not yet be building, but underlying pressures—tight vessel availability, shifting trade routes, selective port bottlenecks and stronger goods flows—are quietly re-accumulating beneath the surface. None of this resembles the acute disruptions of 2021–22, but the risk is that a seemingly contained system can tighten very quickly. For a global economy that remains vulnerable to cost shocks and production delays, any renewed squeeze in trade logistics would add another meaningful downside risk as we look toward 2026.

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**Geopolitical shocks** 
Geopolitical risk has eased from the extremes seen during the early stages of the Israel–Gaza conflict, but the broader backdrop remains far from settled. The global Geopolitical Risk Index is still running well above its pre-pandemic norm, and volatility is now being driven less by any single flashpoint and more by a crowded field of simmering risks. These range from an unstable Russia–Ukraine stalemate and intensifying U.S.–China strategic rivalry to ongoing tensions across the Taiwan Strait, a fragile security environment in the South China Sea, periodic flare-ups in the Caucasus and Sahel, and rising political strain ahead of multiple major elections in 2026. Venezuela’s increasing instability—both domestically and in relation to its border dispute with Guyana—adds another potential source of disruption, particularly for energy markets. While none of these risks is dominating headlines at present, history shows that geopolitical shocks rarely give advance warning. A sudden escalation in any of these theatres could easily unsettle trade flows, energy prices or investor sentiment—another meaningful downside risk as we approach 2026.

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As 2025 draws to a close, the global economy enters 2026 with a surprisingly resilient backdrop: equity markets are still trading near cycle highs, volatility is subdued, and consensus forecasts have been drifting upward in recent months—helped by a robust US economy, firmer momentum across Asia, and optimism that AI-related investment will continue to lift the medium-term outlook (chart 1). Against this relatively constructive starting point, we focus this week on the key downside risks that could challenge the consensus narrative next year: the possibility of monetary-policy miscalibration (chart 2); the gap between elevated policy uncertainty and unusually calm financial markets (chart 3); the risk that financial markets may be overestimating the gains from AI (chart 4); renewed strain in global trade (chart 5); and geopolitical tensions (chart 6). These risks do not dominate the baseline outlook, but they help frame the vulnerabilities that could matter if global conditions deteriorate. Next week, we will turn to the upside risks—the forces that could allow the world economy to outperform again in 2026.

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Charts of the Week: The Downside Risks

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The U.S. trade deficit in goods and services (BOP basis) narrowed to $52.8 billion in September from $59.3 billion in August, revised from $59.6 billion, according to the U.S. Census Bureau. The Action Economics Forecast Survey expected a deficit of $64.6 billion. The goods deficit fell to $79.0 billion in September from $86.1 billion in August, while the services surplus slipped to $26.2 billion from $26.8 billion in August. The real (inflation-adjusted) trade deficit in goods narrowed to $79.0 (2017$) in September from $83.7 billion in August. For all of Q3’25, the real deficit averaged $87.4 billion versus $87.7 billion in Q2, and thus it should be a modest addition to Q3 economic growth after a 4.8 percentage point addition in Q2.

Exports of goods & services rose 3.0% (5.7% y/y) in September following a 0.2% August slip. Goods exports (Census basis) strengthened 4.9% after a 0.8% slip. Nonauto consumer goods exports surged 19.1%. Industrial supplies & materials exports increased 12.1% while foods, feeds & beverage exports rose 3.4%. “Other” goods exports rose 7.6%. To the downside, capital goods exports excluding autos declined 5.3% while auto & parts exports fell 2.2%. Services exports eased 0.4%. Exports of financial services rose 1.4% while exports of maintenance & service repairs rose 0.8%. Exports of government goods and services rose 1.7%.

Imports of goods & services in September increased 0.6% (-3.7% y/y) after a 5.2% decline. Goods imports rose 0.7% (-5.9% y/y) in September after a 6.6% August decline. Nonauto consumer goods jumped 18.4% while industrial supplies & materials imports were little-changed. Elsewhere, imports fell. Capital goods excluding auto imports slumped 6.0%, auto imports fell 4.1% and food imports declined 1.6%. Total services imports rose 0.3% in September after a 0.3% decline. Maintenance & repair services increased 3.1%, construction service imports rose 1.1%, transport rose 1.5% but travel weakened 1.2%. Imports of government goods & services held steady.

By country, the goods trade deficit with China narrowed to $11.4 billion (SA) in September from $15.4 billion in August. Exports to China rose 1.8% while imports from China weakened 16.1%. The trade deficit with the European Union doubled m/m to $17.8 billion in September. Exports rose 13.2% but imports surged by one-third. The deficit with Japan declined sharply to $3.6 billion in September. Exports increased 7.9% while imports declined 12.7%.

The international trade data can be found in Haver’s **USECON** database. Detailed figures on international trade are available in the **USINT** and **USTRADE** databases. The expectations figures are from the Action Economics Forecast Survey in **AS1REPNA**.

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- Foreign trade deficit shrinks to lowest since June 2020.
- Surge in exports is driven by foods, industrial supplies & nonauto consumer goods.
- Minimal import increase is held down by fewer capital goods, autos & foods.
- Services surplus eases.

U.S. Trade Deficit Narrows to Five-Year Low in September

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance rose 44,000 to 236,000 during the week of December 6, after declining to 192,000 during the week of November 29, revised from 191,000. The four-week moving average of initial claims was 216,750, an increase of 2,000 from the previous week unrevised average of 214,750, which was the lowest level since January 2025.

Federal government employees initially filed 643 (NSA) jobless insurance claims in the week ended November 29, after 1,126 filed in the week ended November 22, revised from 1,125.

Continuing claims for unemployment insurance posted a sharp decline of 99,000 to 1,838,000 in the week ending November 29, from 1,937,000 the prior week, revised from 1.939 million. The four-week moving average decreased by 27,000 to 1,918,000 in the week ended November 29, from 1945,250 the prior week, revised from 1.945 million. The insured unemployment rate stood at 1.2% in the week of November 29, a decrease from 1.3% in the prior week.

Federal government employees continuing benefits fell to 12,732 (NSA) in the week ended November 22, from 17,862 in the week ended November 15, revised from 17,851.

The insured unemployment rate varied greatly across individual states and territories. In the week ended November 22, the highest unemployment rates were in New Jersey (2.18%), Washington (2.23%), Massachusetts (1.95%), Connecticut (1.83%) and Rhode Island (1.82%). The lowest rates were in Florida (0.27%), South Dakota (0.34%), North Carolina (0.39%), Louisiana (0.42%), Alabama (0.44%), Virginia and Tennessee (both 0.46%), and Arkansas and Nebraska (both 0.48%). Rates in other notable states include California (1.74%), New York (1.63%), Pennsylvania (1.46%), Illinois (1.45%), and Texas (1.07%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.

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

Robert Brusca

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Sweden’s inflation rate has developed into a very interesting oddity as headline inflation as measured by the harmonized index of consumer prices (HICP), that is used in Europe, has come to diverge sharply from the Swedish national rate of inflation measured by its national CPI. The HICP inflation rate is 2.2% over the last 12 months; Sweden’s national rate is up by only 0.2%. If we rank each of these two inflation rates on data back to 2001, the rank of the HICP is in its 72.2 percentile while the rank of the national CPI is in only its 19.4 percentile, the lower one-fifth of its historic range of national inflation rates. These two rankings occur over the same periods and so there's nothing about the periodicity that's responsible for this; there's simply very different performance over the recent span.

**About measuring inflation**
The HICP was adopted in Europe once the monetary union was formed and the countries of Europe were not able to get together to decide how to treat housing costs, which are important element in the CPI. They had entered into CPIs in different countries in different ways at that point. In the United States, inflation statistics are often criticized because of the way the housing component fits into them. Housing has such a large weight in the U.S. inflation measure. U.S. housing costs consider the cost of running the house in terms of taxes and utility costs; they look at the rental equivalent values, and they also have an owner imputed rent for people who live in their own homes. Of course, owner equivalent rent is a made-up number; it's completely imputed. Because a lot of European mortgages are short-term and they reprice when the central bank changes its rate, it’s very important to be careful how interest rates are treated in the housing cost indexes in Europe. The central bank did not want to be in a position where it would be raising interest rates to fight inflation and causing inflation to be higher because they were raising the mortgage interest rates on homes and causing the cost of housing to go up. For this reason, the HICP measures do not include housing costs. As we can see in the Swedish details for this month, housing and fuel costs are down 3.1% year-over-year. If we look at the ranking of housing costs for year-over-year growth, we see that they rank in the lower 6.4 percentile and are one of the most important factors in driving the national CPI lower and, of course, that metric is absent from the HICP.

**Inflation is always rife with controversy**: All of this is simply just another way to point out that inflation, while we measure it and talk about it, it's a controversial subject. How we measure it does matter. However, for monetary policy purposes, if we construct a measure that is reasonable and if we follow it consistently over the years, it should give us good signals and a good way to measure inflation and engage monetary policy. Yet, very clearly, if there are two competing gauges, it could become a real problem to jump from one to the other because they track different circumstances.

**The current state of Swedish inflation**: Swedish inflation in November fell by 0.3% month-to-month after rising by 0.5% in October and falling by 0.1% in September. The diffusion, or breadth, of inflation acceleration was only 33.3% in November. It jumped up to 55.6% in October, but it had been lower in September at 33%. Looking at Swedish inflation over 12-month, 6-month, and 3-month periods, the HICP goes from 2.2% over 12 months to an annualized pace of 5.7% over 6 months and then back down to 0.5% over 3 months. The national CPI has the same sort of topography but different growth rates with the CPI up by only 0.2% over 12 months, accelerating to 1.5% over 6 months and then declining at a -0.9% annual rate over 3 months. Inflation diffusion over 3 months in the national index is only 11.1%, over 6 months it jumps up to 66.7%, and over 12 months it's at 44.4% which is below 50% marking inflation as having more deceleration than acceleration.

**Controlled inflation**: On balance, Swedish inflation appears to be under control using either method. The ranking for inflation by category shows high inflation for food & nonalcoholic beverages, education, other goods & services, and medical care. However, inflation is below its median pace and bears low rankings for clothing & footwear, housing, fuel & lighting, recreation & culture, and transportation. Inflation is always somewhat mixed across sectors. That’s another thing that makes it hard to pin down exactly what inflation is, because people who consume different baskets of goods are going to experience different inflation rates. However, Sweden appears to have its inflation situation under control whichever metric you look at. The chart makes it clear that after its spike during COVID, inflation has come back down to a reasonable long-term pace that appears to be close to something that the central bank would find acceptable. The recent rise in HICP inflation seems to be unwinding and year-over-pace is down to a moderate 2.2%.

Economy in Brief

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U.S. Durable Goods Orders Surged

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Chicago Fed Nat'l Activity & Richmond Fed Factory Indexes Up

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Consumer and Business Confidence Measures in France, Italy and the Netherlands