Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103a.jpg" width="353">
Nonfarm payrolls last month rose 92,000 and for the second month fell short of Consensus expectations which were for a 125,000 rise. However, again for the second month, upward revisions to prior months&#39; increases left the impression of firmness in the labor market
For September, payrolls are now estimated to have risen 148,000, nearly triple the initial estimate. In addition, the August increase is now pegged at 230,000, up from 188,000 estimated last month. The gains pulled the three month average increase in jobs to 157,000 and the ten month average to 147,000, just below last year&#39;s average monthly gain of 165,000 and an average 175,000 during 2004.
Further evidence of a firm labor market was provided by the unemployment rate which declined to a five year low of 4.4%. The drop reflected an employment gain of 437,000 and not a typo. It was the largest monthly increase since early 2005 (1.9% y/y) and followed a 271,000 September gain. The labor force increased 199,000 (1.3% y/y) and the labor force participation rate held for the fifth month at 66.2%, up from the monthly lows during 2005 of 65.8%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103b.jpg" width="353">
Government payrolls increased 34,000 (1.1% y/y). As a result private payrolls rose 58,000 (1.6% y/y) following upwardly revised gains of 120,000 and 180,000 in September and August, respectively.
The breadth of one month gain in private payrolls slipped a bit to 54.9% in October from an upwardly revised 55.9% in September but the three month diffusion index fell to 55.6%, the lowest level since early 2005. In the factory sector the one month breadth of gain fell further below break even to 40.5% from 43.5% in August. The three month diffusion index fell to 36.9%, also it&#39;s lowest in nearly a year.
Private service-producing jobs rose 118,000 (1.7% y/y) and a 126,000 September increase was double the initial estimate. Professional &amp; business services employment rose 43,000 (2.8% y/y) while temporary help services jobs recovered 15,000 (1.1% y/y). Jobs in education &amp; health rose 28,000 (2.5% y/y) while leisure &amp; hospitality jobs increased 35,000 (2.5% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103c.jpg" width="353">
Factory sector payrolls fell a hard 39,000, the seventh m/m decline this year and the largest since 2003. Jobs in motor vehicle &amp; parts industries fell 14,700 (-2.9% y/y) while jobs in furniture fell 3,300 (-3.5% y/y) and fabricated metals declined 3,700 (+2.0% y/y). Jobs in wood products also fell a sharp 5,000 (-2.4% y/y) and nondurables dropped 20,000 (-1.0% y/y) with textile industries down quite hard.
Construction employment fell 26,000 (+2.0% y/y) after a little revised 5,000 worker gain during September.
Average hourly earnings doubled the previous month&#39;s increase and rose 0.4%. Factory sector earnings rose 0.4% (1.3% y/y), the largest gain in a year.
The workweek rose to 33.9 hours, back to the highest level since 2002.
Are Two Employment Surveys Better than One? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20061101/cover.pdf"> here</a>
Money and Monetary Policy for the Twenty-First Century, also from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/06/11/Jordan.pdf"> here</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>92,000</td>
<td>148,000</td>
<td>1.5%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-39,000</td>
<td>-12,000</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>-1.3%</td>
<td>-4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.9</td>
<td>33.8</td>
<td>33.8 (Oct. &#39;05)</td>
<td>33.8</td>
<td>33.7</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.4%</td>
<td>0.2%</td>
<td>3.9%</td>
<td>2.8%</td>
<td>2.1%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.4%</td>
<td>4.6%</td>
<td>5.1% (Sept. &#39;05)</td>
<td>5.1%</td>
<td>5.5%</td>
<td>6.0%</td>
</tr>
</tbody>
</table>
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Nonfarm payrolls last month rose 92,000 and for the second month fell short of Consensus expectations which were for a 125,000 rise. However, again for the second month, upward revisions to prior months' increases left the impression [...]

U.S. Payroll Report: More Upward Revisions

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103a.jpg" width="353">
Nonfarm payrolls last month rose 92,000 and for the second month fell short of Consensus expectations which were for a 125,000 rise. However, again for the second month, upward revisions to prior months&#39; increases left the impression of firmness in the labor market
For September, payrolls are now estimated to have risen 148,000, nearly triple the initial estimate. In addition, the August increase is now pegged at 230,000, up from 188,000 estimated last month. The gains pulled the three month average increase in jobs to 157,000 and the ten month average to 147,000, just below last year&#39;s average monthly gain of 165,000 and an average 175,000 during 2004.
Further evidence of a firm labor market was provided by the unemployment rate which declined to a five year low of 4.4%. The drop reflected an employment gain of 437,000 and not a typo. It was the largest monthly increase since early 2005 (1.9% y/y) and followed a 271,000 September gain. The labor force increased 199,000 (1.3% y/y) and the labor force participation rate held for the fifth month at 66.2%, up from the monthly lows during 2005 of 65.8%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103b.jpg" width="353">
Government payrolls increased 34,000 (1.1% y/y). As a result private payrolls rose 58,000 (1.6% y/y) following upwardly revised gains of 120,000 and 180,000 in September and August, respectively.
The breadth of one month gain in private payrolls slipped a bit to 54.9% in October from an upwardly revised 55.9% in September but the three month diffusion index fell to 55.6%, the lowest level since early 2005. In the factory sector the one month breadth of gain fell further below break even to 40.5% from 43.5% in August. The three month diffusion index fell to 36.9%, also it&#39;s lowest in nearly a year.
Private service-producing jobs rose 118,000 (1.7% y/y) and a 126,000 September increase was double the initial estimate. Professional &amp; business services employment rose 43,000 (2.8% y/y) while temporary help services jobs recovered 15,000 (1.1% y/y). Jobs in education &amp; health rose 28,000 (2.5% y/y) while leisure &amp; hospitality jobs increased 35,000 (2.5% y/y).<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103c.jpg" width="353">
Factory sector payrolls fell a hard 39,000, the seventh m/m decline this year and the largest since 2003. Jobs in motor vehicle &amp; parts industries fell 14,700 (-2.9% y/y) while jobs in furniture fell 3,300 (-3.5% y/y) and fabricated metals declined 3,700 (+2.0% y/y). Jobs in wood products also fell a sharp 5,000 (-2.4% y/y) and nondurables dropped 20,000 (-1.0% y/y) with textile industries down quite hard.
Construction employment fell 26,000 (+2.0% y/y) after a little revised 5,000 worker gain during September.
Average hourly earnings doubled the previous month&#39;s increase and rose 0.4%. Factory sector earnings rose 0.4% (1.3% y/y), the largest gain in a year.
The workweek rose to 33.9 hours, back to the highest level since 2002.
Are Two Employment Surveys Better than One? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20061101/cover.pdf"> here</a>
Money and Monetary Policy for the Twenty-First Century, also from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/review/06/11/Jordan.pdf"> here</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EB/@EB01/@EB01.HTM">Employment</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>92,000</td>
<td>148,000</td>
<td>1.5%</td>
<td>1.5%</td>
<td>1.1%</td>
<td>-0.3%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-39,000</td>
<td>-12,000</td>
<td>-0.1%</td>
<td>-0.6%</td>
<td>-1.3%</td>
<td>-4.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Weekly Hours</td>
<td>33.9</td>
<td>33.8</td>
<td>33.8 (Oct. &#39;05)</td>
<td>33.8</td>
<td>33.7</td>
<td>33.7</td>
</tr>
<tr>
<td class="firstcol">Average Hourly Earnings</td>
<td>0.4%</td>
<td>0.2%</td>
<td>3.9%</td>
<td>2.8%</td>
<td>2.1%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment Rate</td>
<td>4.4%</td>
<td>4.6%</td>
<td>5.1% (Sept. &#39;05)</td>
<td>5.1%</td>
<td>5.5%</td>
<td>6.0%</td>
</tr>
</tbody>
</table>
ISM Nonmanufacturing Index Recovered 
by <a href="/comment/Moeller.html">Tom Moeller</a> November 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103d.jpg" width="353">
The Business Activity Index for the non-manufacturing sector in October recovered all of the prior month&#39;s decline and rose to 57.1. The figure from the Institute for Supply Management (ISM) exceeded Consensus expectations for a lesser rise to 54.5.
Since the series&#39; inception in 1997 there has been a 50% correlation between the level of the Business Activity Index and the q/q change in real GDP for services plus construction.
The new orders sub-index slipped to 56.5 after a sharp September increase though the employment index gave back all of its September gain. At 51.0 it was at the lowest monthly level since 2004 and just 14% of survey respondents reported higher employment. Since the series&#39; inception in 1997 there has been a 60% correlation between the level of the ISM non-manufacturing employment index and the m/m change in payroll employment in the service producing plus the construction industries.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103e.jpg" width="353">
Pricing power dropped to its worst since 2003. Since inception eight years ago, there has been a 70% correlation between the price index and the y/y change in the GDP services chain price index.
ISM surveys more than 370 purchasing managers in more than 62 industries including construction, law firms, hospitals, government and retailers. The non-manufacturing survey dates back to July 1997.
Business Activity Index for the non-manufacturing sector reflects a question separate from the subgroups mentioned above. In contrast, the NAPM manufacturing sector composite index is a weighted average five components.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Oct. &#39;05</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Business Activity Index</td>
<td>57.1</td>
<td>52.9</td>
<td>59.2</td>
<td>60.1</td>
<td>62.5</td>
<td>58.3</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>51.9</td>
<td>56.7</td>
<td>74.1</td>
<td>67.9</td>
<td>68.8</td>
<td>56.6</td>
</tr>
</tbody>
</table>
Rebound in Canadian Labor Market after Summer Pause 
by <a href="/comment/Stone.html">Carol Stone</a> November 3, 2006


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103f.jpg" width="353">
Canadian labor markets seem to be staging a comeback after something of a sinking spell during the summer. In October data reported this morning by StatCan, employment gained by 50,500 and the unemployment rate fell to 6.2%, the lowest since 6.1% in May and June.
Back in September we were puzzled about whether recent months&#39; job losses were a sign of sagging activity, or merely a correction after an outsized rise in May. After two months of increases, we probably can conclude that the latter is the more valid conclusion. In October, at 16,555,500, employment in Canada reached a new high.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103g.jpg" width="353">
Further, the downtrend we thought we were seeing in the goods-producing sector may also be &quot;just a phase&quot;. September and October had gains of 18,000 and 9,000, respectively, in construction, mining and utilities. We&#39;d attribute these increases to added supply efforts in Canada&#39;s energy production. It is still the case that manufacturing jobs are declining.
Service industries have mixed performances. Some, like finance, business support services and accommodation and food services, are growing vigorously. But others, including professional and technical activities and information services, are waffling after extended uptrends. The service sector as a whole is gaining, but the sources of growth seem to be different most every month.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061103h.jpg" width="353">
The unemployment rate fell 0.2 point in October. Not all of that move represents good news, though. Along with the employment growth, the number of people in the labor force flattened out. The so-called participation rate, the labor force as a portion of the population over age 15, has edged lower, reaching 67.08%, the lowest since February&#39;s 67.02%; this rate peaked at 67.34% in July. These may look like small differences, but in Canada, each 0.1% in the participation rate represents about 26,000 people who are seeking work or deciding not to seek work. All these caveats aside, the decline in the unemployment rate obviously contains more good news than bad, and we are encouraged by the October labor data, which indeed seem to confirm that the declines in the summer were perhaps a &quot;vacation&quot; and labor markets have picked up once again.
These national Canadian data are contained in Haver&#39;s CANSIM database. Some detail is also available for the Provinces; those data are in CANSIMR.

<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/CANSIM/@C6/@C6.HTM">Canada&nbsp;</a> (Seasonally Adjusted)</th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 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">Employment (000s)</td>
<td>16,555</td>
<td>16,505</td>
<td>16,488</td>
<td>16,268</td>
<td>16,169</td>
<td>15,949</td>
<td>15,672</td>
</tr>
<tr>
<td class="firstcol">Change, 000s/%</td>
<td>+50</td>
<td>+16</td>
<td>-16</td>
<td>1.8%</td>
<td>1.4%</td>
<td>1.8%</td>
<td>2.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Goods-Producing </td>
<td>+9</td>
<td>+18</td>
<td>-18</td>
<td>-0.4%</td>
<td>0.2%</td>
<td>1.7%</td>
<td>1.2%</td>
</tr>
<tr>
<td class="firstcol">Service-Producing</td>
<td>+2</td>
<td>+2</td>
<td>+30</td>
<td>2.8%</td>
<td>2.1%</td>
<td>1.8%</td>
<td>2.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">Unemployment (000s)</td>
<td>1,086</td>
<td>1,131</td>
<td>1,141</td>
<td>1,155</td>
<td>1,173</td>
<td>1,235</td>
<td>1,286</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%)</td>
<td>6.2</td>
<td>6.4</td>
<td>6.5</td>
<td>6.6</td>
<td>6.8</td>
<td>7.2</td>
<td>7.6</td>
</tr>
<tr class="odd">
<td class="firstcol">Participation Rate (%)</td>
<td>67.08</td>
<td>67.14</td>
<td>67.21</td>
<td>67.20</td>
<td>67.20</td>
<td>67.54</td>
<td>67.54</td>
</tr>
</tbody>
</table>


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Carol Stone, CBE

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102j.jpg" width="353">
German labor market data for September and October were reported today. We last checked in with these data at the end of June. The most notable factor then was an increase in job vacancies, and we wondered if they would translate into actual jobs. This may have happened -- at least to some extent.
Total employment in September was 39.17 million, up 24,000 from August and 334,000 or 0.9% from September 2005. It has risen for seven consecutive months (seasonally adjusted), and marks the longest such span since 1999/2000.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102k.jpg" width="353">
Moreover, the number of job vacancies has continued to rise. In October employers reported opportunities for 662,000 workers, and increase of 45,000 from September and 179,000 from a year ago. This increase in vacancies, when filled, would add about 0.5% to total employment.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102l.jpg" width="353">
The unemployment situation is mixed and depends on what measure one looks at. The harmonized &quot;ILO&quot; unemployment rate was 8.3% in September, steady with August, but up from a recent low of 7.9% in April. Germans prefer their own measure of &quot;registered&quot; unemployment rate, and it has declined, dipping to 10.4% in October, the lowest since April 2004. Among labor force groups, all sectors of the population have seen some year-on-year improvement in recent months (the individual categories are not seasonally adjusted, necessitating comparisons with like periods of prior years) and the rate for men in particular has reached down to 9.1%, the lowest since October 2001. Thus, job opportunities are increasing in Germany, and with a record number of vacancies shown in this report, that may yield more workers in the months ahead.

<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/GERMANY/@D5/@D5.HTM">Germany: Seas Adj, ex as noted</a></th>
<th scope="col">Oct 2006</th>
<th scope="col">Sept 2006</th>
<th scope="col">Aug 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">LFS Employment (mil)</td>
<td>--</td>
<td>39.17</td>
<td>39.14</td>
<td>38.84</td>
<td>38.82</td>
<td>38.87</td>
<td>38.72</td>
</tr>
<tr>
<td class="firstcol">Change (thous)</td>
<td>--</td>
<td>+24</td>
<td>+34</td>
<td>+334</td>
<td>-53</td>
<td>+150</td>
<td>-370</td>
</tr>
<tr class="odd">
<td class="firstcol">Yr/Yr % Chg NSA</td>
<td>--</td>
<td>--</td>
<td>--</td>
<td>+0.9</td>
<td>-0.1</td>
<td>+0.4</td>
<td>-0.9</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate (%, ILO Def.)</td>
<td>--</td>
<td>8.3</td>
<td>8.3</td>
<td>8.0</td>
<td>7.1</td>
<td>9.1</td>
<td>9.2</td>
</tr>
<tr class="odd">
<td class="firstcol">Registered Unemployment Rate (%)</td>
<td>10.4</td>
<td>10.6</td>
<td>10.6</td>
<td>11.6</td>
<td>11.7</td>
<td>10.6</td>
<td>10.5</td>
</tr>
<tr>
<td class="firstcol">Job Vacancies (thous)</td>
<td>662</td>
<td>617</td>
<td>589</td>
<td>483</td>
<td>488</td>
<td>278</td>
<td>318</td>
</tr>
</tbody>
</table>
</body>
</html>

German labor market data for September and October were reported today. We last checked in with these data at the end of June. The most notable factor then was an increase in job vacancies, and we wondered if they would translate into [...]

German Labor Markets Show More Distinct Gain

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102m.jpg" width="353">
Announced job cuts reported by Challenger, Grey &amp; Christmas for October retraced most of the prior month&#39;s jump with a 31,138 decline to 69,177. The three month moving average of layoff announcements nevertheless rose to 78,257, its highest level since March.
During the last ten years there has been an 83% (inverse) correlation between the three month moving average level of announced job cuts and the three month change payroll employment.
Layoffs fell sharply m/m in the automotive (210.3% y/y), commodities (77.2% aerospace (-70.7% y/y), consumer goods (-23.9% y/y), industrial goods (-32.6% y/y), and pharmaceutical (-74.1% y/y) industries.
Job cut announcements differ from layoffs. Many are achieved through attrition, early retirement or just never occur.
Challenger also reported that announced hiring plans fell sharply m/m (-54.3% y/y).

<table border="0" cellspacing="0" width="100%">
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<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S3/@S301/@S301.HTM">Challenger, Gray &amp; Christmas</a></th>
<th scope="col">October</th>
<th scope="col">September</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">Announced Job Cuts</td>
<td>69,177</td>
<td>100,315</td>
<td>-14.9%</td>
<td>1,072,054</td>
<td>1,039,935</td>
<td>1,236,426</td>
</tr>
</tbody>
</table>
</body>
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Announced job cuts reported by Challenger, Grey & Christmas for October retraced most of the prior month's jump with a 31,138 decline to 69,177. The three month moving average of layoff announcements nevertheless rose to 78,257, its [...]

Challenger Layoffs Back Down

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102h.jpg" width="353">
Factory inventories rose 0.6% last month. That matched the gain during July, which was upwardly revised, and it pulled the y/y change up to 7.4%, the fastest since early 2005.
Though petroleum inventories have fallen in recent months, higher prices have lifted the y/y gain to 15.7%. Despite this distortion, factory inventories less petroleum grew 7.0% y/y in September, the fastest since 2005.
Primary metals inventories rose another, firm 2.8% (16.3% y/y). Inventories of computers &amp; electronic products actually fell slightly (9.3% y/y) after a strong 1.5% August increase and inventories of electrical equipment fell 0.3% (+11.6% y/y) after near 2% jumps during each of the prior three months. Machinery inventories spiked 1.4% (6.1% y/y).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102i.jpg" width="353">
Total factory orders recovered a strong 2.1% after an August dip. That strength reflected an 8.3% pop in durable goods orders which was little revised from the advance report and reflected higher aircraft orders. Factory orders less transportation fell 2.4% (+3.0% y/y), the weakness reflecting a 4.6% decline in nondurables and a 14.8% drop in petroleum.
Factory shipments fell 3.5% due to the drop in petroleum. Transportation shipments also collapsed 4.5% due to a 7.3% drop in autos. Still, factory shipments less transportation &amp; petroleum fell 2.0% (+5.0% y/y) due to across the board declines.
Unfilled orders surged 3.9% due to the jump in civilian aircraft. Less the transportation sector altogether backlogs rose 1.2% (13.1% y/y).<a href="http://research.stlouisfed.org/publications/review/05/07/Gali.pdf"> </a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@ED/@ED01/@ED0101/@ED01016/@ED01016.HTM">Factory Survey</a> (NAICS)</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Inventories</td>
<td>0.6%</td>
<td>0.6%</td>
<td>7.4%</td>
<td>4.0%</td>
<td>6.9%</td>
<td>-7.4%</td>
</tr>
<tr>
<td class="firstcol">New Orders</td>
<td>2.1%</td>
<td>-0.3%</td>
<td>7.7%</td>
<td>8.5%</td>
<td>7.5%</td>
<td>0.9%</td>
</tr>
<tr class="odd">
<td class="firstcol">Shipments</td>
<td>-3.5%</td>
<td>0.8%</td>
<td>2.4%</td>
<td>7.1%</td>
<td>6.8%</td>
<td>0.2%</td>
</tr>
<tr>
<td class="firstcol">Unfilled Orders</td>
<td>3.9%</td>
<td>0.5%</td>
<td>22.0%</td>
<td>16.3%</td>
<td>4.5%</td>
<td>-1.0%</td>
</tr>
</tbody>
</table>
</body>
</html>

Factory inventories rose 0.6% last month. That matched the gain during July, which was upwardly revised, and it pulled the y/y change up to 7.4%, the fastest since early 2005. Though petroleum inventories have fallen in recent months, [...]

U.S. Factory Inventory Accumulation Continued

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102f.jpg" width="353">
Non-farm labor productivity last quarter was unchanged from 2Q and the figure fell short of Consensus expectations for a 1.3% rise. While the q/q change was disappointing, similar weakness just last year was followed by recovery. This year, however, the y/y increase dropped to 1.3% as a result of the decline, the weakest since 1997.
The weakness fueled the growth in unit labor costs. A 3.8% gain lifted the y/y increase in costs to 5.3%, the strongest since 1990. During the last thirty years there has been an 85% correlation between labor cost growth the growth in the GDP chain price deflator, although that correlation has fallen sharply in recent years.
Compensation grew a much diminished 3.7, but here again the y/y growth remained elevated near 7%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102g.jpg" width="353">
Factory sector productivity growth remained quite firm last quarter at 5.9% (4.3% y/y. Growth in factory sector compensation per hour slowed to 2.9% (5.1% y/y) from 4.0% during 2Q and 13.3% during 1Q and that fostered a decline in unit labor costs. The 2.9% (+0.8% y/y) decline was the first this year.
Freedom, Trade, and Growth from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/iet/20061101/cover.pdf"> here</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/USECON/@EC/@EC02/@EC02.HTM">Non-farm Business Sector</a> (SAAR)</th>
<th scope="col">3Q &#39;06</th>
<th scope="col">2Q&#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>0.0%</td>
<td>1.2%</td>
<td>1.3%</td>
<td>2.3%</td>
<td>3.0%</td>
<td>3.7%</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>3.7%</td>
<td>6.6%</td>
<td>6.7%</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>3.8%</td>
<td>5.4%</td>
<td>5.3%</td>
<td>2.0%</td>
<td>0.6%</td>
<td>0.3%</td>
</tr>
</tbody>
</table>
</body>
</html>

Non-farm labor productivity last quarter was unchanged from 2Q and the figure fell short of Consensus expectations for a 1.3% rise. While the q/q change was disappointing, similar weakness just last year was followed by recovery. This [...]

U.S. Productivity Unchanged

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102a.jpg" width="353">
Initial claims for unemployment insurance jumped 18,000 last week to 327,000 from a little revised level during the prior period. Consensus expectations had been for 310,000 claims during the latest week.
There apparently were no special factors to explain the increase but it occurred after the period, which includes the twelfth of the month, when the nonfarm payrolls survey occurs. Therefore Consensus estimates of a 125,000 rise in October jobs, to be released tomorrow, should not change.
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.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102b.jpg" width="353">
The four-week moving average of initial claims rose to 311,250 (-8.2% y/y).
Continuing claims for unemployment insurance fell 27,000 following a revised 4,000 decline the prior week that initially was reported as a slight increase.
The insured rate of unemployment revisited the six year low at 1.8% after being steady most of 2006 at 1.9%.
Are Two Employment Surveys Better than One? from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20061101/cover.pdf"> here</a>.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a></th>
<th scope="col">10/28/06</th>
<th scope="col">10/21/06</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>327</td>
<td>309</td>
<td>1.6%</td>
<td>332</td>
<td>343</td>
<td>403</td>
</tr>
<tr>
<td class="firstcol">&nbsp;Continuing Claims</td>
<td>--</td>
<td>2,415</td>
<td>-12.2%</td>
<td>2,662</td>
<td>2,924</td>
<td>3,532</td>
</tr>
</tbody>
</table>
</body>
</html>

Initial claims for unemployment insurance jumped 18,000 last week to 327,000 from a little revised level during the prior period. Consensus expectations had been for 310,000 claims during the latest week. There apparently were no [...]

Initial Claims for Unemployment Insurance Jumped

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102c.jpg" width="353">
In October, a 2.8% decline in U.S. sales of light vehicles to 16.16M units retraced most of the prior month&#39;s 3.5% increase, according to the Autodata Corporation. During the first ten months of 2006 vehicle sales averaged 16.58M units, down 2.7% from the comparable period during 2005. Consensus estimates had been for 16.2M sales during October
Light truck sales fell 1.8% last month following a 7.5% September gain. That pulled the average of light truck sales year to date down 6.2% versus the first ten months of last year.
Sales of the relatively fuel efficient imported light trucks were again strong and rose 10.7% (38.5% y/y) after a 14.4% September jump. Year to date sales of imported light trucks are 12.4% higher than the first ten months of 2005. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102d.jpg" width="353">
Domestic light truck sales fell 4.1% (+13.4% y/y) during October, the y/y comparison still favorable due to a slump last October after the end of a sales promotion. During the first ten months of this year domestic light truck sales fell 9.0% from the first ten months of 2005 to an average of 7.46M units (85% of the U.S. market).
Auto sales fell 4.0%, the third sequential m/m drop. Domestic car sales slumped 4.7% (-2.1% y/y) but year to date sales of U.S. nameplates were down a modest 1.3% versus 2005. Sales of imported autos also fell 2.6% (+6.0% y/y) and year to date sales of imported autos were up 8.9% versus 2005 and grabbed 31% of the U.S. car market. <img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/061102e.jpg" width="353">
U.S. car &amp; truck production, a figure in Haver&#39;s USECON database, fell 9.9% (-16.3% y/y) during October. Year to date production was off 5.2% from 2005. For all of last year production was about steady with 2004.
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/USECON/@ED/@ED09/@ED0901/@ED0901.HTM">Light Vehicle Sales (SAAR, Mil. Units)</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">Y/Y</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
<th scope="col">2003</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Total</td>
<td>16.16</td>
<td>16.63</td>
<td>8.9%</td>
<td>16.96</td>
<td>16.87</td>
<td>16.63</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Autos</td>
<td>7.32</td>
<td>7.63</td>
<td>0.4%</td>
<td>7.65</td>
<td>7.49</td>
<td>7.62</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Trucks</td>
<td>8.84</td>
<td>9.00</td>
<td>17.2%</td>
<td>9.32</td>
<td>9.37</td>
<td>9.01</td>
</tr>
</tbody>
</table>
</body>
</html>

In October, a 2.8% decline in U.S. sales of light vehicles to 16.16M units retraced most of the prior month's 3.5% increase, according to the Autodata Corporation. During the first ten months of 2006 vehicle sales averaged 16.58M [...]

U.S. Vehicle Sales Retraced Earlier Increase

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

With escalation of Israel/Iran conflict, geopolitical risk has recently surged while US trade policy uncertainty has ebbed

Renewed supply chain pressures point to a rebound in global inflation ahead

Apart from Japan, Blue Chip forecasters look for further significant monetary policy easing

Apart from the US, productivity is moribund

Financial market concerns ebb even though policy uncertainty continues to soar

US tariff revenues nearly doubled in April

Even with expected tariff-induced increases in inflation, BCFF forecasters look for a more aggressive round of monetary easing

USD/EUR exchange rate uncoupling from interest rate differential

Widespread downgrading of 2025 GDP outlook

Trade and fiscal policy uncertainty has exploded with the new administration

Much lower US electricity costs gives it a competitive advantage

Wage growth slowing in the US and Euro area; elevated and sticky in the UK

Stagflation-lite: Blue Chip forecasts below-trend growth and elevated inflation

US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

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The **PCE chain price index** increased 0.2% (2.6% y/y) after rising an unrevised 0.3% in June and an unrevised 0.2% in May. The y/y gain steadied at 2.6%. It was increased from 2.2% y/y in April. Energy prices fell 1.1% (-2.7% y/y) after rising 0.9%, while food & beverage prices eased 0.1% (+1.9% y/y) following a 0.3% rise. The price index excluding food & energy rose a steady 0.3%, after two straight 0.2% increases. The y/y gain edged up to 2.9% last month from 2.8% in June. It was increased from a low of 2.6% in April.

Durable goods prices eased 0.1% (+1.1% y/y) in July, after rising 0.5% in June. Home furnishings & appliance prices edged 0.1% higher (2.5% y/y), after increasing 1.3%. Recreational goods & vehicle costs declined 0.9% (-0.3% y/y) and reversed the 0.9% June strengthening. Motor vehicle & parts prices rose 0.2% (1.6% y/y), after a 0.4% June decline.

Prices of nondurable goods eased 0.1% (+0.2% y/y) last month after rising 0.4% in June. Clothing prices held steady both m/m and y/y after rising 0.3% in June. Food & beverage prices eased 0.1% (+1.9% y/y), following a 0.4% June increase. Gasoline & other energy prices fell 1.7% (-9.6% y/y), after rising 0.9% in June.

Services prices in July rose 0.3% (3.6% y/y), after four straight 0.2% increases. Housing & utility prices rose 0.2% (4.3% y/y), after two consecutive 0.3% increases, and services prices excluding energy & healthcare gained 0.4% (3.7% y/y) after two 0.2% gains. Healthcare prices rose 0.2% (2.7% y/y), after rising 0.4%. The cost of financial services & insurance jumped 1.2% (5.5% y/y) after rising 0.4% in June. Recreation services costs rose 0.3% (3.2% y/y) after rising 0.1%. Transportation prices gained 0.2% (4.4% y/y), following a 0.1% rise, while hotel & restaurant prices improved 0.1% (2.8% y/y) after a slight June decline.

**Personal consumption expenditures (PCE)** rose 0.5% (4.7% y/y) last month after increasing 0.4% in June, revised from 0.3%, after holding steady in May. The July rise matched expectations in the Action Economics Forecast Survey. When adjusted for price changes, PCE improved 0.3% in July (2.1% y/y) after rising 0.1% in June.

Real spending on durable goods increased 2.0% (3.2% y/y) in July, after falling for three straight months. Real spending on motor vehicles jumped 4.5% (3.5% y/y), after falling sharply in both June and May. Real outlays on furnishings & appliances improved 0.2% (0.9% y/y), after falling in each of the prior month. Real spending on recreational goods & vehicles increased 1.5% (4.9% y/y) last month, after falling 0.4% in June. Spending on “other” durable goods improved 0.4% (2.6% y/y) after rising 0.2% in June.

Nondurable goods spending in real terms rose 0.3% (2.7% y/y) in July after gaining 0.6% in June. Real clothing & footwear purchases rose 0.6% (4.9% y/y) last month, following a 0.5% rise during June. Real food & beverage purchases strengthened 0.7% (1.7% y/y) after rising 0.4%. Real outlays on gasoline & other energy products fell 1.3% (-1.5% y/y), after rising 1.5%. Real spending on “other” nondurable goods edged 0.1% higher (4.1% y/y) last month, following a 0.6% rise in June.

Real spending on services improved 0.1% (1.7% y/y) in July for the second straight month. Real spending on housing & utilities rose 0.1% (1.1% y/y) in July, for a second consecutive month, while real health care spending also rose 0.1% (3.9% y/y) after rising 0.2%. Real spending on food services & accommodations eased 0.2% (+1.7% y/y), after rising 0.4% in June. Real spending on financial services & insurance rose 0.2% (2.4% y/y) after increasing 0.4% in June. Real spending on transportation services rose 0.3% (-0.0% y/y) in July, after falling 0.6% in June. Recreation spending slipped 0.1% (+1.0% y/y), the same as in June. Spending on “other” services rose 0.3% (2.7% y/y) for the second straight month.

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**Personal income** rose 0.4% last month (5.0% y/y) after increasing 0.3% in June. A 0.5% gain was expected. Wages & salaries moved 0.6% higher (5.3% y/y), following a 0.1% increase during June. Rental income increased 0.5% (4.0% y/y) in July, after falling for three straight months. Proprietors’ income improved 0.7% (2.3% y/y), after a minimal 0.1% increase. Income from assets rose 0.1% (1.4% y/y), after holding steady in June, and current transfer receipts were unchanged (8.3% y/y) following a 1.1% June increase.

Disposable personal income increased 0.4% (4.6% y/y) during July following a 0.3% June rise. After adjusting for price changes, disposable income improved 0.2% (2.0% y/y) after holding steady in June.

The personal saving rate held steady in July at 4.4%, after falling from 5.0% in April. It still stands well above low of 3.5% in December of last year. Personal saving fell 1.7% (+5.8% y/y) in July, after declining 0.9% in June.

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

**Let’s Get On with It** from Fed Governor Christopher J. Waller is available [here](https://www.federalreserve.gov/newsevents/speech/waller20250828a.htm).

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- Core price increase y/y matches highest since February.
- Real spending moderation centers on services.
- Real disposable income improves; personal savings rate steadies.

U.S. Core PCE Price Inflation Up in July; Real Spending Slows Y/Y 

Winnie Tapasanun

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The advance estimate of the U.S. international trade deficit in goods widened to a larger-than-expected $103.57 billion in July after narrowing to $84.85 billion in June, data from the U.S. Census Bureau showed. The July reading, the second widening in the goods trade deficit in three months, was slightly smaller than a $103.92 billion shortfall in July 2024. A deficit of $90.2 billion for July had been expected by the Action Economics Forecast Survey. The deficit reached a record $161.95 billion in March. In Q2'25, the goods trade deficit narrowed to $266.96 billion, the smallest since Q4'23, after ballooning to a record $465.035 billion in Q1'25; the monthly deficit averaged $88.99 billion in Q2'25, down from a record $155.01 billion in Q1'25.

Total goods exports dipped 0.1% m/m (+3.0% y/y), the third consecutive monthly decline, to $177.97 billion in July, the lowest level since January, after a 0.7% decrease to $178.08 billion in June. April registered a record high of $190.08 billion. Exports were up 9.6% from a June 2023 low but down 2.1% from a July 2022 high. The m/m decline in exports in July reflected exports m/m drops of 2.4% (+16.3% y/y) in other goods, 0.9% (+5.1% y/y) in nonfood consumer goods excluding autos, and 0.8% (-1.2% y/y) in industrial supplies & materials. To the upside, exports for the following end-use categories rose m/m in July: automotive vehicles & parts (2.2%; -4.0% y/y), capital goods excluding autos (0.7%; 7.0% y/y), and foods, feeds & beverages (0.5%; 1.4% y/y).

Total goods imports rebounded 7.1% m/m (1.7% y/y), the first monthly increase since March, to a four-month-high $281.54 billion in July following a 4.6% drop to $262.94 billion in June. March registered a record high of $344.59 billion. Imports were up 11.9% from a June 2023 low but down 2.6% from a March 2022 high. The m/m rebound in imports in July reflected m/m rises in most imports end-use categories. These included a 25.4% surge (the first m/m increase and the largest since January; 4.9% y/y) in industrial supplies & materials as well as rises of 11.5% (23.5% y/y) in other goods, 4.8% (14.7% y/y) in capital goods excluding autos, 2.4% (4.9% y/y) in foods, feeds & beverages, and 2.1% (-12.2% y/y) in nonfood consumer goods excluding autos. In contrast, imports of automotive vehicles & parts, the only end-use category with a monthly decline in July, fell 3.2% (-14.1% y/y), the third m/m fall in four months, on top of a 3.6% June decrease.

The advance international trade data can be found in Haver's **USECON** database. The expectation figure is from the Action Economics Forecast Survey, which is in **AS1REPNA**.

- Deficit: $103.57 bil. in July, jumping 22.1% from June’s $84.85 bil.
- Exports -0.1%, down for the third straight month, led by a 2.4% decline in exports of other goods.
- Imports +7.1%, up for the first time since March, led by a 25.4% surge in imports of industrial supplies & materials.

U.S. Goods Trade Deficit Balloons in July; Largest Since March’s Record High

Robert Brusca

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Inflation in the monetary union was tepid across the large, early-reporting, economies in August. The HICP rose by 0.2% on the month in Germany, rose by 0.1% in France, while it was flat in both Italy and Spain. However, these outstanding readings followed several months of stronger inflation; in particular in July German prices rose by 0.2%, in Italy the gauge rose by 0.3%, in France by 0.4%, and in Spain by 0.5%.

As a result, over three months, inflation is running hot on the headline gauge, over 2% in France, Italy, and Spain, and just below it, at a 1.8% annual rate in Germany. Over 12 months, inflation is well behaved, but that headline is up 0.8% in France, rises by 1.7% over 12 months in Italy, by 2.1% in Germany, and at a 2.6% pace in Spain. That is a bit more mixed but still quite solid set of results. The EMU-wide HICP for July – on a one-month lag- rises by 2.1% over 12 months with a core at 2.3%.

Core inflation is not well reported on an early basis. The Italian core rate rose 0.2% in August with Spain at 0.3%; both Italy and Spain logged increases of 0.3% in July and in June and as a result the 3-month inflation rate on the core for Italy and Spain runs at 2.7% in Italy and at 3.8% for Spain. These, of course, are much higher and more disturbing numbers for inflation. The 6-month inflation rate for core Italy and Spain runs at 2.9% and 3.1%, respectively, while over 12 months the Italian core is up by only 2.1% and the Spanish core is up by only 2.4%. The kick up and inflation for the core is a relatively recent phenomenon.

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These statistics give the ECB some room and some time to maneuver, since headline inflation is in pretty good shape and the inflation issues are scattered and have emerged more recently from the core and with growth still weak and with rising unemployment in Germany where it just topped 3 million for the first time in a decade. There may not be any impetus to have to raise rates to cool inflation. The European Central Bank, like the Federal Reserve, is likely playing a watch and wait game with the economic statistics, and this month the watch and wait game turned pretty much in its favor with very good headline figures although still having some difficult core figures. It will take a little time before we get the core numbers for the rest of the monetary union members to fill in to understand exactly where those trends sit.

However, based on the early returns, the ECB is probably relatively happy with how inflation is sitting even with the core rates slightly excessive and varied. There doesn't appear to be any burgeoning inflation problem; there's some kind of a modest core inflation issue building in Italy and Spain and we'll have to watch that in the coming months. For now, the ECB should be relatively content.

Europe

EMU Large Country Inflation Runs Cold – Over Tepid Cores

Andrew Cates

**The US labour market**
The latest data highlight a growing sense of fragility in the US labour market. The unemployment rate, while still relatively low by historical standards, has been edging higher through the course of this year. More telling, however, is the signal from this week’s consumer confidence survey from Conference Board and specifically the labour market differential — the gap between the share of consumers saying jobs are plentiful versus those saying jobs are hard to get. That balance has narrowed sharply, moving back toward levels historically associated with softer labour demand and rising unemployment.

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**Goods and services inflation** 
Haver’s breakdown of goods and services CPI inflation in the advanced economies highlights where fresh risks are emerging. Goods inflation, which had been receding sharply after the pandemic supply shocks, has recently shown signs of firming again. Some of this probably reflects the impact of US tariff policies, which are raising import costs and putting renewed upward pressure on traded goods prices. While services inflation remains the more stubborn component in most advanced economies, the risk is that tariffs could reintroduce stickiness into goods prices, slowing the overall disinflation process.

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**China, Europe and US trade policy**
A consequence of US tariff policies has been a sharp contraction in Chinese exports to the US market, with much of the surplus redirected elsewhere. Europe in particular has recorded near double-digit import growth in recent months, raising concerns that Beijing is deflecting its industrial overcapacity problem rather than resolving it, effectively transferring the pressure onto trading partners. China’s authorities, however, have begun to push back, introducing measures to curb excess supply and rein in so-called “involution,” including clampdowns on price wars across several industries.

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**China’s excess capacity and Europe**
A closer look at Europe–China trade shows that electric vehicles remain a key flashpoint. Import volumes from China have continued to rise even as per-unit prices fall sharply from a year ago —evidence suggesting that industrial overcapacity persists, with low-cost Chinese EVs increasingly challenging European automakers. The surge has carried on despite EU tariffs of up to 45% on battery EVs, as Chinese producers have adapted by pushing plug-in hybrids and expanding onshore production in Europe to bypass duties and defend market share.

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**Wage growth in the US and Europe** 
Turning back to inflation dynamics, the UK stands out for its persistent wage pressures. While posted wage growth has cooled across the US and euro area, the UK measure has remained elevated at around 6% year-on-year, well above pre-pandemic norms. This stickiness reflects a still-tight labour market in key service sectors, even as broader activity has slowed and unemployment has edged higher. For the Bank of England, it underscores the dilemma: headline inflation is easing, but underlying pay growth risks keeping services inflation uncomfortably high, complicating the timing and scale of policy easing.

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**The UK economy**
The UK’s net international investment position has deteriorated noticeably in recent years, with both direct investment and portfolio flows showing persistent weakness. The latest data underline how net FDI has turned increasingly negative, while the portfolio investment balance has also eroded, leaving the UK more reliant on volatile short-term funding sources. This deterioration comes against a backdrop of heightened investor unease about the riskiness of UK debt markets, where elevated gilt yields and rising debt-servicing costs have amplified concerns over fiscal sustainability. Taken together, these trends underscore the vulnerability of the UK’s external position at a time when global capital is arguably proving more selective and risk sensitive.

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Global markets have continued to rally into late summer, buoyed by AI optimism, dovish signals from central bankers at Jackson Hole, and expectations of easier policy ahead. Yet beneath the surface, risks to the world economy are accumulating. In the US, labour market indicators point to softening conditions (chart 1), while tariff-driven pressures are beginning to push goods prices higher (chart 2). Global trade flows are being reshaped by US policy, with China’s excess capacity increasingly diverted toward Europe, most visibly through surging exports of electric vehicles (EVs) (charts 3 and 4). At the same time, wage growth remains stubbornly elevated in the UK, complicating disinflation (chart 5), while concerns are mounting over the country’s external vulnerabilities as net FDI and portfolio positions weaken against the backdrop of jittery debt markets (chart 6). Together, these dynamics highlight the tension between buoyant market performance and a global economy still grappling with structural fragilities.

Charts of the Week: Riskbusters

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Real GDP grew 3.3% (SAAR) during the second quarter of 2025, revised from a 3.0% gain reported initially. The increase followed an unrevised 0.5% decline in Q1. A 3.1% rise had been expected in the Action Economics Forecast Survey. Growth during the last four quarters of 2.1% compared to 2.0% y/y in Q1, and remained below its most recent high of 3.2% in Q4 2023.

After-tax corporate profits without IVA & CCA adjustment increased 1.4% (7.0% y/y) last quarter after easing 0.8% in Q1. Before-tax earnings with IVA & CCA rose 1.7% (4.3% y/y) after falling 2.3% in Q1. Financial sector earnings rose 1.4% (15.3% y/y) after rising 2.3% in Q1. Nonfinancial corporate profits rose 2.2% (2.5% y/y) after falling 2.5% in Q1. Earnings from abroad eased 0.7% (-0.4% y/y) following a 7.3% Q1 decline.

Foreign trade balance improvement added 4.95 percentage points to growth last quarter after subtracting 4.61 percentage points in Q1. Imports fell 29.8% (+1.3% y/y) after surging 38.0% in Q1. Exports declined 1.3% (+2.0% y/y) after improving 0.4% in Q1. Inventories subtracted 3.29 percentage points from growth after adding 2.59 percentage point to Q1 growth.

Real final sales to domestic purchasers grew 1.6% (2.4% y/y), revised from 1.1%, in Q2 after rising 1.5% in Q1. Personal consumption expenditures rose 1.6% (2.4% y/y), revised from 1.4%, following a 0.5% gain. Durable goods spending rose 2.6% (4.6% y/y) after falling 3.7% in Q1. Motor vehicle purchases strengthened 11.7% (6.7% y/y) after declining 11.2% in Q1. Spending on home furnishings & appliances weakened 2.1% (+3.5% y/y) following a 1.5% rise. Recreational goods & vehicle outlays fell 3.5% (+4.3% y/y) last quarter after a 0.4% Q1 gain.

Nondurable goods outlays in constant dollars rose 2.3% (3.0% y/y) following 2.1% growth in Q1. Apparel spending increased 5.4% (4.8% y/y) following a 7.0% rise. Food & beverage buying gained 0.3% (1.5% y/y) after a 1.0% increase. Gasoline & fuel oil purchases weakened 1.4% (+0.9% y/y) after gaining 3.6% in Q1.

Real spending on services increased 1.2% (1.9% y/y) after a 0.6% gain. Outlays on housing & utilities eased 0.4% (+1.1% y/y) after rising 2.9% in Q1. Health care expenditures rose 4.2% (4.8% y/y) after a 3.1% increase. Transportation outlays declined 2.9% (-0.6% y/y) after a 1.4% rise, while recreation spending rose 3.6% (0.7% y/y) following a 5.1% decline. Restaurant & hotel expenditures increased 5.1% (1.9% y/y) after falling 1.8%. Financial services expenditures rose 1.9% (2.3% y/y) following a 0.1% Q1 increase.

Business fixed investment in constant dollars increased 5.7% last quarter (4.2% y/y), revised from 1.9%, following a 10.3% surge in Q1. Expenditures on structures declined 8.9% (-3.4% y/y), after falling 2.4% in Q1. Expenditures on producers’ durable equipment increased 7.4% (7.7% y/y), revised from 4.8%, after surging 23.7% in Q1. Outlays on information processing equipment rose 10.1% (20.1% y/y), revised from 5.5%, after soaring 72.8% during Q1. Industrial equipment investment rose 6.7% (4.0% y/y) after a 4.7% rise. Transportation equipment investment surged 20.4% (6.8% y/y) after a 6.9% gain. Intellectual property product spending rose 12.8% last quarter (5.2% y/y) following a 6.0% rise.

Residential structures investment in real terms declined a little-revised 4.7% (-1.3% y/y), the fourth decline in the last five quarters.

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Government spending eased 0.2%, revised from up 0.5% in Q2 (+1.8% y/y) after a 0.6% decline. Federal government expenditures declined 4.7% (+0.7% y/y) after falling 4.6% in Q1. National defense expenditures increased 1.4% (3.0% y/y) after declining 7.1% in Q1. State & local government spending rose 2.6% (2.5% y/y) following a 2.0% rise.

The GDP chain price index rose an unrevised and expected 2.0% last quarter (2.5% y/y) after increasing 3.8% in Q1. The PCE chain price index increased 2.0% (2.4% y/y) following a 3.7% rise. The PCE price index excluding food and energy rose 2.5% (2.7% y/y) after increasing 3.5% in Q1. The business fixed investment price index edged 0.5% lower (+1.1% y/y) after a 0.4% rise. The residential price index rose 1.1% (2.6% y/y) after a 4.1% rise while the government price index increased 3.3% (3.1% y/y) following a 4.6% rise.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- Business investment strengthens & consumer spending firms.
- U.S. business earnings reverse Q1 decline.
- Increase in price index is unrevised, remaining roughly half of Q1’s gain.

Economy in Brief: 2006

Jump to:

U.S. Payroll Report: More Upward Revisions

U.S. Payroll Report: More Upward Revisions

German Labor Markets Show More Distinct Gain

Challenger Layoffs Back Down

U.S. Factory Inventory Accumulation Continued

U.S. Productivity Unchanged

Initial Claims for Unemployment Insurance Jumped

U.S. Vehicle Sales Retraced Earlier Increase