Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081107a.jpg" width="353">
October Nonfarm payrolls declined 240,000, according to the Bureau of Labor Statistics. The decline, which exceeded Consensus expectations for a 198,000 drop, followed a revised 284,000 September decline that was much deeper than reported initially. So far in 2008, nonfarm payrolls are down 1.179 mil., or 0.9%.
During the last three months, payrolls fell at a 1.9% annual rate. That is the quickest rate of decline during this cycle and it now matches the rate of decline at the end of the 2001 recession.
The unemployment rate jumped to 6.5% last month, the highest level since March 1994. The increase also exceeded Consensus expectations for a rise to 6.3%. The jump owed to a 297,000 drop in employment (-0.7% y/y), as measured in the household survey. The latest decline in household sector employment was the eighth, and second largest, monthly decline this year.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081107b.jpg" width="353">
The number of those who were unemployed last month rose 603,000 (38.3% y/y) and the number is up 2.425 mil. so far this year. The labor force rose 306,000 (+1.1% y/y) during October and that rate of increase has been steady. The labor force participation rate increased slightly to 66.1%. The number of people of who want a job but are not in the labor force fell last month but the figure is up 16.4% y/y, the most in over ten years.
The average duration of unemployment increased by more than one full week to 19.7 and the median duration of unemployment rose to a lesser 10.6 weeks, up from 8.5 weeks during all of last year. The number of those unemployed for more than 27 weeks increased 12.4% and that figure is up by three quarters over the last twelve months, the most since 2002.
From the establishment survey the number of private sector jobs fell 263,000 (-1.1% y/y) after a 243,000 September decline, initially reported down by 168,000. Private service sector industries shed 131,000 jobs (-0.4% y/y) and that was the ninth decline in the last ten months. Employment in trade, transportation &amp; utilities accounted for roughly half of that October decrease while retail sector jobs fell another 38,100 (-1.8% y/y) with motor vehicle dealerships (-4.8% y/y) accounting for most of the decline. Jobs in the information sector were unchanged last month (-1.5% y/y) but financial sector jobs fell 24,000 (-1.5% y/y). The professional &amp; business service industry shed 45,000 (-1.7% y/y) jobs after a 39,000 September decline (Here was where half of the big downward revision for September occurred). Temporary help services jobs which often are a leading indicator of employment growth, fell 36,600 (-11.6% y/y), the largest y/y decline since 2002. These declines were somewhat offset by a gain in education &amp; health industries jobs of 21,000 (2.8% y/y) but here again, revisions were big. The previously reported September gain of 25,000 now shows a 16,000 decline.<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081107d.jpg" width="353">
Construction sector employment fell by 49,000 during October, the largest decline since June.
Factory sector jobs fell 90,000 (-3.7% y/y) after a little revised 56,000 worker decline during September. Motor vehicle &amp; parts jobs fell 9,100 (-13.5% y/y) and furniture &amp; parts jobs fell by 10,400 (-10.8% y/y. In the nondurables sector employment fell 15,000 (-2.4% y/y).
Government sector jobs moved higher by 23,000 (1.1% y/y). The gain followed a decline of 41,000 during September which initially was reported as a slight increase. (This was the source of the other half of the downward September revision in total nonfarm jobs.) Local governments added 21,000 (1.0% y/y) workers while the federal government added 6,000 (1.2% y/y) workers.
Comparing Current Payroll Employment Changes with Past Recessions from the Federal Reserve Bank of Cleveland is available <a href="http://www.clevelandfed.org/research/trends/2008/1108/04ecoact.cfm">here</a>.
The length of the average workweek held steady m/m at 33.6 hours, down slightly from the 3Q average.
Suggesting continued declines in employment was the one month diffusion index, which measures the breadth of job gain or loss (50 is the break-even level). It fell to its lowest level of this cycle (37.6%). The three-month index also was near its cycle low at 37.0% and the three-month figure for the factory sector was even weaker at 25.0%.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081107c.jpg" width="353">
Average hourly earnings rose a modest 0.2%, as they did in September. A weaker employment market cooled wage increases in the factory sector where earnings fell 0.1% (+2.8% y/y). A 0.1% increase in the private services wages also indicated softness. The y/y gain eased to 3.5%, down from a 5.0% high during 2006.
The Promise and Peril of the New Financial Architecture is yesterday&#39;s speech by Fed Governor Kevin Warsh and it can be found <a href="http://www.federalreserve.gov/newsevents/speech/warsh20081106a.htm">here</a>.

<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/USECON/@EB/@EB01/@EB01.HTM">Employment: 000s</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">August</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Payroll Employment</td>
<td>-240</td>
<td>-284</td>
<td>-127</td>
<td>-0.8%</td>
<td>1.1%</td>
<td>1.8%</td>
<td>1.7%</td>
</tr>
<tr>
<td class="firstcol">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Previous</td>
<td>--</td>
<td>-159</td>
<td>-73</td>
<td>--</td>
<td>1.3%</td>
<td>1.9%</td>
<td>1.7%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Manufacturing</td>
<td>-90</td>
<td>-56</td>
<td>-40</td>
<td>-3.7%</td>
<td>-1.9%</td>
<td>-0.5%</td>
<td>-0.6%</td>
</tr>
<tr>
<td class="firstcol">&nbsp; Construction</td>
<td>-49</td>
<td>-35</td>
<td>-20</td>
<td>-6.7%</td>
<td>-1.0%</td>
<td>4.9%</td>
<td>5.2%</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; Service Producing</td>
<td>-108</td>
<td>-201</td>
<td>-57</td>
<td>-0.1%</td>
<td>1.6%</td>
<td>1.8%</td>
<td>1.8%</td>
</tr>
<tr>
<td class="firstcol">Average Weekly Hours</td>
<td>33.6</td>
<td>33.6</td>
<td>33.7</td>
<td>33.8 (Oct. &#39;07)</td>
<td>33.8</td>
<td>33.9</td>
<td>33.8</td>
</tr>
<tr class="odd">
<td class="firstcol">Average Hourly Earnings</td>
<td>0.2%</td>
<td>0.2%</td>
<td>0.4%</td>
<td>3.5%</td>
<td>4.0%</td>
<td>3.9%</td>
<td>2.7%</td>
</tr>
<tr>
<td class="firstcol">Unemployment Rate</td>
<td>6.5%</td>
<td>6.1%</td>
<td>6.1%</td>
<td>4.8% (Oct. &#39;07)</td>
<td>4.6%</td>
<td>4.6%</td>
<td>5.1%</td>
</tr>
</tbody>
</table>
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October Nonfarm payrolls declined 240,000, according to the Bureau of Labor Statistics. The decline, which exceeded Consensus expectations for a 198,000 drop, followed a revised 284,000 September decline that was much deeper than [...]

U.S. Payrolls Off 240,000 in October; 6.5% Jobless Rate Highest Since 1994

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080904i.jpg" width="353">
Labor productivity in the nonfarm business sector rose 1.1% last quarter. That gain was down by two-thirds from the 2Q increase and by half from 1Q. Nonetheless, the y/y gain of 2.0% remained nearly the quickest since 2004. The latest increase about matched Consensus expectations for 3Q.
Output growth fell to a negative 1.7% (+0.3% y/y) which was its weakest since the 2001 recession. Productivity, however, still rose as hours worked were reduced by an even greater degree. They declined 2.7% (-1.7% y/y).
Growth in compensation per hour nevertheless accelerated to 4.7% and that raised the y/y growth to 4.3%.
As a result of weaker productivity and quicker compensation, unit labor cost growth jumped to 3.6%. That was off the recent highs near 4.0% but the trend is one of acceleration.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081106e.jpg" width="353">
In the factory sector productivity declined at a 1.0% (+1.1% y/y) rate and that was the second consecutive quarterly decline following a 3.4% increase last year. Output declined 2.6% y/y and hours worked were reduced by an even greater 3.7% y/y. Compensation growth quickened to 5.1%, the fastest since 2006. As a result, unit labor cost growth 6.1% last quarter and by 3.9% y/y, the fastest since late-2006.
The Current State of the U.S. Economy and the Fed&#146;s Response (With Reference to Irrational Exuberance and Virgil&#146;s Aeneid) from the Federal Reserve Bank of Dallas is available <a href="http://dallasfed.org/news/speeches/fisher/2008/fs081104.cfm">here</a>.
Multinationals Make the Most of IT from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20080601/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">Nonfarm Business Sector</a> (SAAR, %)</th>
<th scope="col">3Q &#39;08</th>
<th scope="col">2Q &#39;08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>1.1</td>
<td>3.6</td>
<td>2.0</td>
<td>1.4</td>
<td>1.0</td>
<td>1.8</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>4.7</td>
<td>3.5</td>
<td>4.3</td>
<td>4.1</td>
<td>3.8</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>3.6</td>
<td>-0.1</td>
<td>2.3</td>
<td>2.7</td>
<td>2.8</td>
<td>2.2</td>
</tr>
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Labor productivity in the nonfarm business sector rose 1.1% last quarter. That gain was down by two-thirds from the 2Q increase and by half from 1Q. Nonetheless, the y/y gain of 2.0% remained nearly the quickest since 2004. The latest [...]

U.S. Productivity Growth Weakened and Unit Labor Costs Surged

Robert Brusca

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081106c.jpg" align="left" border="0">
German officials have officially ended their excursion trip
with optimism. During their journey through fantasy land, they did take
their turns in showing how wrong they can be. From the start of the US
slowing, they thought Europe had decoupled and that the euro could
continue to rise with little ill effect on the Zone. When the other
e-Zone countries were affected they said Germany was different. When
the banking crisis hit the US they said German banks were strong and
did not have these sorts of problems. Recently they had believed
Germany was going to be so much less affected by the growing recession
in Europe as policymakers announced that Germany was better prepared to
meet the crisis. And so it may be. And we shall find out because ready
or not here it comes. 
 

The pop in orders in August may have errantly encouraged the
belief that Germany was wearing some sort of special recession-proof
vest. But now Super-Germany has met its Kryptonite. The Sept plunge in
orders of -8% is the largest drop since German unification and has
swept optimism aside. Germany is now, after all, just another European
country with an economy under pressure, not a special case 
 

Moreover a perusal of the trends makes is crystal clear that
this downturn has been building for some time. Optimism in retrospect
looks a bit like whistling past the graveyard. August&#8217;s orders gain was
a rogue rise of 3.5% sandwiched in between drops of 1.7% in July and
now 8% in September. The sequential growth rates get progressively more
negative from -9% over 12 months to -12% over six months to -23% over
three months. Similarly the foreign and domestic orders show the same
progressions. 
 

Germany is getting pulled down more by weakness from the
outside. So, in some sense, it is true that Germany has been faring
better. But in good times German export orders boomed beyond the reach
of domestic orders as well. Germany is simply a lower growth more
stable economy than the world in which it trades. Yet weakness abroad
will weigh on Germany just as a global boom will boost it. Because
Germany is plugged into that trading system, it shares the good and bad
times with the world it exports to. There is nothing unusual about that
or about the effect of that on Germany in this cycle. 
 

The German industrial sales figures underline the issues.
German sales are showing the same sort of progressive declines. For a
while Germany was growing better than its trading partners because it
deals a lot in capital goods. One year ago German capital goods growth
rates rose 8% Yr/Yr while overall German sales rose by just 5.8%. But
in September German capital goods orders are being crushed. They are
falling by 5.2% in Sept alone. Their three-month pace of contraction is
-14.4% rivaling the 15.5% drop in the usually volatile sales of
consumer durable goods. 
 

Germany has been caught in the same web of weakness that all
of Europe is in. Today&#8217;s industrial orders report combines with the
week&#8217;s earlier reports from the MFG and Services sector purchasers data
from Markit to show that weakness is spreading in Germany as well as
across the e-Zone. 
 

Germany is in the soup along with the rest of Europe although
it may be submerging at a slightly slower rate. There can be little
doubt that Germany, like the rest of Europe is submerging. Down
periscope. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr><th colspan="9" scope="col">German Orders and Sales By Sector and Origin </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">Real and SA</td>
<td colspan="3">% M/M</td>
<td colspan="5">% Saar</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
<td>QTR-2-Date</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Orders</td>
<td>-8.0%</td>
<td>3.5%</td>
<td>-1.7%</td>
<td>-23.0%</td>
<td>-12.2%</td>
<td>-9.0%</td>
<td>6.4%</td>
<td>-14.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Foreign</td>
<td>-11.4%</td>
<td>4.3%</td>
<td>-1.2%</td>
<td>-30.7%</td>
<td>-16.7%</td>
<td>-13.6%</td>
<td>12.1%</td>
<td>-17.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Domestic</td>
<td>-4.3%</td>
<td>2.8%</td>
<td>-2.1%</td>
<td>-14.2%</td>
<td>-7.4%</td>
<td>-3.9%</td>
<td>0.8%</td>
<td>-11.4%</td>
</tr>
<tr class="grey1">
<td colspan="9" class="firstcol">Real Sector Sales</td>
</tr>
<tr class="grey2">
<td class="firstcol">MFG/Mining</td>
<td>-4.0%</td>
<td>4.5%</td>
<td>-2.4%</td>
<td>-8.2%</td>
<td>-4.2%</td>
<td>-1.9%</td>
<td>5.8%</td>
<td>-5.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Consumer</td>
<td>-0.6%</td>
<td>2.0%</td>
<td>-0.4%</td>
<td>4.0%</td>
<td>2.0%</td>
<td>-2.6%</td>
<td>1.3%</td>
<td>-0.9%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Consumer Durables</td>
<td>-6.3%</td>
<td>6.8%</td>
<td>-4.2%</td>
<td>-15.5%</td>
<td>-8.1%</td>
<td>-5.8%</td>
<td>2.4%</td>
<td>-7.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Consumer Non-Durable</td>
<td>0.6%</td>
<td>1.2%</td>
<td>0.3%</td>
<td>8.5%</td>
<td>4.2%</td>
<td>-1.9%</td>
<td>1.0%</td>
<td>0.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Capital Goods</td>
<td>-5.2%</td>
<td>5.7%</td>
<td>-4.0%</td>
<td>-14.4%</td>
<td>-7.5%</td>
<td>-1.2%</td>
<td>8.0%</td>
<td>-9.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Intermediate Goods</td>
<td>-4.3%</td>
<td>4.2%</td>
<td>-1.7%</td>
<td>-7.5%</td>
<td>-3.8%</td>
<td>-2.6%</td>
<td>6.0%</td>
<td>-2.5%</td>
</tr>
<tr class="grey2">
<td class="firstcol">All MFG-Sales</td>
<td>-3.9%</td>
<td>4.4%</td>
<td>-2.2%</td>
<td>-7.4%</td>
<td>-3.8%</td>
<td>-1.9%</td>
<td>5.3%</td>
<td>-4.5%</td>
</tr>
</tbody>
</table>
</body></html>

German officials have officially ended their excursion trip with optimism. During their journey through fantasy land, they did take their turns in showing how wrong they can be. From the start of the US slowing, they thought Europe [...]

Germany's Flirtation with Rebound Is Smashed by a Stunning September Order Drop

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081106a.jpg" width="353">
The job market remains weak.That&#39;s the message from the figures covering initial claims for jobless insurance. Last week, they held roughly steady at 481,000 with an upwardly revised reading of 485,000 during the prior week. Expectations had been for 476,000 claims. The latest figures were down slightly from the cycle&#39;s high, which was boosted after Hurricane Ike, but they were up by half from the year ago level. The four-week moving average of initial claims fell slightly to 477,000 (43.8% y/y).
The largest increases in initial claims for the week ending October 25 were in Pennsylvania (+5,579), California (+4,617), Illinois (+4,314), Ohio (+3,949), and North Carolina (+3,179), while the largest decreases were in Texas (-5,898), Tennessee (-2,078), Kansas (-1,067), Arkansas (-1,003), and Florida (-661).<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081106b.jpg" width="353">
Continuing claims for unemployment insurance during the week of October 25 rose a sharp 122,000 after the prior week&#39;s 6,000 decline. The four-week average of continuing claims rose to 3,754,000 it is this cycle&#39;s high and the highest (just barely) since 1983. Continuing claims provide some indication of workers&#39; ability to find employment and they lag the initial claims figures by one week.
The insured rate of unemployment was stable for the third week at 2.8%, this cycle&#39;s high and the highest since mid-2003. The peak rate in that recessionary period was 3.0% reached in late June 2003. The Commerce Department indicated that the highest insured unemployment rates in the week ending October 18 were in Oregon (3.6 percent), the Virgin Islands (3.6), Michigan (3.5), Nevada (3.5), California (3.4), Puerto Rico (3.4), South Carolina (3.3), Arkansas (3.2), New Jersey (3.2), and Pennsylvania (3.2).
Understanding inflation and the implications for monetary policy: a Phillips curve retrospective from the Federal Reserve Bank of New England is available <a href="http://www.bos.frb.org/economic/conf/conf53/index.htm">here</a>.

<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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment Insurance (000s)</a>&nbsp;</th>
<th scope="col">11/01/08</th>
<th scope="col">10/25/08</th>
<th scope="col">10/18/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>481</td>
<td>&nbsp;485</td>
<td>479</td>
<td>48.5%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,843</td>
<td>3,721</td>
<td>48.4</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
</body>
</html>

The job market remains weak.That's the message from the figures covering initial claims for jobless insurance. Last week, they held roughly steady at 481,000 with an upwardly revised reading of 485,000 during the prior week. [...]

U.S. Jobless Insurance Claims Remained Elevated

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<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081106a.jpg" align="left" border="0" height="265" width="353">
The job market remains weak.That's the message from the
figures covering initial claims for jobless insurance. Last week, they
held roughly steady at 481,000 with an upwardly revised reading of
485,000 during the prior week. Expectations had been for 476,000
claims. The latest figures were down slightly from the cycle's high,
which was boosted after Hurricane Ike, but they were up by half from
the year ago level. The four-week moving average of initial claims fell
slightly to 477,000 (43.8% y/y).
The largest increases in initial claims for the week ending
October 25 were in Pennsylvania (+5,579), California (+4,617), Illinois
(+4,314), Ohio (+3,949), and North Carolina (+3,179), while the largest
decreases were in Texas (-5,898), Tennessee (-2,078), Kansas (-1,067),
Arkansas (-1,003), and Florida (-661).<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081106b.jpg" align="right" border="0" height="265" width="353">
Continuing claims for unemployment insurance during the week
of October 25 rose a sharp 122,000 after the prior week's 6,000
decline. The four-week average of continuing claims rose to 3,754,000
it is this cycle's high and the highest (just barely) since 1983.
Continuing claims provide some indication of workers' ability to find
employment and they lag the initial claims figures by one week.
The insured rate of unemployment was stable for the third week
at 2.8%, this cycle's high and the highest since mid-2003. The peak
rate in that recessionary period was 3.0% reached in late June 2003.
The Commerce Department indicated that the highest insured unemployment
rates in the week ending October 18 were in Oregon (3.6 percent), the
Virgin Islands (3.6), Michigan (3.5), Nevada (3.5), California (3.4),
Puerto Rico (3.4), South Carolina (3.3), Arkansas (3.2), New Jersey
(3.2), and Pennsylvania (3.2).
Understanding inflation and the implications for
monetary policy: a Phillips curve retrospective from the
Federal Reserve Bank of New England is available <a href="http://www.bos.frb.org/economic/conf/conf53/index.htm">here</a>.

<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/WEEKLY/@W5/@W507/@W507.HTM">Unemployment
Insurance (000s)</a>&nbsp;</th>
<th scope="col">11/01/08</th>
<th scope="col">10/25/08</th>
<th scope="col">10/18/08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006&nbsp;</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Initial Claims</td>
<td>481</td>
<td>&nbsp;485</td>
<td>479</td>
<td>48.5%</td>
<td>322</td>
<td>313</td>
<td>331</td>
</tr>
<tr>
<td class="firstcol">Continuing Claims</td>
<td>--</td>
<td>3,843</td>
<td>3,721</td>
<td>48.4</td>
<td>2,552</td>
<td>2,459</td>
<td>2,662</td>
</tr>
</tbody>
</table>
U.S. Productivity Growth Weakened
and Unit Labor Costs Surged 
by <a href="/comment/Moeller.html">Tom
Moeller</a> November 6, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/080904i.jpg" align="left" border="0" height="265" width="353">
Labor productivity in the nonfarm business sector rose 1.1%
last quarter. That gain was down by two-thirds from the 2Q increase and
by half from 1Q. Nonetheless, the y/y gain of 2.0% remained nearly the
quickest since 2004. The latest increase about matched Consensus
expectations for 3Q.
Output growth fell to a negative 1.7% (+0.3% y/y) which was
its weakest since the 2001 recession. Productivity, however, still rose
as hours worked were reduced by an even greater degree. They declined
2.7% (-1.7% y/y).
Growth in compensation per hour nevertheless accelerated to
4.7% and that raised the y/y growth to 4.3%.
As a result of weaker productivity and quicker compensation,
unit labor cost growth jumped to 3.6%. That was off the recent highs
near 4.0% but the trend is one of acceleration.<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081106e.jpg" align="right" border="0" height="265" width="353">
In the factory sector productivity declined at a 1.0% (+1.1%
y/y) rate and that was the second consecutive quarterly decline
following a 3.4% increase last year. Output declined 2.6% y/y and hours
worked were reduced by an even greater 3.7% y/y. Compensation growth
quickened to 5.1%, the fastest since 2006. As a result, unit labor cost
growth 6.1% last quarter and by 3.9% y/y, the fastest since late-2006.
The Current State
of the U.S. Economy and the Fed&#8217;s Response (With Reference to
Irrational Exuberance and Virgil&#8217;s Aeneid) from the Federal
Reserve Bank of Dallas is available <a href="http://dallasfed.org/news/speeches/fisher/2008/fs081104.cfm">here</a>.
Multinationals Make the Most of IT
from the Federal Reserve Bank of St. Louis is available <a href="http://research.stlouisfed.org/publications/net/20080601/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">Nonfarm
Business Sector</a> (SAAR, %)</th>
<th scope="col">3Q '08</th>
<th scope="col">2Q '08</th>
<th scope="col">Y/Y</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Output per Hour</td>
<td>1.1</td>
<td>3.6</td>
<td>2.0</td>
<td>1.4</td>
<td>1.0</td>
<td>1.8</td>
</tr>
<tr>
<td class="firstcol">Compensation per Hour</td>
<td>4.7</td>
<td>3.5</td>
<td>4.3</td>
<td>4.1</td>
<td>3.8</td>
<td>4.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Unit Labor Costs</td>
<td>3.6</td>
<td>-0.1</td>
<td>2.3</td>
<td>2.7</td>
<td>2.8</td>
<td>2.2</td>
</tr>
</tbody>
</table>
Germany's Flirtation with ReboundIs Smashed by a Stunning September Order Drop 
by <a href="/comment/Brusca.html">Robert
Brusca</a> November 6, 2008


<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081106c.jpg" align="left" border="0">
German officials have officially ended their excursion trip
with optimism. During their journey through fantasy land, they did take
their turns in showing how wrong they can be. From the start of the US
slowing, they thought Europe had decoupled and that the euro could
continue to rise with little ill effect on the Zone. When the other
e-Zone countries were affected they said Germany was different. When
the banking crisis hit the US they said German banks were strong and
did not have these sorts of problems. Recently they had believed
Germany was going to be so much less affected by the growing recession
in Europe as policymakers announced that Germany was better prepared to
meet the crisis. And so it may be. And we shall find out because ready
or not here it comes. 
 

The pop in orders in August may have errantly encouraged the
belief that Germany was wearing some sort of special recession-proof
vest. But now Super-Germany has met its Kryptonite. The Sept plunge in
orders of -8% is the largest drop since German unification and has
swept optimism aside. Germany is now, after all, just another European
country with an economy under pressure, not a special case 
 

Moreover a perusal of the trends makes is crystal clear that
this downturn has been building for some time. Optimism in retrospect
looks a bit like whistling past the graveyard. August&#8217;s orders gain was
a rogue rise of 3.5% sandwiched in between drops of 1.7% in July and
now 8% in September. The sequential growth rates get progressively more
negative from -9% over 12 months to -12% over six months to -23% over
three months. Similarly the foreign and domestic orders show the same
progressions. 
 

Germany is getting pulled down more by weakness from the
outside. So, in some sense, it is true that Germany has been faring
better. But in good times German export orders boomed beyond the reach
of domestic orders as well. Germany is simply a lower growth more
stable economy than the world in which it trades. Yet weakness abroad
will weigh on Germany just as a global boom will boost it. Because
Germany is plugged into that trading system, it shares the good and bad
times with the world it exports to. There is nothing unusual about that
or about the effect of that on Germany in this cycle. 
 

The German industrial sales figures underline the issues.
German sales are showing the same sort of progressive declines. For a
while Germany was growing better than its trading partners because it
deals a lot in capital goods. One year ago German capital goods growth
rates rose 8% Yr/Yr while overall German sales rose by just 5.8%. But
in September German capital goods orders are being crushed. They are
falling by 5.2% in Sept alone. Their three-month pace of contraction is
-14.4% rivaling the 15.5% drop in the usually volatile sales of
consumer durable goods. 
 

Germany has been caught in the same web of weakness that all
of Europe is in. Today&#8217;s industrial orders report combines with the
week&#8217;s earlier reports from the MFG and Services sector purchasers data
from Markit to show that weakness is spreading in Germany as well as
across the e-Zone. 
 

Germany is in the soup along with the rest of Europe although
it may be submerging at a slightly slower rate. There can be little
doubt that Germany, like the rest of Europe is submerging. Down
periscope. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="9" scope="col">German
Orders and Sales By Sector and Origin </th>
</tr>
</thead>
<tbody>
<tr class="grey4">
<td class="firstcol">Real and SA</td>
<td colspan="3">% M/M</td>
<td colspan="5">% Saar</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Sep-08</td>
<td>Aug-08</td>
<td>Jul-08</td>
<td>3-Mo</td>
<td>6-Mo</td>
<td>12-Mo</td>
<td>Yr Ago</td>
<td>QTR-2-Date</td>
</tr>
<tr class="grey2">
<td class="firstcol">Total Orders</td>
<td>-8.0%</td>
<td>3.5%</td>
<td>-1.7%</td>
<td>-23.0%</td>
<td>-12.2%</td>
<td>-9.0%</td>
<td>6.4%</td>
<td>-14.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Foreign</td>
<td>-11.4%</td>
<td>4.3%</td>
<td>-1.2%</td>
<td>-30.7%</td>
<td>-16.7%</td>
<td>-13.6%</td>
<td>12.1%</td>
<td>-17.8%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Domestic</td>
<td>-4.3%</td>
<td>2.8%</td>
<td>-2.1%</td>
<td>-14.2%</td>
<td>-7.4%</td>
<td>-3.9%</td>
<td>0.8%</td>
<td>-11.4%</td>
</tr>
<tr class="grey1">
<td colspan="9" class="firstcol">Real
Sector Sales</td>
</tr>
<tr class="grey2">
<td class="firstcol">MFG/Mining</td>
<td>-4.0%</td>
<td>4.5%</td>
<td>-2.4%</td>
<td>-8.2%</td>
<td>-4.2%</td>
<td>-1.9%</td>
<td>5.8%</td>
<td>-5.0%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Consumer</td>
<td>-0.6%</td>
<td>2.0%</td>
<td>-0.4%</td>
<td>4.0%</td>
<td>2.0%</td>
<td>-2.6%</td>
<td>1.3%</td>
<td>-0.9%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Consumer Durables</td>
<td>-6.3%</td>
<td>6.8%</td>
<td>-4.2%</td>
<td>-15.5%</td>
<td>-8.1%</td>
<td>-5.8%</td>
<td>2.4%</td>
<td>-7.7%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Consumer Non-Durable</td>
<td>0.6%</td>
<td>1.2%</td>
<td>0.3%</td>
<td>8.5%</td>
<td>4.2%</td>
<td>-1.9%</td>
<td>1.0%</td>
<td>0.6%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Capital Goods</td>
<td>-5.2%</td>
<td>5.7%</td>
<td>-4.0%</td>
<td>-14.4%</td>
<td>-7.5%</td>
<td>-1.2%</td>
<td>8.0%</td>
<td>-9.2%</td>
</tr>
<tr class="grey2">
<td class="firstcol">Intermediate Goods</td>
<td>-4.3%</td>
<td>4.2%</td>
<td>-1.7%</td>
<td>-7.5%</td>
<td>-3.8%</td>
<td>-2.6%</td>
<td>6.0%</td>
<td>-2.5%</td>
</tr>
<tr class="grey2">
<td class="firstcol">All MFG-Sales</td>
<td>-3.9%</td>
<td>4.4%</td>
<td>-2.2%</td>
<td>-7.4%</td>
<td>-3.8%</td>
<td>-1.9%</td>
<td>5.3%</td>
<td>-4.5%</td>
</tr>
</tbody>
</table>
</body></html>

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<body>
 



<img src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081105f.jpg" align="left" border="0" height="265" width="353">
The chart serves as yet another reminder as to why it has been
loopy for observers to have insisted that Europe and the US had become
disconnected economically &#8211; the so-called de-coupling argument. The MFG
sectors across countries are always closely connected because they
trade goods and compete in the same markets for the same business. The
services sectors have a lower incidence of tradable services &#8211; much
lower than for goods. Still, the overall EMU and US economies have been
on such similar cycles that their two service sector indices, with very
few exceptions, have been on the same page. 
 

The EMU in country level measures are mostly on their
respective lowest readings since May of 2000. The US measure is in its
bottom 13% of its range &#8211;also very weak. Germany&#8217;s measure is &#8216;only&#8217; in
the bottom 28% of its range. 
 

The drop in the EMU index in October is its largest m/m drop
since May 2000 when the comparisons start. 
 

We can also see that consumer confidence is very low in most
of these same places. Since the service sector provides the bulk of the
jobs, this is an expected result. 
 

However we can also use this report as a double check on the
MFG report which earlier was reported to have fallen so sharply. These
two sectors are showing the same sharp onset of weakness. That tends to
imbue the signal with a greater veracity than if the result came from
just one survey. The weak signal therefore seems to be the result of a
real weakness in the economy rather than from some quirk of the
calendar or a peculiarity of one survey. 
 


<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead><tr>
<th colspan="8" scope="col"> NTC
Services Indices for EU/EMU</th>
</tr>
</thead>
<tbody>
<tr class="grey5">
<td class="firstcol">&nbsp;</td>
<td>OCT-08</td>
<td>SEP-08</td>
<td>AUG-08</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Euro-13</td>
<td>45.76</td>
<td>48.44</td>
<td>48.46</td>
<td>47.55</td>
<td>48.45</td>
<td>50.37</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany</td>
<td>48.31</td>
<td>50.25</td>
<td>51.39</td>
<td>49.98</td>
<td>51.49</td>
<td>51.78</td>
<td>28.3%</td>
</tr>
<tr class="odd">
<td class="firstcol">France</td>
<td>47.54</td>
<td>50.14</td>
<td>48.04</td>
<td>48.57</td>
<td>48.96</td>
<td>53.05</td>
<td>0.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">Italy</td>
<td>45.68</td>
<td>49.42</td>
<td>48.47</td>
<td>47.86</td>
<td>47.63</td>
<td>48.32</td>
<td>0.6%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain</td>
<td>32.22</td>
<td>36.09</td>
<td>38.98</td>
<td>35.76</td>
<td>37.39</td>
<td>41.65</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Ireland</td>
<td>36.05</td>
<td>40.80</td>
<td>39.82</td>
<td>38.89</td>
<td>40.65</td>
<td>45.31</td>
<td>0.0%</td>
</tr>
<tr class="grey5">
<td class="firstcol">EU only</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
<tr class="odd">
<td class="firstcol">UK (CIPs)</td>
<td>42.39</td>
<td>45.95</td>
<td>49.17</td>
<td>45.84</td>
<td>46.98</td>
<td>49.60</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">US NONFMG ISM</td>
<td>44.20</td>
<td>52.10</td>
<td>51.60</td>
<td>49.30</td>
<td>50.17</td>
<td>50.48</td>
<td>13.6%</td>
</tr>
<tr class="grey3">
<td colspan="8" class="firstcol">EU
Commission Indices for
EU and EMU</td>
</tr>
<tr class="grey5">
<td class="firstcol">EU Index</td>
<td>OCT-08</td>
<td>SEP-08</td>
<td>AUG-08</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">EU Services</td>
<td>-10</td>
<td>-4</td>
<td>-2</td>
<td>-20.67</td>
<td>-19.00</td>
<td>-14.92</td>
<td>0.0%</td>
</tr>
<tr class="grey5">
<td class="firstcol">EMU</td>
<td>OCT-08</td>
<td>SEP-08</td>
<td>AUG-08</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Percentile</td>
</tr>
<tr class="odd">
<td class="firstcol">Services</td>
<td>-6</td>
<td>0</td>
<td>1</td>
<td>-1.67</td>
<td>2.17</td>
<td>5.79</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Cons Confidence</td>
<td>-24</td>
<td>-19</td>
<td>-19</td>
<td>-20.67</td>
<td>-19.00</td>
<td>-1.11</td>
<td>0.0%</td>
</tr>
<tr class="grey5">
<td colspan="8" class="firstcol">Consumer
confidence by
country</td>
</tr>
<tr class="odd">
<td class="firstcol">Germany-Consumer Confidence</td>
<td>-12</td>
<td>-9</td>
<td>-9</td>
<td>-10.00</td>
<td>-7.50</td>
<td>-3.83</td>
<td>34.4%</td>
</tr>
<tr class="odd">
<td class="firstcol">France-Consumer Confidence</td>
<td>-32</td>
<td>-24</td>
<td>-23</td>
<td>-26.33</td>
<td>-23.83</td>
<td>-18.58</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">Ital-Consumer Confidence</td>
<td>-23</td>
<td>-22</td>
<td>-24</td>
<td>-23.00</td>
<td>-22.83</td>
<td>-22.83</td>
<td>13.8%</td>
</tr>
<tr class="odd">
<td class="firstcol">Spain-Consumer Confidence</td>
<td>-44</td>
<td>-39</td>
<td>-37</td>
<td>-40.00</td>
<td>-38.00</td>
<td>-29.08</td>
<td>0.0%</td>
</tr>
<tr class="odd">
<td class="firstcol">UK-Consumer Confidence</td>
<td>-27</td>
<td>-23</td>
<td>-24</td>
<td>-24.67</td>
<td>-22.50</td>
<td>-15.25</td>
<td>0.0%</td>
</tr>
<tr class="grey3">
<td colspan="5" class="firstcol">percentile
is over range since May
2000</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
<td>&nbsp;</td>
</tr>
</tbody>
</table>
</body></html>

The chart serves as yet another reminder as to why it has been loopy for observers to have insisted that Europe and the US had become disconnected economically – the so-called de-coupling argument. The MFG sectors across countries are [...]

Services Sectors Tank in US and in Europe

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/081105d.jpg" width="353">
The Composite Index for the nonmanufacturing sector from the Institute for Supply Management fell sharply in October. It declined to 44.4 from an unrevised 50.2 during September. The figure, which was weaker than Consensus expectations, was the lowest in the series&#39; relatively brief ten year history.It rivaled the low during the 2001 recession.
The nonmanufacturing business activity sub-index also fell sharply to 44.2 which was the lowest level since this past January. Each figure was the lowest since the last recession. Since the series&#39; inception in 1997 there has been a 48% correlation between the level of the business activity index for the nonmanufacturing sector and the Q/Q change in real GDP for the services and the construction sectors.
The employment index fell to 41.5, a new low for the series. Since the series&#39; inception in 1997 there has been a 56% correlation between the level of the ISM nonmanufacturing 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/081105e.jpg" width="353">
The new orders sub-index fell sharply to a recession level of 44.0.
Pricing power also collapsed. The reading of 53.4 was its lowest level since 2003. Since inception ten years ago, there has been a 60% correlation between the price index and the q/q change in the GDP services chain price index.
Beginning with the January 2008 Nonmanufacturing <cite>Report On Business</cite>&reg;, the composite index is calculated as an indicator of the overall economic condition for the non-manufacturing sector. It is a composite index based on the diffusion indexes for four of the indicators (business activity, new orders, employment and supplier deliveries) with equal weights. The latest report from the ISM can be found <a href="http://www.ism.ws/ISMReport/NonMfgROB.cfm">here</a>.
ISM surveys more than 370 purchasing managers in more than 62 industries including law firms, hospitals, government and retailers. The nonmanufacturing survey dates back to July 1997.
Interpreting the Great Moderation: changes in the volatility of economic activity at the macro and micro levels from the Federal Reserve Bank of New York can be found <a href="http://www.newyorkfed.org/research/staff_reports/sr334.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/@EF/@EF03/@EF03.HTM">ISM Nonmanufacturing Survey</a></th>
<th scope="col">October</th>
<th scope="col">September</th>
<th scope="col">October &#39;07</th>
<th scope="col">2007</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Composite Index</td>
<td>44.4</td>
<td>50.2</td>
<td>53.3</td>
<td>53.5</td>
<td>55.7</td>
<td>58.0</td>
</tr>
<tr>
<td class="firstcol">Prices Index</td>
<td>53.4</td>
<td>70.0</td>
<td>66.1</td>
<td>63.8</td>
<td>65.3</td>
<td>68.0</td>
</tr>
</tbody>
</table>


</html>

The Composite Index for the nonmanufacturing sector from the Institute for Supply Management fell sharply in October. It declined to 44.4 from an unrevised 50.2 during September. The figure, which was weaker than Consensus [...]

U.S. ISM Nonmanufacturing Index Fell Sharply: Recession Indicated

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

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

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The Consumer Price Index rose 0.3% in June after rising 0.1% in May and increasing 0.2% in April. A 0.3% rise had been expected in the Action Economics Forecast Survey. The 2.7% y/y increase in the headline CPI in June compared to 2.4% in May and remained below the 9.1% peak in June 2022. The CPI excluding food & energy increased 0.2% last month after a 0.1% uptick in May and a 0.2% April gain. A 0.3% rise had been expected. The 2.9% y/y June rise compared to 2.8% in May, still well below the 6.6% peak in September 2022.

Energy prices rose 0.9% (-0.8% y/y) last month after falling 1.0% in May. Gasoline prices strengthened 1.0% (-8.3% y/y) after falling 2.6% in May. Fuel oil prices rose 1.3% (-4.7% y/y) after rising 0.9% in April. Natural gas prices rose 0.5% (14.2% y/y) following a 1.0% decline, and electricity prices gained 1.0% (5.8% y/y) after rising 0.9% in May.

Food prices rose 0.3% in June (3.0% y/y) for the second consecutive month. Egg prices fell 7.4% (+27.3% y/y), the third straight month of sharp decline. Meat, poultry & fish prices rose 0.8% (+4.1% y/y) after easing 0.1%, while dairy product prices declined 0.3% (0.9% y/y) after easing 0.1% in May. Cereal & bakery product costs eased 0.2% (0.9% y/y) after a 1.1% increase while fruit & vegetable prices rose 0.9% (0.7% y/y), following a 0.3% gain. Nonalcoholic beverage prices strengthened 1.4% (4.4% y/y) in June after falling 0.3% in May.

Goods prices less food and energy rose 0.2 (0.7% y/y) in June after holding steady in May. Prices of used cars and trucks fell 0.7% (+2.8% y/y) last month, after falling 0.5% in May, while new vehicle costs weakened 0.3% (+0.2% y/y) for the second consecutive month. Apparel prices rose 0.4% in June (-0.5% y/y) and reversed the prior month’s 0.4% decline. Appliance prices surged 1.9% (0.8% y/y), after increasing 0.8%. Home furnishings prices jumped 1.0% (1.7% y/y) after rising 0.3%. Recreation	 product costs rose 0.8% (-0.8% y/y) in May, doubling the May increase. Education & communication product costs held steady last month (-3.3% y/y) after rising 0.1% in May. Medical care goods prices rose 0.1% (NSA, 0.2% y/y) after increasing 0.6% in May.

Services prices less energy moved up 0.3% (3.6% y/y) last month following a 0.2% May gain. Shelter prices rose 0.2% (3.8% y/y) last month after two months of 0.3% increase as owners’ equivalent rent of primary residences increased 0.3% (4.2% y/y), the same as in May. The cost of lodging away from home declined 2.9% (-2.5% y/y), the fourth straight month of decline. Rents of primary residences gained 0.2% (3.8% y/y), the same as in May. Transportation service prices moved up 0.2% (3.4% y/y) after easing 0.2% as the cost of motor vehicle insurance edged up 0.1% (6.1% y/y) in June after strengthening 0.7% in May. Public transportation costs increased 0.4% (-2.7% y/y) after falling 2.5% during May. The cost of medical services increased 0.6% (3.4% y/y) after a 0.2% increase, and the cost of recreation services rose 0.2% (3.8% y/y) after slipping 0.1% in May. Education & communication services prices rose 0.1% (1.1% y/y) for the second consecutive month.

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

**The Economic Implications of Tariff Increases** from the Federal Reserve Bank of San Francisco can be found [here](https://www.frbsf.org/research-and-insights/publications/economic-letter/2025/07/economic-implications-of-tariff-increases/#wp--skip-link--target).

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- Monthly increase is highest in five months. Core gain moves up minimally.
- Energy costs post solid increase.
- Both core goods and core services prices move higher.

U.S. Consumer Price Index Strengthens in June

Sandy Batten

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The Empire State Manufacturing Index of General Business Conditions jumped nearly 22 points to 5.5 in July from -16.0 in June, according to the Empire State Manufacturing Survey released by the Federal Reserve Bank of New York. A reading of -8.5 for July had been expected by the Action Economics Forecast Survey. The unexpected positive reading in July indicated that business activity in New York State increased for the first month since February. The percentage of respondents reporting an increase in general business conditions in July rose to 32.4% from 16.9% in June while the percentage reporting a decrease fell to 26.9% from 32.9%. The July survey was conducted between July 2 and July 10.

The headline index just reflects the answer to a single question concerning the state of economic activity. Haver Analytics calculates a composite index from the five major components, which is comparable to the ISM manufacturing index. This calculated index increased to 54.7 in July, its highest reading since July 2022 and well above the critical 50 value that separates expansion from contraction, from 48.6 in June. The calculated index is the average of five diffusion indexes: new orders, shipments, employment, supplier deliveries and inventories with equal weights (20% each).

The July jump reflected meaningful increases in most component indexes. The new orders index rose to 2.0 from -14.2. The shipments index increased to 11.5 from -7.2. Unfilled orders edged up to -6.4 from -8.3. Delivery times lengthened to 8.3, the highest reading since July 2022 and possibly an early indication that trade policy uncertainty is beginning to disrupt some supply chains, from 1.8 in June. Moreover, the relatively new supply availability index fell deeper into negative territory at -11.0 versus -8.1 in June. Inventories rose markedly to 15.6 in July, the highest reading since November 2022, from 0.9 in June.

On the labor front, the index for the number of employees rose five points to 9.2, and the average workweek index rose to 4.2, the first positive reading in eight months. This marks the first time that both indexes have been positive since 2022, suggesting that both employment and hours worked increased in July. Sixteen percent of respondents reported an increase in employment, the highest since March 2023, versus 14.6% in June while only 6.9% reported a decline in employment, the lowest since June 2022, down from 9.9% in June.

The prices paid index rose nine points to 56.0, pointing to a pickup in input price increases, while the prices received index held steady at 25.7, suggesting that selling price increases remained moderate though elevated relative to normal pre-pandemic levels. Slightly more than 29% of respondents reported an increase in prices received in July, the same as in June.

Firms remained fairly optimistic about the outlook. The index for future general business conditions edged up to 24.1 from 21.2 in June, suggesting that, on the whole, businesses expect activity to increase in the months ahead. New orders and shipments are expected to increase, and supply availability is expected to be little changed. Capital spending plans jumped markedly to 9.2 in July from -7.3 in June and -6.7 in May.

The headline index reflects the answer to only one question concerning general business conditions and is not calculated from the components. The indexes in this report are diffusion indexes and measure the percentage of respondents indicating an increase minus the percentage indicating a decrease with zero separating expansion from contraction.

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

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- The first positive reading for the index since February.
- The July jump reflected widespread increases across components.
- Evidence of some nascent supply-chain problems.
- Outlook six months ahead continues to brighten.

FRBNY Empire State Manufacturing Index Jumped 22 points in July

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Retail gasoline prices for all grades held at an average $3.25 per gallon (-10.0% y/y) last week after falling from $3.29 in the last week of June. Prices remained above their low of $3.13 in the week of December 9. The recent high was $3.79 in the week ending April 22, 2024. Their all-time high of $5.11 occurred in the week ending June 13, 2022. The retail price for on-highway diesel fuel improved to $3.76 per gallon (-1.8% y/y) in the week of July 14 after falling to $3.74 in the prior week. The latest diesel price stood well below a high of $4.63 in the week ending September 18, 2023 and a peak of $5.81 in the week ending June 20, 2022.

The price of West Texas Intermediate crude oil increased to $67.93 per barrel (-18.1% y/y) in the week ended July 11. The decline followed the prior week’s easing to $66.25 per barrel, but prices remained above a $59.04 low in the second week of May 2025. The cost of crude oil peaked at $120.46 in the week of June 10, 2022. Yesterday, the price was $66.98 per barrel. The price of European Brent crude rose to $71.77 per barrel (-17.3% y/y) in the week of July 11 after falling to $69.61 in the prior week. Prices remained below a recent high of $95.61 in the week of September 29, 2023 and below a peak of $127.40 in June 2022. The price was $70.96 yesterday.

Natural gas prices eased last week to an average $3.17/mmbtu (+40.3% y/y) in the week ended July 11, after falling to an average $3.19/mmbtu in the prior week. Prices remained well above a low of $1.40/mmbtu in the week of March 15, 2024 but below their peak of $9.56 in the week of August 26, 2022. Yesterday, the price was $3.21 per mmbtu.

Gasoline demand declined 1.0% y/y in the four weeks ending July 4 following a 0.1% y/y easing in the prior four weeks. Demand for all petroleum products weakened 1.6% y/y in the four weeks ending July 4 after a 1.1% y/y decline in the previous four-week period. Crude oil input to refineries rose 1.1% y/y in the four weeks ending July 4 after a 1.6% y/y gain in the prior four weeks.

Gasoline inventories eased 0.1% y/y in the week ending July 4 after a 0.2% y/y gain in the prior week. Residual fuel oil inventories fell 20.5% y/y in the week of July 4, after a 20.9% y/y fall in the prior week. Crude oil inventories rose 1.3% y/y in the week of July 4 after a 0.1% y/y rise in the previous week.

Measured in days’ supply, gasoline inventories fell to 25.0 days in the week of July 4 from 25.2 days in the prior week. The recent low was 22.9 days in the week of November 8, 2024. The supply of crude oil rose to 25.1 days in the week of July 4 from 24.6 days in the prior week, and remained below a high of 31.9 days in the week of March 3, 2023.

These data are reported by the Energy Information Administration of the U.S. Department of Energy. The price and supply/demand data can be found in Haver’s **WEEKLY** & **USENERGY** database.

- Gasoline prices stabilize.
- Crude oil prices increase slightly.
- Natural gas prices ease.


U.S. Energy Prices Remain Mixed in Latest Week

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Output jumped in the European Monetary Union in May. The main gain followed a 2.2% drop in April that was preceded by a 1.8% increase in March. There's been some turbulence in output over the last few months with April showing declines for all the major sector components.

Moving beyond monthly data, the sequential run of growth rates from 12-months to 6-months to 3-months shows that total industrial production is on an accelerating path from 3.8% over 12 months, to over 5% over six months as well as over three months. Manufacturing alone shows a 12-month 3.6% growth rate, rising to 4.7% over six months and to 5.8% over three months.

**Sectors**
Sectors show a trend toward acceleration in consumer goods production where a 10.3% growth rate over 12 months progresses to 20.1% over six months and only backs off to 18.5% over three months. Splitting consumer goods output into durables and nondurables, we find less strength among durables with flat performance over 12 months, a 3.7% annual rate decline over six months, and a 4.3% annual rate increase over three months. However, for nondurables the growth rate surges from 11.6% over 12 months to 23.1% over six months and stays over 20% over three months. Intermediate goods’ trend is the fly in the ointment for industrial production, as output falls by 1.7% over 12 months, falls at a 2% pace over six months, and then falls at a 4.9% annual rate over three months. That setback is surprising given the growth rate and other categories. Capital goods show a strong accelerating phase from 4.1% over 12 months to a 5% growth rate over six months to 15.5% over three months.

**Countries**
Looking across specific countries, the table shows 13 monetary union members in May - Seven of them show output contracting. That's the same number contracting as in April although in March only four showed industrial output contracting month to month.

The sequential growth rates calculated over broader periods show eight countries with output contracting over three months, but only five with output contracting over six months; six countries report lower output over 12 months – a much longer span of time.

**Mixed trends within the community**
The sector data for all of the Monetary Union are relatively upbeat, but the country level data show a lot more mixed performance across individual country units; only Ireland, Finland, and Germany show output increases over three months, six months and 12 months. Conversely, Greece, France, and Belgium show output declines over three months, six months and 12 months.

The quarter-to-date (QTD), with two months of data in hand, is showing six countries with output declining on QTD-to-date basis. But for the EMU region as a whole, output is advancing at a 1.6% annual rate. Manufacturing output is rising at a stronger 1.9% annualized pace – with real strength in capital goods output.

**Ranking performance**
The far right-hand column ranks current growth rates on data back to 2007. Seven of thirteen countries rank below 50% which is their median growth rate for the period. Finland, Ireland, and Portugal are quite strong; Malta and German have rankings solidly above their respective 50th percentiles. The Netherlands, Italy, France, and Austria have rankings in their 40th percentiles, lagging their median pace but in a 40% to 50% range. Belgium emerges as the weakest country on a ranking basis, standing only in its lower 8.7 percentile and it is riding a losing streak to boot.

**Overall EMU IP rankings are solid-two sectors lag**
Overall EMU rankings show total output with a 66.1 (top one-third) percentile ranking with manufacturing at 59.6 percentile. Consumer nondurables are the strongest sector at a 98.2 percentile ranking. Both consumer durables and intermediate goods have lower standings: 40.8% for consumer durables and 37.6 percentile for intermediate goods. Both of those sectors are lagging and also carrying weak momentum. In contrast, capital good output is surging and its ranking at 47.7% is mostly below its median rank (at 50%).

**Stimulus diverted?**
NATO has signed on for more miliary spending and this has been expected to underpin growth in Europe. But some of that stimulus will be redirected in just-announced deal in which the U.S. will manufacture arms and NATO would pay for them to help Ukraine. It is unclear how much stimulus that we had expected for Europe might be redirected to the U.S. by this new deal.

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Europe

EMU IP and Sectors Recover

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The **Industrial Materials Price Index** from the Foundation for International Business and Economic Research (FIBER) increased 1.6% (0.4% y/y) during the last four-week period after rising 2.3% in the prior four weeks.

Prices in the **Metals** group jumped 2.9% (-3.4% y/y) over the most recent four weeks. Price strength was broad-based. Aluminum prices rose 4.3% in four weeks (5.1% y/y) while lead prices also gained 4.3% (-5.9% y/y). Since mid-June, tin prices increased 3.0% (-2.7% y/y) while the cost a zinc rose 2.9% (-7.2% y/y). Steel scrap costs gained 2.4% (-11.1% y/y) over four weeks while copper scrap prices rose 0.9% (1.4% y/y).

**Crude Oil & Benzene** group prices moved 1.9% higher (-14.3% y/y) in the latest four week period. The cost of West Texas Intermediate crude oil rose 2.2% to $67.65 per barrel but remained 17.8% lower y/y. It fell to a low of $58.50 per barrel in the second week of May. The cost of the petrol-chemical benzene, used for making plastics & synthetic fibers, strengthened 5.6% (-34.2% y/y). Excluding crude oil, the industrial commodity price index rose 1.5% (1.6% y/y) during the last four weeks.

**Miscellaneous** group prices increased 1.3% (10.6% y/y) in the latest four week period. The price of tallow (used in the soap industry) rose 7.8% (15.7% y/y) in four weeks. Framing lumber prices gained 5.4% (37.2% y/y) but natural rubber prices fell 2.9% (+19.0% y/y) in four weeks.

Prices in the **Textile** group edged 0.3% higher (1.9% y/y) during the last four weeks. Cotton prices rose 1.7% in that same period and 5.5% y/y. Burlap costs improved 0.7% in four weeks and 10.0% y/y.

The Foundation for International Business and Economic Research (FIBER) develops economic measurement techniques as applied to business cycles and inflation in the U.S. and other market economies. The commodity price data can be found in Haver's **DAILY**, **WEEKLY**, **USECON** and **CMDTY** databases.

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- Prices increase broadly after earlier declines.
- Metals price strength is accompanied by higher oil costs.
- Lumber prices surge but natural rubber prices decline.

Economy in Brief: 2008

Jump to:

U.S. Payrolls Off 240,000 in October; 6.5% Jobless Rate Highest Since 1994

U.S. Payrolls Off 240,000 in October; 6.5% Jobless Rate Highest Since 1994

U.S. Productivity Growth Weakened and Unit Labor Costs Surged

Germany's Flirtation with Rebound Is Smashed by a Stunning September Order Drop

U.S. Jobless Insurance Claims Remained Elevated

U.S. Jobless Insurance Claims Remained Elevated

Services Sectors Tank in US and in Europe

U.S. ISM Nonmanufacturing Index Fell Sharply: Recession Indicated